What is New Hampshire: Budget

Government budgets reflect choices made collectively through democratic processes. Through these budgets, we pool resources as a society to use for purposes that we either cannot or choose not to pay for individually. Examples include education, police, the social safety net, and public parks. Budgets set priorities and show what we value as a society. They are compromises—no one is ever completely pleased with a government budget—and the number of stakeholders involved in the budget process ensures that almost everyone can point to expenditures they believe to be a waste of money or areas they believe are underfunded. Similarly, we have yet to meet a person who thinks our tax system is perfect in the amount it collects, the way taxes are collected, or from whom.

Compared to other states, New Hampshire has chosen to raise less revenue and spend less on public investments and services. State and local government spending make up a smaller share of the state’s economy than they do in all but three other states, and spending is low at both the state and local levels. State taxes are lower in New Hampshire than every other state except Alaska. Because low state taxes are somewhat offset by high local taxes and other revenue sources, however, the state ranks slightly higher—forty-fifth—in combined state and local revenue as a share of its economy. Nevertheless, New Hampshire local governments have fewer resources than those in most other states despite high local taxes, largely because they receive less from their state government than do local governments in all but four other states.

Overall levels of state and local spending and revenue, however, do not tell the entire story. There are also important choices, within overall spending and revenue, on what categories of spending to prioritize and what revenue sources to rely on most or least heavily. Localities across the state also vary significantly in their fiscal circumstances and priorities.

The choice to be a low-revenue, low-spending state has both positive and negative impacts—as do the choices about what to spend public money on and how to tax. This section of What is New Hampshire? does not assess the impact of those choices but describes the major features of the budgets of the governments of the state, including current spending and taxes, recent trends, and some potential challenges we may face moving ahead.

As with all parts of What is New Hampshire? we welcome feedback on how this section may be improved. Are there areas of the budget that you’d like us to cover in more detail or other challenges that we should highlight? Please let us know by emailing Carsey.WINH@unh.edu.

Throughout this section supplemental information can be accessed by clicking on the gray boxes indicating further data are available. Additional explanatory text can be accessed by clicking on the "+" next to its description.

Impact of COVID-19 Pandemic

COVID-19 has had substantial health- and economic-related impacts on government budgets at every level all over the world. New Hampshire is no exception. Early in the pandemic, state revenue was down significantly in the Granite State [], and despite fears that would continue, overall tax revenues in New Hampshire in 2020 were only 1.7 percent below 2019, though that was a greater drop than the national average of 0.4 percent []. The effects of the pandemic on government budgets will continue to be felt in years to come, including the legacy of the massive infusion of fiscal assistance from the federal government.

Data Sources and Years

In the analysis below we rely on data collected by the U.S. Census Bureau’s Annual Surveys of State and Local Government Finances as well as data provided by the state of New Hampshire. The Census Government Finance data are used when comparing across states or when local governments are included in the analysis, while data from the state of New Hampshire are used only when examining state government in isolation []. In the case of the Census Bureau’s Annual Surveys of State and Local Government Finances, 2019 is the most recent year of data available. This offers a view of New Hampshire’s state and local revenue and spending, relative to other states, before the turmoil resulting from COVID-19 and governments’ responses.

3. State-level data from the Census Bureau are a complete survey of state governments, but note that local-level data are drawn from samples and are therefore subject to margins of error.

New Hampshire Spending and Revenue at the State and Local Levels

Granite Staters rely on their state and local governments to provide infrastructure, social insurance programs, education, fire and police services, and more. The budget choices made at the state and local levels in New Hampshire are highly intertwined, as is true of all states. States, however, differ substantially in the amount of revenue collected, investments made, and services provided at the state versus the local levels. For example, Hawaii has a single statewide school district while K-12 education is a local function in every other state, albeit with varying levels of state support. Because of the interconnectedness of state and local budgets, we start this section by comparing New Hampshire to other states in combined level of state and local spending and revenue, and then examine the state and local levels individually.

As more fully explained in the box below, in this section, we measure government spending and revenues as a share of the states’ economies and we also show spending per capita. Spending and revenue relative to the size of the economy are good indicators of a state's choices in providing public services and investments relative to its resources and capacity to provide them. The per capita measure tells us the amount of spending per resident in the state which can provide insight into the relative level of service offered.

When comparing spending and revenue between states, simply looking at total dollar amounts rarely provides useful insights. The fact that the state and local governments of Texas spent $290.6 billion in 2019 and New Hampshire governments spent only $13.3 billion that year doesn’t tell us that Texas spends extravagantly while New Hampshire is frugal. Texas has a $1.8 trillion economy and nearly 29 million people, while New Hampshire has a $88 billion economy and 1.36 million people []. For that reason we scale the spending and revenue numbers we use to compare states in two ways: as a share of state gross domestic product (GDP) and per capita.

4. As of 2019, the most recent year for which the Census Bureau’s State and Local Government Finances data are available.

