NH ranks in the middle for ability to pay bills

Jul 14, 2017

BY: CCNH-LFDA Highlights

According to a new report, New Hampshire ranks in the middle of states when it comes to “fiscal solvency,” or the ability of the state government to pay short-term bills and meet longer-term obligations. 

The Mercatus Center at George Mason University wrote the report after examining 2015 budget data from all fifty state governments.

Why does "fiscal solvency" matter?

The ability of a state to pay its bills in the short- and long-term is important because it indirectly impacts how much taxpayers pay for government services.

If it looks like a state is going to have trouble repaying its debt, the state gets a lower credit rating. A lower credit rating makes it more expensive for the state to borrow money, which means more taxpayer dollars go to paying interest than to paying for services.

States also can't declare bankruptcy. If a state gets in a hole of debt, the only way out is for taxpayers to accept deep cuts in services or huge tax hikes.

NH has a tight budget

Compared to other states, New Hampshire has low cash flow and a very tight budget.  The Granite State therefore ranked in the bottom ten states when it came to the ability to pay its monthly bills and end the year with a budget surplus.

NH’s pensions are solid compared to other states

However, New Hampshire scored very high in “trust-fund solvency,” which covers pensions and other retirement benefits.  This is somewhat surprising given that the state still had an unfunded pension liability of roughly $4 billion at the end of 2015.  However, the state has implemented a plan to lower that liability over time.  Many other states have bigger pension fund problems than New Hampshire. 

NH could add more taxes – if it needed to

New Hampshire also scored first in the nation on “service-level solvency.”  That measure compares the size of taxes, revenues, and expenses relative to personal income.  In other words, “service-level solvency” tries to capture how much a state could increase taxes on its residents if it faced a budget crisis. 

Since New Hampshire has fewer taxes on individuals than other states – in particular no sales or personal income taxes – it has more wiggle room to add taxes if there was ever a critical need for revenue.  Of course, it’s unlikely the state legislature would ever agree to a new broad-based tax.  

Florida ranked first in the report, while New Jersey came in last.  All of the states in New England scored worse than New Hampshire.   

Do you agree that New Hampshire is about average when it comes to the ability to meet its budget needs?  Share your thoughts in the comments.

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