Posted tagged ‘NH’
May 14, 2013
Unlike the federal government, states can’t easily budget and spend more money than they take in revenue so revenue estimates play a much more important role in state budgeting than they do in federal budgeting. I don’t know how anyone can accurately forecast revenues when the revenue yields are based on negotiations, lawsuits or other non-economic variables but that seems to be the basis of much of the disagreement among budget writers in New Hampshire. When a comparatively large percentage (compared to many other states) of your revenues are derived from a “Medicaid enhancement tax” and “tobacco settlement” money budget writing can become even more politicized than usual.
I don’t pretend to know what these non-traditional sources of revenue will yield in the coming years but I get a sense that those who do are fitting their forecasts to their meet their budgetary goals. I don’t think revenue forecasting is that difficult as long it is based on real economic data and trends and it minimizes the use of assumptions about changes in the performance of the economy. I make forecasts with assumptions all the time but minimizing their use in revenue forecasts will mean that even if the forecast is wrong, it won’t appear as though the error resulted from a desire to “coax” a specific result from the forecast. In January I presented my outlook to the NH House Committee on Ways Means. At that time I said I thought revenue growth from major, “own-source” revenues would average about 2% each year of the biennium and that businesses tax revenue growth would be a bit higher, but with even modest economic improvement could average 5-6% annual growth. Now, several months later, based on recent revenue performance, and making no assumptions about significant changes in economic conditions, I see growth at about 3% in FY 2014 from the eight largest sources of general revenue, and just under 5% in 2015. Those numbers don’t count the “non-traditional” revenue sources but I think they are important in reflecting the fundamental underlying growth in the state’s economy and a better assessment of general revenue trends.
Clearing out some old boxes from my attic I came across a number of old college tests and papers. One was from a graduate school class on public finance where I argued that all federal budgeting and budgeting debates should proceed from a common economic and revenue forecast. I also found one from an undergraduate class on the philosophy of Marxism in which I wrote phrases like “man should never be a means to end but only an end in himself ” so clearly I was prone to a lot of bad and muddled thinking back then. In the 1990′s I wrote a column in a publication arguing for a non-partisan revenue estimating committee in NH. That was a pretty good idea and it did happen – although my prompt had nothing to do with it - and it was enacted largely absent the “non-partisan” aspect (or at least “unbiased”). I still think a true, non-partisan, representative revenue estimating panel would be a good thing for NH, not to bind any actions but simply to serve as a baseline scenario that any policymakers who wishes to deviate from would have to offer solid reasons for doing so. Some group in the budget debate has to serve as the “honest broker” but the honest broker role won’t happen if the group is loved too much by some or hated too passionately by others. The current estimating panel has some of the best and most qualified people I know to do revenue estimating . It just doesn’t have the credibility among many policymakers that it could have if no one loved or hated it too much, but instead almost everyone complained a little (or a lot) about it. It is too bad because we are still going to need an “honest broker” when the NH House and Senate begin negotiations on the next budget.
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Categories: Fiscal Policy, New Hampshire, State budget, Tax Revenue
Tags: budget, forecast, NH, revenue
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April 29, 2013
I was surprised by data on the enrollment migration of high school graduates who enter four-year colleges immediately or shortly after graduation from high school. As the chart below shows, in most states, a very high percentage of students enrolling in four-year colleges enroll in a school in their home state.
This would not be unexpected if it were data from 1920 but a lot has changed in the world that should exert a fairly strong influence on the enrollment decisions of high school graduates. First, anything that reduces the time, cost, or difficulty in travel should contribute to an increase in the willingness of students to travel further to attend college. The real cost of travel (measured as dollar per airline mile) has fallen dramatically over the past several decades. In addition, the increased ability to communicate over longer distances and at ever lower prices should also reduce disincentives to enrollment over distances. Perhaps even more importantly, the information available to students and their parents about schools (including video tours, rankings, and all types of detailed data), should also reduce the barrier of distance from home to enrollment in a college. In addition, colleges have more information about students and an increasing ability to target potential students irrespective of their distance from campus. States with a low percentage of students enrolling in a college in their homes state (NH, VT, CT, MD, DE) all have many college choices in nearby states so many of the barriers that might influence enrollment distance don’t really apply.