State GDP is a measure of the size of the economy (see the What is New Hampshire? Economy section for a fuller description). Spending and revenue as a share of a state’s economy tell us how much a state is choosing to spend and collect relative to what is available to spend and collect. Poor states inevitably spend less in dollars per resident than rich states on many public services because they lack resources, not necessarily because they have decided that lower spending is best for their community. Thus, scaling spending by the size of a state’s economy is a better indicator of the policy choices the state is making.

Similarly, when comparing revenues to assess the level of taxes and fees, share of the economy is the superior metric. Measuring simply by the dollar amount—either per capita or in total—distorts the analysis because two states, one more affluent than the other, with the exact same revenue/tax system, would look very different by that measure even though identical people or businesses in each state would face identical levels of taxation. The wealthier state would have higher revenue simply because it has more people and businesses engaging in higher dollar-value, tax generating, economic activity—not because the taxes are different between similar taxpayers in the two states. Measuring revenues as a share of the economy effectively measures the overall level of taxes and fees on people and businesses in the state regardless of the details of the revenue system and is adjusted for economic differences.

The people of states with higher spending and revenue as a share of GDP are choosing to collect and allocate a higher share of the resources available in the state to public purchases and investments—in education, parks, infrastructure, etc. States with lower spending and revenue as a share of GDP are making the opposite choice. Comparing specific spending categories or revenue sources as a share of GDP gives us an indication of the relative benefits and burdens of those particular spending categories and revenue sources among states.

Comparing state spending-per-person is a useful complement to the share-of-GDP measure for comparing government spending levels because it gives us a sense of the relative level of service or investment being provided. A rich state might spend a smaller share of its economy on parks and recreation than a poorer state, but with its greater GDP per person it may spend more per person and offer superior parks and recreation. Thus, comparing state expenditures by both share of GDP and per capita allows for nuanced and meaningful comparisons.

State and Local Spending in 2019

In total, New Hampshire state and local governments spent $13.3 billion in 2019—the latest year for which Census Government Finances data are available []. This amounted to 15.2 percent of the state’s economy, placing New Hampshire forty-seventh of the fifty states in spending as a share of GDP. As a relatively wealthy state, New Hampshire nevertheless ranked thirty-eighth in per capita spending. Chart 1 shows New Hampshire’s expenditures relative to other states and the country as a whole by either percent of GDP or per capita, with comparisons available for different spending categories through a drop-down menu. In 2019, New Hampshire ranked below the national median in all types of spending as a share of the state’s economy except liquor store expenditures and the small categories of governmental administration, and “other” general expenditures.

5. Note that combined state and local spending measures net out intergovernmental transfers to keep spending from being double counted, whereas state and local spending individually reflects spending done at those levels including intergovernmental transfers from the state or local level.

Chart 1. Combined State and Local Expenditures by Category as a Share of State Economy and Per Capita, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

Overall, New Hampshire spends less as a share of its economy than its fellow New England states other than Connecticut, in large part due to lower spending on social services/income maintenance and public transportation combined with just average education spending.

Chart 2 shows how much New Hampshire state and local governments combined spend in each category, while Chart 3 shows separately the levels of spending at the combined, state, and local levels. The largest two categories for New Hampshire’s overall state and local spending are education and social services/income maintenance (which includes health spending), which accounted for a combined 53.6 percent of total spending in New Hampshire in 2019.

 

Chart 2. New Hampshire State and Local Expenditures By Category, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances. Calculations are the work of the authors.

 

Chart 3. New Hampshire Expenditures by Category and Level of Government, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances. Calculations are the work of the authors.

 

Chart 3 shows combined state and local spending, state spending alone, and local spending alone for various spending categories. Spending at the state level that passes to local governments (and vice versa) is included in the state “intergovernmental” category, not in the category which the expense relates to. For example, state assistance to school districts is not included in the state column under education but instead is included in the state intergovernmental column. To continue with this example, the local column in education contains all local spending on education, including both spending of funds generated locally through local revenue sources and the spending of funds school districts receive from the state. The blue state  & local education column includes all spending on education from both levels of government. It is the sum of direct state spending and all sources of local spending, including state aid given to local governments [].    

6. Intergovernmental expenditures can be for education or social services, for example, but are not counted in those categories if spending is classified as an intergovernmental transfer.

Overall in 2019, 68 percent of government spending in New Hampshire was by the state government and 32 percent by local governments (counting as state spending the state aid to local governments that local governments directly spend). The largest single area of spending is education, which makes up 33 percent of total government spending in New Hampshire. Education funding is primarily an obligation borne by local governments, although the state has some K-12 costs and spends in higher education. Social services/income maintenance, the second largest category, is primarily the domain of state government.

