Getting to the bottom of downshifting in the NH state budget
By Rep. D.J. BETTENCOURT and Rep. GENE G. CHANDLER
Guest commentary
Nashua Telegraph - Sunday, June 5, 2011
As the House of Representatives and Senate progress toward a final state budget, it is important to reflect on what
has been accomplished thus far.
While campaigning for office last fall, Republicans promised no new taxes or fees and no borrowing
gimmicks. We also campaigned on no additional downshifting of costs to local communities.
But exactly what is downshifting?
If you serve on a town council or board of selectmen, you know exactly what it means. Generally, downshifting
occurs when, through legislative action and not through outside circumstance, a municipality gets fewer
funds than it did the previous year.
FACT: Under the proposed House budget, municipalities are being held harmless and will receive the
same, not less, than they are currently receiving.
Downshifting has historically occurred in several different ways, and it is important to understand these differences so
that we do not fall victim to any propaganda intended to use the term as a political weapon.
First, an example of actual downshifting from the previous budget: In 1970, New Hampshire had a tax on
inventory known as the “stock and trade” tax. On April 1 of each year, the state would assess the value of all
merchandise that any business had in stock.
But on March 31, if a business had moved its inventory over the state line, the practice of many automobile dealers, it
was not subject to the tax because, technically, on April 1 the inventory was not located in New Hampshire.
In an effort to close this loophole, the “stock and trade” tax was repealed and replaced with the business profits tax,
which was collected and administered by the state.
Since the “stock and trade” tax was collected by local municipalities and benefited local taxpayers, the state was, in
essence, taking money away from municipalities and putting it into the state treasury.
To compensate for this, the state agreed to hold the cities and towns harmless and avoid downshifting by relocating
the money lost with what came to be called “revenue sharing.” Under a formula used by the state, revenue sharing
has for many years been set at $25 million a year.
Unfortunately, under the current budget passed by Democrats and Gov. John Lynch, payments to the
cities and towns were suspended. That allowed the Democrats to increase state spending by $50 million
and saddled towns and cities with the bill.
Another example of actual downshifting under the previous budget can be found in local retirement costs. Initially, as
an enticement to get municipalities to join their retirement system, the state offered municipalities an incentive. The
state picked up a percentage of school and town employee costs.
For a number of years, the state paid 35 percent of the retirement system costs for local employees’ pensions. After
the Democrats went on their spending spree, they were desperate to balance their 2010-11 budgets, so they told
municipalities that they would only give them 30 percent in 2010 and 25 percent in 2011. This resulted in a downshift
of $30 million for the biennium.
So what is not an example of downshifting?
In the current budget, the Democrats raised the rooms and meals tax from 8 percent to 9 percent. Under a formula in
place since the 1990s, some of the increase in rooms and meals revenue was supposed to go to municipalities. Their
share would continue to grow until the split between the municipalities reached 60 percent state and 40 percent to
municipalities.
When the Democrats increased the tax from 8 percent to 9 percent, the municipalities should have
received additional funds. But the Democrats needed the full 1 percent to sustain their spending, so they
“froze” revenue sharing.
While Republicans felt this was wrong, it was not an example of downshifting because municipalities continued to
receive the same amount as in the previous year.
Regardless of what is contained in the final budget, shouts of “downshifting” will undoubtedly be made by the
opposition.
Hopefully, by better understanding what downshifting is, Granite Staters will be able to distinguish fact
from partisan political rhetoric and understand how the House Republicans are fighting against property
tax increases.
Rep. D.J. Bettencourt, of Salem, is the majority leader in the New Hampshire House of Representatives.
Rep. Gene G. Chandler, of Bartlett, is speaker pro tempore.