We in NH fret a lot about the percentage of students who choose to enroll in an out-of-state college, but almost 90 percent of NH grads enrolling in a four-year institution enroll in a college in New England and on balance we are a slight “net-importer” of college enrollees. There are tremendous economic and public policy implications related to the supply of young college graduates but we need to be careful that in analyzing the issues we use appropriate metrics. I am not convinced that in NH’s case, the percentage of students enrolling in-state is a good one.
I need to look at a time series of this data to get a better handle on some of the contributing factors to these data. For now the only conclusion I can draw is that college-age children simply care too much about their families to want to venture far from home – at least that is want I have wanted to believe for the past several years.
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Categories: college, Educational Attainment, migration
Tags: college enrollment, migration, NH
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April 18, 2013
It has been quite a while since I wrote about some of my favorite topics, the “skills gap” and occupational supply and demand. But since there are recent media reports about the issue and more and new or renewed groups in NH looking to influence the debates and discussions on the issue, let me once again add my $.02.
I’ve made the plea for empirical rather than anecdotal or ideological evidence on the issue and produced a little evidence myself that both points to a skills gap as a contributor to slower than desired employment growth as well as evidence that suggests the issue may not be as prominent an explanation for slower job growth as some believe. I’ve also noted the larger economic policy debate that engulfs the skills gap issue. The data I’ve presented in this blog only hints at answers to the fundamental question of whether slower job growth is more of a problem of labor supply (the number and/or quality available workers with the education, skills and training desitred by employers), or one more of labor demand (not enough employers looking to hire qualified, educated and skilled workers in NH). I think the charts below again provide some clues to labor supply and demand trends in NH and also illustrate some bigger trends in the NH economy.
The first chart most directly addresses the skills gap issue. It shows that in terms of broad occupational groupings, professional and technical job openings are the largest component of on-line help wanted advertisements in NH. Because these tend to be among the most-skilled and highest-paying jobs we assume that if there were a sufficient supply of labor then job growth in the industries that most employee these occupations would be relatively strong. In fact, one industry grouping – business and professional services – employs a lot of professional and technical occupations and it is growing almost twice as fast as is overall private sector employment in NH.
The crux of the skills gap issue is this: “would a larger or better qualified supply of individuals in these occupations result in faster job growth in NH, or are there other or complimentary factors that also need to contribute to faster growth?” How you define the problem of slower job growth also largely defines the range of your solutions. Increasingly, and I think somewhat disappointingly, it also seems to define your ideology (if you have one).
The chart below is less sanguine. It shows that compared to the same month in 2012, March 2013 help wanted ads in NH for professional and technical ads declined by more than 10 percent. One month isn’t a trend but recent months have shown more weakness than strength in this indicator. The chart also shows that the largest improvements in labor demand are not among the most skilled occupations, although changes in the occupational make-up of manufacturing industries makes it increasingly likely that production workers will have higher levels of education, training and skills.
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Categories: Help Wanted, job growth, Policy, Skills Gap
Tags: job growth, NH, occupational demand, Skills gap
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April 10, 2013
Business taxes are about one-quarter of NH state government revenues and an even higher percentage when you take out sources such as the statewide property tax which is largely an accounting fiction that really does nothing to support state services. That is a higher percentage than any state with the exception of some states that get oil, gas and mineral extraction revenues.
When business taxes are that important to a state’s fiscal health it better make sure that it takes care of its businesses and its business climate because if and when they go south (or south and west just as more people have) it becomes very difficult for the state to produce a budget. The chart below shows how NH’s “own source” general and education fund revenue from the nine largest sources of revenue (exclusive of the statewide property tax) have grown comparatively since 2003. I think the chart shows how important trends in business tax revenues are to overall revenue trends in the state. The bad news is that revenues from the business profits and business enterprise tax are still more than 20 percent below peak. The good news is that they are growing.