New Hampshire State Government Spending

In 2019

New Hampshire’s state government spent almost $9.1 billion in 2019, an amount equivalent to 10.4 percent of the state economy at the time. The state ranked thirty-seventh among all states in both its state spending as a share of the economy and per-person spending. Chart 4 compares all 50 states along both metrics, with specific spending categories available through the drop-down menu. The state spends less than most states in the largest spending categories.

 

Chart 4. State-Level Expenditures as a Percent of State Economy and Per Capita, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

In 2021

New Hampshire’s state government uses somewhat different classifications of spending than does the Census Bureau, as seen in Chart 5. We use New Hampshire’s categories here as more recent data are available and the categories are more familiar to those who follow the state budget.

The state government divides spending into six major categories []:   

7. New Hampshire Department of Administrative Services and Department of Information Technology, “How Government Finances Work,” 2013. https://www.nh.gov/transparentnh/how-government-finances-work/.

  • General government comprises the costs of running most administrative and non-direct-service government functions, including the executive and legislative branches. General government spending represents the costs of having and organizing a functioning state government.
  • Administration of justice and public protection is spending to ensure that the criminal justice system is functioning, that New Hampshire residents can receive unemployment insurance when they are laid off, and that our labor laws are fairly enforced. The Liquor Commission, which runs the state-owned liquor stores, falls within this category.
  • Resource protection and development includes the state’s economic development agencies as well as its natural resource departments. Spending in this category is used to develop New Hampshire’s economy as well as maintain its natural and cultural resources for economic growth and quality of life.
  • Transportation includes spending on roads, bridges, and dams; plowing in the winter; and any other services falling under the purview of the New Hampshire Transportation Department.
  • Health and social services includes state spending on Medicaid, New Hampshire’s efforts to combat the opioid crisis and COVID-19, services provided to veterans, and other social services.
  • Education covers all levels of education spending, including the K-12 system, the Education Department, and the Community College and University Systems of New Hampshire, as well as the Lottery Commission (whose profits are earmarked for state education funding) and training for police.
 

Chart 5. New Hampshire State Budget Expenditures by State Category, FY21

Source: New Hampshire Department of Administrative Services

 

Health and social services make up the largest portion of the state budget, at 47.6 percent of a total $8.3 billion in spending in fiscal year 2021. Within that category, roughly two-thirds goes to health care, including Medicaid and efforts to combat the COVID-19 pandemic as well as the opioid crisis. While this spending is included in the state budget, much of the funding for this category comes from the federal government; federal Medicaid dollars totaled almost 55 percent of New Hampshire’s Medicaid spending in FY 2019, for instance [].  In FY 2021, New Hampshire also received over $1.4 billion from the federal government to combat COVID-19 [], making up almost 22 percent of New Hampshire’s total spending for the year and playing a significant role in the state’s response to the pandemic.

9. New Hampshire Fiscal Policy Institute, “Presentation: The State Budget for Fiscal Years 2022 and 2023: A Focus on Health Funding” https://nhfpi.org/assets/2021/07/NHFPI-The-State-Budget-for-Fiscal-Years-2022-2023_A-Focus-on-Health-Funding-7.9.21.pdf

Education is the next largest category, at 22.2 percent of the state budget, but unlike health and social services federal dollars play less of a role in education funding. Moreover, some of the funding in this category—$363 million that the state government spent in support of K-12 education in FY21—came from the Statewide Education Property Tax (SWEPT), which is collected and spent at the local level but which New Hampshire counts as state revenue [].  Even counting the SWEPT funding as state support, not local, most K-12 funding comes from localities. The state of New Hampshire supports higher education as well, although at a lower rate than any other state [].

 10. Reaching Higher NH, “State Education Property Tax: Locally raised, locally kept,” 2019, http://reachinghighernh.org/2019/02/01/state-education-property-tax-locally-raised-locally-kept/. Note that the Census Bureau counts SWEPT as local spending, given that it is collected locally and distributed to local districts.

11. State Higher Education Executive Officers Association, “State Higher Education Finance: FY 2019,” 2020, https://shef.sheeo.org/wp-content/uploads/2020/04/SHEEO_SHEF_FY19_Report.pdf

The next largest portion of state spending in New Hampshire is general government [] outlays at 12.3 percent. Administration of justice and public protection, which includes the state court system and police force, accounts for 9.2 percent of the state budget, but local governments spend more on public safety than does the state. Transportation and resource protection and development make up the remaining 8.6 percent of state spending.

12. Including the Legislative Branch, Executive Dept, Information Technology Dept, Administrative Services Dept, Office of the Child Advocate, Boxing and Wrestling Commission, State Dept, Revenue Administration Dept, Treasury Dept, Community Development Finance Authority, Tax and Land Appeals Board, Retirement System, Development Disabilities Council, Executive Council, and Professional Licensure and Certification Office.

The New Hampshire state budget is passed every two years and covers a biennium that runs from July 1 in the first calendar year to June 30 two years hence (July 1, 2021 through June 30, 2023, for example). The process that creates these budgets consists of three stages that begin at about the midpoint of a biennium [].

13. New Hampshire Fiscal Policy Institute, “Building the Budget: New Hampshire’s State Budget Process and Recent Funding Trends,” 2017, http://nhfpi.org/wp-content/uploads/2017/03/NHFPI_Building-The-Budget_February2017.pdf.

The first budget stage is the agency phase, in which state agencies submit requests for funding. In the next phase, the governor’s phase, the governor reviews requests and creates a comprehensive budget proposal. That proposal moves to the legislature, where the House and the Senate each create their own versions of the budget.

If the two chambers’ budgets differ, the budget goes to a conference committee, where a consolidated budget is created and voted on prior to presenting it to the governor for signature. A key part of the budget process is reconciling the different revenue projections that can come from the executive and legislative branches. Revenue projections for both the status quo and proposed revenue changes are developed separately by the governor’s office as well as each legislative chamber.

New Hampshire Local Government Spending in 2019

At the local level, New Hampshire again spent less than most other states as a percent of state GDP in 2019. At 6.9 percent the state ranked 47th while within New England—only Massachusetts spends less at the local level. On a per capita basis New Hampshire spent somewhat more relative to other states, ranking thirty-ninth, but again second least among New England states, above only Maine. Chart 6 compares New Hampshire to the other states in local spending in total and by category.

 

Chart 6. Local-Level Expenditures by Category as a Share of State Economy and Per Capita, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

At the local level, the greatest expenditure by far is for education, which accounted for 53.7 percent of local spending in New Hampshire in 2019. It is also the one major area where, statewide, local governments spend more than the national average—although the combined state and local spending on education, the true measure of the state’s investment in this area, is below the national average. New Hampshire’s municipalities take a large role in providing funds for public safety, a category that reflects spending on services provided locally such as police, fire, local welfare, and emergency medical services. Housing and environmental expenditures are also primarily the responsibility of New Hampshire local governments.

 

Chart 7. New Hampshire Local-Level Expenditures by Category, 2019

Source: Bureau of Economic Analysis. Calculations are the work of the authors.

 

State and Local Revenue Back to Top

New Hampshire ranked forty-fifth among the fifty states in 2019 in total state and local revenue—inclusive of taxes, fees, federal aid, and other sources. The Granite State raised less revenue as a share of its total economy than any other New England state. Looking specifically at revenue from taxes, however, New Hampshire ranks thirty-fifth among all states. Though this is lower than any other New England state, the higher ranking on taxes relative to overall revenue reflects a greater reliance on local taxes relative to other state and local non-tax revenue sources [].

14. The reason the rankings on revenue do not match spending is because of timing issues, including debt.

 

 

Chart 8. State and Local Revenue by Category as a Share of State Economy, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

In total, in 2019 New Hampshire’s state and local governments raised half of their combined revenue via taxes and received another 17.7 percent of overall revenues from the federal government. At 5 percent, liquor store revenues are a significant portion of government revenue; in fact, New Hampshire derives a significantly greater portion of its revenue from liquor sales than does any other state.

 

Chart 9. New Hampshire State and Local Revenues by Category, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

Chart 10 shows the amount of taxes derived at the state, local, and combined levels from various sources. Property taxes raised at the local level are by far the largest source of taxes in New Hampshire, followed by corporate taxes, “selective sales” taxes (which includes the meal and rooms tax), and “other” taxes, all of which are almost exclusively raised at the state level.

 

Chart 10. New Hampshire State and Local Taxes by Category, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

State Government Revenue in 2019

New Hampshire’s state-level revenues, at $9.5 billion in 2019, were thirty-ninth among all states and the lowest in New England as a share of the state’s economy. New Hampshire’s low level of state revenue is driven by its low state-level taxes, which are second lowest in the nation as a share of state GDP—just 3.4 percent—behind only Alaska. Much of the state’s low tax burden relative to other states is due to the fact that New Hampshire does not have a broad-based personal income or sales tax—a distinction we share only with Alaska.

 

Chart 11. State-Level Revenue by Category, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

In lieu of broad-based state taxes, the state government of New Hampshire derives revenue [] from a variety of targeted taxes and fees (most notably business taxes and a statewide property tax) as well as transfers from the federal government (the second largest source of revenue) and local governments []. Chart 12 allows for comparison of New Hampshire’s revenues by category to other states.

15. New Hampshire Fiscal Policy Institute, “Funding the State Budget and Other Public Services,” 2019, http://nhfpi.org/wp-content/uploads/2019/02/Funding-the-State-Budget-and-Other-Public-Services_Web_Version.pdf.

16. New Hampshire Fiscal Policy Institute, “Revenue in Review: An Overview of New Hampshire’s Tax System and Major Revenue Sources,” 2017, http://nhfpi.org/wp-content/uploads/2017/05/Revenue-in-Review_Overview-of-New-Hampshire-Tax-System-and-Major-Revenue-Sources.pdf.