The chart also says a few other things to me. First, a strong and dynamic business climate is the best fiscal policy for the state. Second, if you are going to cut business taxes you had better be certain that it is a good way produce a strong and dynamic economy because if not, the fiscal health of the state will suffer. Third (and related), if revenues rise in response to cuts in business taxes great, it will be evidence of a stronger economy and healthier state finances, but if revenues fall you better be sure that the service and spending reductions that result don’t affect those things that most contribute to a strong and dynamic economy because economic growth (and thus revenues) will be at risk for falling further. All businesses want lower taxes and it that is the quickest and easiest way for policymakers to demonstrate how much they love businesses. But businesses also need and want a lot of other things to prosper and, like lowering taxes, they aren’t shy about asking for them. Unfortunately, in a state so dependent on business tax revenues businesses getting what they want can sometimes make it more difficult to get what they need.
NH lawmakers, like lawmakers in most other states, want prosperity and opportunity for residents . Most also recognize that a strong and dynamic economy is the way to assure that. So unless you are big financial institution, a big oil company, or just about any business or industry that is prefaced by “big,” it’s a pretty good time to be in business because almost everyone wants to show you some love, they just can’t agree on how to demonstrate it. Right now a lot of ideology and little evidence is being brought to bear on the question of “what policies are most helpful in producing a strong and dynamic NH economy.” That makes it a lot harder to see that we all have a common interest in a strong economy and even more difficult to agree on what to do about it.
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Categories: Fiscal Policy, New Hampshire, Policy, Tax Revenue
Tags: business climate, fiscal policy, NH, taxes
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March 28, 2013
Four of the six New England states (CT,ME, MA and NH) had lower average retail prices for residential electricity customers in January of 2013 than they did in January of 2012 (chart below).
Most of that is a result of the increasing sales into the region’s electricity market of electricity generated by natural gas which is priced lower than the electricity generated using other sources. The decline in the average price in NH is smaller than in some other states but it could have been, and could still be, larger if retail competition in the residential electricity market takes hold. The chart below shows the average cost of retail electricity for residential customers in the continental United States in January of 2013. New Hampshire and all of New England have among the highest average rates but based on the contract information from the largest competitive suppliers of residential electricity in New Hampshire, the average price would be significantly lower (at least until November of 2013) for those who choose the lowest rates available from competitive suppliers (other higher rates are available that let customers choose to purchase a higher percentage of electricity generated from ‘green” sources).
I was going to make this a much longer post and include a discussion of why the warnings by some about an “over-reliance” on natural gas in the region are overstated but not inaccurate (the natural gas pipeline limitations to the region are real but more likely to be remedied than not with increased natural gas usage in the region) but I will save that for another day. The reputation and belief in free(er) markets and competition have taken a beating over the past several years so for now I am just going to enjoy highlighting of one of their recent successes.
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Categories: Electricity, Energy, Natural Gas, NH
Tags: competition, Electricity, markets, NH, prices
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March 27, 2013
Policymakers often assume that sales and excise taxes are the primary reason for variations in the price of goods and they too often assume that consumers consider differences in tax rates across jurisdictions when making purchases rather than differences in the total price (tax plus non-tax price) of a good. A good example was the $.10 drop in NH’s cigarette tax in 2010. Some thought the decrease would be a beacon to NH for consumers. But the decline did nothing to lower the price of cigarettes in NH because manufacturers increased their price by an equivalent amount immediately after the tax decrease (effectively capturing the revenue that would have gone to the State of NH). I did a fair amount of gloating in an early post as the revenue numbers reflected my predictions. Consumers saw no price break and no major changes occurred in other states so no increases in competitive advantage for retailers occurred in NH (retailers saw no benefit) and the longer-term trend of declining smoking rates (along with a things like higher gasoline prices and fewer visitors to the state) were the primary determinants of sales trends, and thus lower revenues.