 

Chart 12. State Revenue by Category as a Share of State Economy, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

State Funds in 2021

State-level revenues in New Hampshire flow into a set of “funds” that are dedicated to specific purposes (Chart 13). The General Fund, which accounted for 24.8 percent of revenue in the FY21 state budget, is what most people think of when they hear about the legislative budget; most general tax revenue flows into it and it is available for whatever purposes the legislature and governor choose. It funds state-level government agencies and pays for most of the general administration of government, construction and updating of government buildings, New Hampshire’s share of health spending, and higher education, among other things. The General Fund receives the bulk of its revenue from the meal and rooms tax, the insurance tax, the real estate transfer tax, the tax on tobacco, and the state’s two corporate taxes, the Business Profits Tax and the Business Enterprise Tax [].

17. New Hampshire Fiscal Policy Institute, “New Hampshire Revenue Sources and Recent Trends,” 2019, http://nhfpi.org/wp-content/uploads/2019/02/NHFPI_New-Hampshire-Funding-Sources-and-Recent-Trends.pdf; New Hampshire Department of Administrative Services and Department of Information Technology, “Where the Money Comes From,” 2019, https://www.nh.gov/transparentnh/where-the-money-comes-from/index.htm 

 

Chart 13. New Hampshire Revenue by Fund, FY21

Source: New Hampshire Department of Administrative Services

 

Another key fund is the Education Trust Fund, which is the largest of the “Other” funds and receives 16 percent of FY21 state revenue. It is dedicated to public primary and secondary education spending. The fund receives revenue from the SWEPT as well as “incremental portions of existing business and tobacco taxes, sweepstakes funds, and tobacco settlement funds []. ” It was established to fund the Adequate Education Grants provided to local school districts across New Hampshire [].

18. New Hampshire Department of Administrative Services and Department of Information Technology, “Education Trust Fund,” 2013, https://www.nh.gov/transparentnh/glossary/education-trust-fund.htm.

19. New Hampshire Fiscal Policy Institute, “Building the Budget: New Hampshire’s State Budget Process and Recent Funding Trends,” 2017, http://nhfpi.org/wp-content/uploads/2017/03/NHFPI_Building-The-Budget_February2017.pdf.

The majority of the remaining 59 percent of state revenue is put into restricted funds that have specific purposes. The biggest of these is funding from the federal government, which accounts for 30 percent of the dollars in the New Hampshire state budget. New Hampshire is not unique in this regard, as most states receive around a third of their revenue from federal dollars for Medicaid, transportation, education, opioid misuse treatment and prevention, and other purposes spelled out in federal law. Currently, there is also an influx of federal dollars made available through legislation passed to combat the COVID-19 pandemic.

Local Government Revenue in 2019

At the local level, New Hampshire has low revenue relative to other states. Chart 14 shows total local revenue by state, and specific categories can be selected. Overall, New Hampshire local governments derive more revenue as a share of the overall state economy than local governments in Massachusetts and Connecticut, but the state still ranks forty-third overall. This low ranking is due in large part to low levels of state aid: although 25 percent of local government revenue in New Hampshire comes from intergovernmental sources (almost all from the state government), the amount is less aid than is received by localities in other states. Nationally, state dollars to local governments amount to 2.9 percent of US GDP, but in New Hampshire it is 1.9 percent.

 

Chart 14. Local Revenue by Category as a Share of State Economy, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

New Hampshire local governments offset this to some degree with higher taxes. At 4.7 percent of GDP, local taxes are the fourth highest in the nation—although Maine and Rhode Island are also in the top five states nationally in terms of local taxes as a share of state GDP []. New Hampshire’s high local taxes are almost exclusively in the form of property taxes, which are the only significant tax option available to local governments []. In terms of local property taxes alone, New Hampshire is the third highest as a percent of GDP among the states.

20. New England more generally has high local property taxes as well. Massachusetts, Maine, Rhode Island, and Connecticut are all in the top ten states in local taxes as a percentage of state GDP. 

21. Property taxes account for 4.6 percent of state GDP.

In total, New Hampshire localities get the vast majority of their revenue from property taxes and the state government. Chart 15 shows the breakdown of revenue by localities in New Hampshire by category.
 

 

Chart 15. New Hampshire Local Revenues by Category, 2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

Summary of Spending and Revenue in New Hampshire Back to Top

The choices New Hampshire has made reflect a variety of circumstances. One is that as a relatively well-off state, and a state that lacks a major urban center, it is able to avoid some of the income security, health, and infrastructure costs that other states face. It also, of course, has a tradition of being a small-government state opposed to the imposition of broad-based income or sales taxes [].

22. Jennifer Weiner, “How Does New Hampshire Do It? An Analysis of Spending and Revenues in the Absence of a Broad-based Income or Sales Tax,” Federal Reserve Bank of Boston, New England Public Policy Center, 2011, https://www.bostonfed.org/publications/new-england-public-policy-center-research-report/2011/how-does-new-hampshire-do-it-an-analysis-of-spending-and-revenues-in-the-absence-of-a-broad-based-income-or-sales-tax.aspx.

In short, the state government in New Hampshire taxes and spends at low levels relative to other states. Local governments in New Hampshire, meanwhile, are also low spending but have a high tax burden (driven by property taxes) relative to other states. It is important to note that the level of spending throughout the state is not uniform, with wealthier communities and those with large amounts of commercial property having greater resources. In states with higher levels of taxation and spending at the state level, some of the differences in capacity among communities are offset by state assistance. Some of that is available in New Hampshire, but less than in most other states, meaning that those local discrepancies—particularly in education—are more pronounced.

Long-Term Budget Trends

Chart 16 shows expenditures in New Hampshire between 2005 and 2019 as a share of the state economy. Individual lines show spending at the state and local levels as well as both levels combined. Spending rose steadily through the Great Recession, but as stimulus dollars receded and the economy began to grow, spending as a share of the economy shrank overall between 2011 and 2019 (although in terms of absolute dollars, spending has increased).
 

 

Chart 16. New Hampshire Expenditures as a Share of the State Economy by Category, 2005-2019

Source: U.S. Census Bureau, 2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

Chart 17 shows the amount of state government spending between 1997 and 2020 in the six major budget categories that make up the vast majority of spending by our state government []. The two largest categories are health/social services and education, which have accounted for more than two-thirds of every New Hampshire state budget since 1993. State education spending changed dramatically following the Claremont court case in the late 1990s [],  though health and social services spending has continued to be the largest category of spending in New Hampshire over time.

23. Not included are the turnpike system, liquor and lottery commissions, spending from interest expenses, the Drinking Water State Revolving Fund, and the unemployment compensation trust fund.

24. For more information refer to: Claremont Sch. Dist. v. Governor (Claremont 1), 635 A.2d 1375 (N.H. 1993); Claremont Sch. Dist. v. Governor (Claremont Il), 703 A.2d 1353 (N.H. 1997).

 

Chart 17. New Hampshire State Spending by Category, 1997-2018

Source: New Hampshire Department of Administrative Services; Bureau of Economic Analysis. Calculations are the work of the authors.

 

Chart 18 shows New Hampshire’s revenues between 2005 and 2019 and can be toggled between total revenue and taxes, each with the option to select by category. Individual lines show the revenue raised as a share of GDP at the state and local levels as well as both levels combined. Revenues declined as a share of the economy during the first years of the Great Recession, then grew as the economy shrank and stimulus money arrived. Of particular note is the variation in the “Intergovernmental Revenues” category. Much of the difference in revenues year-to-year is due to varying levels of federal dollars coming into the Granite State. Also noteworthy is that the state aid to local New Hampshire governments has steadily shrunk since 2013 which is reflected in the intergovernmental revenue line for local governments.

 

Chart 18. New Hampshire Revenue and Taxes as a Share of the State Economy, 2005-2019

Source: U.S. Census Bureau, 2005-2019 Annual Surveys of State and Local Government Finances; Bureau of Economic Analysis. Calculations are the work of the authors.

 

Taxes in New Hampshire accounted for roughly half—between 43.3 percent and 55.2 percent—of state and local revenue between the years 2005 and 2019. Property taxes are by far the largest single tax source in the state, accounting for slightly less than two-thirds of the total tax burden in New Hampshire and about a third of combined state and local revenues. These proportions have remained fairly fixed over time.

Chart 19 shows the amount of New Hampshire’s state revenue flowing into each state fund between fiscal years 1998 and 2020 (FY19 dollars). Prior to the early 2000s, the General Fund was the largest pool of state revenue, but when the Education Trust Fund was created “other” dedicated spending funds became the destination for a larger portion of state revenues. For the past decade, federal funds have consistently been a larger share of New Hampshire’s overall revenue than General Fund revenue. Overall, the past 20 years have seen the share of unrestricted General Fund revenue fall relative to dedicated funds.

 

Chart 19. New Hampshire State Revenue by Fund, FY98-FY21

Source: New Hampshire Department of Administrative Services; Bureau of Economic Analysis. Calculations are the work of the authors.

 

New Hampshire Challenges

Choices about revenue, expenditures, and the budget do not exist in a vacuum, and broader social and economic trends across the state will influence budgetary choices moving forward. COVID-19 has dominated the policy discussions over the last two years and been a focus of much government activity. COVID is not, however, the only budget-related challenge facing the state.

One challenge may simply be whether there is sufficient revenue, as the recent extraordinary levels of federal aid recedes. The most recent state budget phases out New Hampshire’s tax on interest and dividend income. It also lowers the meals and rooms tax. This is, to some extent, paid for by reducing revenue sharing with local governments, shifting more of the fiscal responsibility for providing public services onto them. Business tax rates were reduced in 2016, 2018, and 2019, with more rate reductions scheduled in future years []. These factors will translate to less revenue to work with than if tax provisions had been left unchanged.