The demand for gasoline, like cigarettes, is relatively inelastic so it takes a surprisingly large price increase to change consumption very much but differences in prices among locations may shift the location of some gasoline sales where consumers can conveniently choose where to make their purchases. I can buy gasoline as easily in Maine as in NH and with a little more effort I can also buy in MA. I often can get gasoline as or even a bit cheaper in MA than in the town where I live, but I can’t get gasoline cheaper in Maine. I can also get gasoline cheaper if I drive a few miles to towns just north and south of me, or even to a gasoline station on the other side of town. These price differences are often $.10 per gallon and occur among retailers of similar types – i.e. gasoline stations with a convenience store, the same brand convenience store selling the same brand of gasoline. Nevertheless, when I look at the average price of gasoline between neighboring states (with some exceptions like California where environmental regulations have large retail price impacts), the differences in price appear to be strongly related to differences in state tax rates (r=.82). Comparing statewide average prices and tax rates for gasoline masks much of the variation in pricing that occurs within states and even within communities. That is one reason why I think policymakers focus so much on tax rates as the primary reason for price differences.
Despite all of the attention to gasoline prices and proposals to raise or lower gasoline taxes over the past decade there has been surprisingly little research on the retail price impacts (or “pass-through” effects) of changes in gasoline taxes. That may be because changes in gasoline taxes are relatively small (usually a few cents) compared to the much larger price changes that occur as a result of supply/demand issues and variations in the world-wide price of oil. The chart below shows how gasoline prices in NH have changed since 2004 and it also shows the theoretical price if the state had no excise tax on gasoline. The red line shows the theoretical prices because, like cigarettes, retail prices may or may not be reduced by an equivalent amount if the gasoline tax were lowered.
The theory of tax incidence suggests that sales and excise taxes should be fully passed on to consumers in competitive markets with constant marginal costs. Less than full “pass-though” is expected in markets with increasing marginal costs, while the pass-through rate may be less than, or greater than, one-hundred percent in markets that are less competitive. In addition, tax increases in one state may lead to higher prices across the border as stations there face greater demand. A study examining a temporary reduction and reinstatement of a 5% gasoline tax in Illinois (sorry I can’t find the reference) found that that when the 5% tax was eliminated, prices declined by 3% and when the tax was reinstated prices rose by 4%.
Politicos are looking to score big points for their positions on gasoline taxes. There was a time when whatever marginal changes lawmakers made to gasoline taxes may have meant a lot to changes in prices at the pump. Right now, and in the future, changes in world-wide oil markets are likely to overwhelm any impacts from changes in state taxes and together with the uncertainty over the degree of pass-through, make any predictions about the economic impacts of gasoline tax hikes nearly impossible.
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Categories: Energy, Gasoline, NH, taxes
Tags: gasoline, NH, prices, taxes
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March 25, 2013
Gasoline taxes, road tolls and highway infrastructure spending are issues at the forefront of a lot of heated debates in state legislatures across the country. I am going to write about the issue a couple of times this week. Some lawmakers want to raise sales or other taxes to pay for infrastructure and others want to increase gasoline taxes and other “user fees” to pay for it. The highway infrastructure spending and revenue issue can illustrate classic principles of sound fiscal and economic policy so it is too bad that the debates have generally taken the “low road” by framing the issue almost entirely as either one of “who wants to raise taxes and who doesn’t,” or “who wants to makes roads and bridges safe and who doesn’t”.
User fees are a good thing and it is sound fiscal policy to have the users of roads pay for them via gasoline taxes, road tolls, and other fees that reflect an individual’s usage of roads and bridges. When general revenues are used to pay for roads and bridges people who don’t necessarily use them wind-up paying for a portion of highways and subsidize the usage of roads of those who travel them a lot. When you subsidize something you can bet you are going to get more of it than you would have gotten without the subsidy and in this case that means more travel on roads which, of course, means there will be more need for roads and spending on roads and that means more subsidy and that approach is surely a road to perdition.