Much will depend on the impact of economic performance on both revenues and the requirements placed on the spending side of the budget. There are, however, longer-term factors, discussed next, that will impact revenues and expenditures in New Hampshire in the years ahead.

Demographic Changes

New Hampshire has one of the highest median ages in the nation, and as the state population continues to age, overall healthcare costs will rise. Property tax revenue will also be affected: many localities have tax exemptions for residents over a certain age, and these places’ revenues and their ability to provide services at the local level may decrease when greater proportions of the population age into these exemptions []. New Hampshire’s reliance on property taxes also disproportionally impacts low-income homeowners and older adults living on fixed incomes. Policymakers should consider how these changes will influence both revenue and expenditures over the next decade and beyond.

Education Funding 

The funding of New Hampshire’s school districts largely at the local level through property taxes has led to disparities across the state, as property-poor communities struggle to pay the full cost of educating their students []. The state has provided some relief to districts and towns via stabilization aid grants, but those funds have shrunk in recent years. The topic of how best to fund an adequate education in New Hampshire is one that has been hotly debated since the 1990s, and the argument shows no sign of letting up. The Carsey School of Public Policy was part of efforts by the legislatively created New Hampshire Commission to Study School Funding to examine the issue. Ongoing court cases will undoubtedly influence how the state funds education, but much will be left to the governor and legislature when it comes to balancing an already-high property tax burden with providing an education to New Hampshire’s children.

The Opioid Crisis

New Hampshire received nearly $46 million from the federal government across fiscal years 2019 and 2020 to combat the opioid crisis, which led to the creation of New Hampshire’s The Doorway Program []. This funding has been followed up with by more federal grants, which allows the state to provide programs without needing new state revenue but carries some risk of programs being defunded if federal dollars are no longer available. As substance use disorders continue to be a significant issue in New Hampshire, the state will need to make decisions about how much it is willing to appropriate and what programs and policy options are best suited to deal with substance use disorders over time.

Infrastructure

As the Granite State’s infrastructure ages, roads, bridges, water systems, and more will require state investment to ensure public safety. New Hampshire currently ranks thirty-first among all fifty states in regard to infrastructure, meaning long-term, expensive infrastructure projects are imminent. A 2013 legislative study found that the state’s drinking water system requires $857 million in repairs and upgrades alone. With the American Infrastructure Investment and Jobs Act now in place, some of the necessary repairs may be federally funded, but New Hampshire’s budget will need to cover the majority of the costs to address critical public needs for safe, reliable infrastructure.
 

Conclusion Back to Top

New Hampshire is a low-revenue, low-expenditure state. Its revenue structure is distinctive in that the state lacks a broad-based personal income or sales tax and that the state’s biggest single source of revenue is local property taxes. The prime areas of spending—mainly education, health, and social services—are fairly similar in proportion to other states, with generally lower spending across all other areas. As the population of the state ages and New Hampshire tackles issues of health care, education, and economic growth, Granite Staters will be faced with choices about how to raise revenue and provide services moving forward.

More detailed data and full state budgets can be found at the state of New Hampshire’s websites www.nh.gov/transparentnh and das.nh.gov/budget. For other information about the state budget, consult the New Hampshire Fiscal Policy Institute, which has compiled a set of excellent resources, including: Building the Budget: New Hampshire’s State Budget Process and Recent Funding Trends, as well as Measuring the Size of New Hampshire’s State Budget. For further reading around New Hampshire’s state spending, the Boston Federal Reserve’s How Does New Hampshire Do It? An Analysis of Spending and Revenues in the Absence of a Broad-Based Income or Sales Tax provides insightful analysis of New Hampshire compared to the rest of New England. For more information on any of the Census Bureau’s categories of state and local government finances, visit the U.S. Census Bureau's Annual Survey of State and Local Government Finances webpage.