It was nice to see New Hampshire rank high in a recent report (issue brief) by the Tax Foundation on the percentage of highway spending that is funded by user fees like gasoline taxes, tolls and other fees. Unfortunately, in making good points about user fees, the Foundation draws the wrong conclusion about the data it uses to make them. That happens a lot when you use bivariate analysis to draw conclusions in a multivariate world. Instead, using multivariate (regression) analysis on the data, it becomes clear that it is less the use of good principles of fiscal policy that results in states paying for a higher percentage of the costs of highways with user fees, than it is a function of the volume of federal government grants they receive. So a cursory look at the Tax Foundation’s report can give NH a sense of superiority in fiscal policy over many states (while I generally think that is true about NH it is not so much in this case), and especially over Vermont because that state funds just under 20% of its highway spending with user fees compared to NH’s 42%. The real reason those percentages are what they are is that Vermont receives about 64% more federal highway funds per capita than does NH ($220 to $134 in 2010). The chart below shows the simple relationship between the percentage of highway spending in a state that is funded by gas taxes and user fees and the amount of federal highway funding per capita in each state.
States like NH that fund a higher percentage of highway expenditures with user fees do generally receives lower amounts of highway funds from the feds (the data point slope downward to the right). There are even more intervening variables, like the amount of federal highways (by mile) and as a percentage of all highways that are in a state but still, by far, the amount of federal highway funding per capita is the best predictor of the volume of highway spending per capita in each state. The amount of motor vehicle-related user fees per capita were a distant second but still significantly related to highway spending.
Almost everyone agrees that NH’s (and every other state’s) roads and bridges are in need but I don’t think the debate is ever going to be about the wisdom of user fees versus general revenues in paying for highway infrastructure. It is too bad because if it were we just might reduce the need for more spending in the future.
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Categories: Fiscal Policy, Gasoline, infrastructure, NH, Spending, Tax Revenue
Tags: fiscal policy, gasoline, infrastructure, NH, taxes
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March 18, 2013
Climate change skeptics have to appreciate that there is no better time to talk about the topic and about global warming than during a period of below average temperatures. I don’t expect anyone to believe anything I say unless I can empirically demonstrate my point so I appreciate those who bring solid empirical evidence to a debate while leaving ideology and polemics out.
In the competition for our time and attention the issue of climate change competes with a lot issues that seem to more directly and immediately impact us. At least that was the case for me until I heard a presentation on the impacts of climate change on the Piscataqua River Basin/Great Bay region of NH and Maine. As a guest of a local Rotary Club I heard a presentation by Prof. Cameron Wake of the Institute for Earth, Oceans, and Space at the University of NH. You can get a copy of the report here. It is one thing to generically consider an issue like climate change, it is another to consider it in the context of evidence of how it directly impacts those things and those people whom you care deeply about. I love the Piscataqua and Great Bay and Little Bay region. I walk with my best friend almost daily there – I took these pictures yesterday.
So when I hear solid empirical evidence of threats to it I listen. It makes me wish I listened sooner and it also makes me wish similar reports could be written for every region where someone cares about the natural amenities around them that will be affected by climate change. I regularly work for companies that burn fossil fuels to produce electricity and none of them have been robber-barons unconcerned about the potential impact of carbon on climate change. They too all have places like the Piscataqua River Basin that they love.
I hate anecdotal evidence but it is hard for me not to consider the reduction in cold temperatures and snow during winter months (despite tomorrow’s and this winter’s events) from when I was a youth growing-up along the Canadian border (and successfully defending it against the insufferably polite hordes of the great white north). The number of extreme rain events and the three or four 100 year floods (just in the past 15 years) since I arrived in NH (the 1980′s)was not, for me at least, definitive evidence of climate change until I saw the data in the larger research context presented by the Piscataqua River Basin report. The more dramatic impacts of climate change won’t occur until after I am gone but the forecasts of the change in my region contained in the report and presentation by Professor Wake make clear to me the importance of action now. If you get a chance, look at the report or better yet, invite Prof. Wake to make a presentation. The data and information is great but his ability to present it is even better.
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Categories: climate change, environment, NH
Tags: climate change, environemnt, NH
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March 12, 2013
The National Federation of Independent Businesses just released its monthly report on the condition of small businesses nationally. The report is based on a national survey and state-level results are not available. However you feel about NFIB or their advocacy positions their monthly report is a valuable source of information about the issues and factors affecting small businesses.
Robust economic growth does not occur unless small businesses are confident, healthy, and hiring. That seems especially true in NH and is one reason NH’s job growth has been slower than the national average. I especially pay attention to the headline portion of the NFIB’s monthly survey, it’s “Small Business Optimism Index”, because it seems to be a pretty good indicator of near-term job growth in the U.S. and NH. The simple correlation between the NFIB Small Business Optimism Index (lagged 3 months because it takes some time for optimism/confidence to affect hiring plans) and U.S. Job Growth is about .68, while the correlation between the NFIB Index and NH employment growth is about .74. Thus the relationship is slightly stronger between the Index and job growth in NH than it is for the U.S. as a whole. The NFIB Index inched-up in February, but overall it remains relatively low, suggesting that small businesses aren’t yet ready to provide the boost to hiring that typically occurs in a strong recovery from recession.
A more troubling indicator of the health of small businesses (and thus hiring plans) comes from the Experian/Moody’s Analytics Small Business Credit Index. This quarterly assessment of the financial health of small businesses suggests the balance sheets of small businesses (in the aggregate) deteriorated in the fourth quarter of 2012. According to the quarterly report:
“Delinquent balances rose, pushing the share of delinquent dollars higher to 9.7 percent from the prior quarter’s 9.4 percent. A slowdown in personal income growth led to sluggish retail sales, hurting small-business revenues. Though small firms have worked to trim their labor costs in recent months, sales have fallen more quickly, forcing many small companies to borrow funds to cover their payroll expenses…..The next six to nine months likely will be lean ones for small businesses as rising taxes strain household budgets and nervous firms of all sizes postpone hiring, thereby stunting the jobs recovery. Consumer sentiment is likely to remain subdued, and spending will be underwhelming, which will keep pressure on small-business balance sheets.”
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Categories: Credit, job growth, NH, Small Business, U,S, Economy
Tags: credit, job growth, NH, Small Business, U.S.
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March 8, 2013
I am frequently in error but rarely in doubt, so when I am right I have to make sure someone notices. Good news was reported today on job growth nationally, as an estimated 236,000 jobs were added across the country in February. I hate to sound jaded but in each of the prior two years job growth looked to be accelerating early in the year only to experience a significant mid-year slump. For now, however, it is a positive sign. I have been especially and uncharacteristically gloomy in my characterization of NH’s economy but there was some little reported good news on that front released last week. The annual benchmark employment revisions showed that NH has 9,600 more jobs than originally estimated. I won’t get into why the revisions are necessary and can result in some significant changes in the numbers but in my very first post in this blog back in October I highlighted the disconnect between the volume of help-wanted advertising in NH and estimates of job growth in the state.
“In the first ever Trend Lines blog post I begin by asking a basic question: Could the most recent job growth picture in NH be distorted by numbers that will later be revised?”
I also suggested that growth trends in reported wages and salaries in the state were also inconsistent with estimated job growth trends. In that post and in subsequent posts (here and here) and others as well, I talked about a potential “skills gap” as a contributor to the disconnect between help-wanted ads and NH’s reported job growth. I think a “skills gap” is a contributing factor but as I argued in my first and subsequent posts - my money is on job growth being revised upward. It is nice to be right but it really doesn’t change the overall theme of NH’s economy- that it continues to under perform relative to states it typically outperforms. That was also predictable:
“…that the jobs data is wrong and will be revised upward early next year, is real, but that doesn’t mean the revisions will show NH is again outperforming its neighbors or the nation. It just means we will look less bad over the past year or so than we do right now.”
Five months later I think that still sums-up my feelings about the revisions, its good to know we have more jobs but we are still in a growth mode that is too slow. With the revised job numbers for NH the relationship between help-wanted advertising and reported job growth looks more appropriate.
The revised job numbers also are more consistent with PolEcon’s NH Leading Index which had been signalling stronger employment growth in NH than was first reported. The revised job numbers are more consistent with the signals provided by the Leading Index. That may not mean much to anyone but to me it means I won’t have to spend a lot of time re-calibrating the Index and that means a more enjoyable weekend. Enjoy yours.
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Categories: employment, Help Wanted, job growth, Leading Index, NH
Tags: employment, help-wanted, job growth, NH
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