Footnotes

  1. https://www.nhpr.org/nh-news/2020-08-03/new-hampshire-governor-says-covid-19s-effect-on-budget-is-devastating
  2. https://www.nhpr.org/nh-news/2021-03-10/nationwide-and-in-n-h-state-tax-revenues-not-as-bad-as-feared
  3. State-level data from the Census Bureau are a complete survey of state governments, but note that local-level data are drawn from samples and are therefore subject to margins of error.
  4. As of 2019, the most recent year for which the Census Bureau’s State and Local Government Finances data are available.
  5. Note that combined state and local spending measures net out intergovernmental transfers to keep spending from being double counted, whereas state and local spending individually reflects spending done at those levels including intergovernmental transfers from the state or local level.
  6. Intergovernmental expenditures can be for education or social services, for example, but are not counted in those categories if spending is classified as an intergovernmental transfer.
  7.  New Hampshire Department of Administrative Services and Department of Information Technology, “How Government Finances Work,” 2013. https://www.nh.gov/transparentnh/how-government-finances-work/.
  8.  Kaiser Family Foundation, “Federal and State Share of Medicaid Spending,” 2019, https://www.kff.org/medicaid/state-indicator/federalstate-share-of-spending/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
  9.  New Hampshire Fiscal Policy Institute, “Presentation: The State Budget for Fiscal Years 2022 and 2023: A Focus on Health Funding” https://nhfpi.org/assets/2021/07/NHFPI-The-State-Budget-for-Fiscal-Years-2022-2023_A-Focus-on-Health-Funding-7.9.21.pdf
  10. Reaching Higher NH, “State Education Property Tax: Locally raised, locally kept,” 2019, http://reachinghighernh.org/2019/02/01/state-education-property-tax-locally-raised-locally-kept/. Note that the Census Bureau counts SWEPT as local spending, given that it is collected locally and distributed to local districts.
  11. State Higher Education Executive Officers Association, “State Higher Education Finance: FY 2019,” 2020, https://shef.sheeo.org/wp-content/uploads/2020/04/SHEEO_SHEF_FY19_Report.pdf
  12. Including the Legislative Branch, Executive Dept, Information Technology Dept, Administrative Services Dept, Office of the Child Advocate, Boxing and Wrestling Commission, State Dept, Revenue Administration Dept, Treasury Dept, Community Development Finance Authority, Tax and Land Appeals Board, Retirement System, Development Disabilities Council, Executive Council, and Professional Licensure and Certification Office.
  13. New Hampshire Fiscal Policy Institute, “Building the Budget: New Hampshire’s State Budget Process and Recent Funding Trends,” 2017, http://nhfpi.org/wp-content/uploads/2017/03/NHFPI_Building-The-Budget_February2017.pdf.
  14. The reason the rankings on revenue do not match spending is because of timing issues, including debt.
  15. New Hampshire Fiscal Policy Institute, “Funding the State Budget and Other Public Services,” 2019, http://nhfpi.org/wp-content/uploads/2019/02/Funding-the-State-Budget-and-Other-Public-Services_Web_Version.pdf
  16. New Hampshire Fiscal Policy Institute, “Revenue in Review: An Overview of New Hampshire’s Tax System and Major Revenue Sources,” 2017, http://nhfpi.org/wp-content/uploads/2017/05/Revenue-in-Review_Overview-of-New-Hampshire-Tax-System-and-Major-Revenue-Sources.pdf 
  17. New Hampshire Fiscal Policy Institute, “New Hampshire Revenue Sources and Recent Trends,” 2019, http://nhfpi.org/wp-content/uploads/2019/02/NHFPI_New-Hampshire-Funding-Sources-and-Recent-Trends.pdf; New Hampshire Department of Administrative Services and Department of Information Technology, “Where the Money Comes From,” 2019, https://www.nh.gov/transparentnh/where-the-money-comes-from/index.htm
  18. New Hampshire Department of Administrative Services and Department of Information Technology, “Education Trust Fund,” 2013, https://www.nh.gov/transparentnh/glossary/education-trust-fund.htm
  19. New Hampshire Fiscal Policy Institute, “Building the Budget: New Hampshire’s State Budget Process and Recent Funding Trends,” 2017, http://nhfpi.org/wp-content/uploads/2017/03/NHFPI_Building-The-Budget_February2017.pdf 
  20. New England more generally has high local property taxes as well. Massachusetts, Maine, Rhode Island, and Connecticut are all in the top ten states in local taxes as a percentage of state GDP. 
  21. Property taxes account for 4.6 percent of state GDP.
  22. Jennifer Weiner, “How Does New Hampshire Do It? An Analysis of Spending and Revenues in the Absence of a Broad-based Income or Sales Tax,” Federal Reserve Bank of Boston, New England Public Policy Center, 2011, https://www.bostonfed.org/publications/new-england-public-policy-center-research-report/2011/how-does-new-hampshire-do-it-an-analysis-of-spending-and-revenues-in-the-absence-of-a-broad-based-income-or-sales-tax.aspx.
  23. Not included are the turnpike system, liquor and lottery commissions, spending from interest expenses, the Drinking Water State Revolving Fund, and the unemployment compensation trust fund.
  24. For more information refer to: Claremont Sch. Dist. v. Governor (Claremont 1), 635 A.2d 1375 (N.H. 1993); Claremont Sch. Dist. v. Governor (Claremont Il), 703 A.2d 1353 (N.H. 1997).
  25. https://www.nhpr.org/nh-news/2021-06-22/the-new-n-h-state-budget-everything-you-need-to-know
  26. https://www.revenue.nh.gov/mun-prop/property/equalization-2020/documents/etc-summary-alpha.pdf
  27.  https://carsey.unh.edu/sites/default/files/media/2020/12/final_report_forcommission_v5_12012020.pdf
  28.  https://www.dhhs.nh.gov/dcbcs/bdas/sor.htm