Friday, December 19, 2008

Inside Public Policy

New Hampshire: Putting the brakes on spending

The New England Economic Partnership has just made its economic forecasts for the New England states, and this group of the region’s premier economists report that New Hampshire “is faring better than any state in the region,” but still heading for a recession with a leg up.

The partnership points to New Hampshire’s unemployment rate (4.1 percent), which is expected to stay lower than other states, and the fact that consumers are making credit card payments on time. On other fronts, they report that manufacturing of defense products and precision instruments is growing.

Another report is just out, commissioned by the New Hampshire High Technology Council and NetworkNH and written by University of New Hampshire economist Ross Gittell and Bryant University economist Edinaldo Tebaldi. It reports that the recovery of the New Hampshire tech sector from the economic woes of 2000-2001 has slowed, but indicates there are some bright spots. The report points to technology business growth in navigation instruments and equipment, medical systems and equipment, network systems, data communications and health information.

It’s clear that New Hampshire is a high-tech state, with 9 percent of its work force employed in technology-related jobs. Even so, the world doesn’t know New Hampshire is a high-tech state, so Gov. John Lynch has asked the High Technology Council and the Department of Resources and Economic Development to come up with a plan to brand New Hampshire as such. Fast growing companies like EqualLogic (now part of Dell Inc.), GT Solar International Inc., Insight Technology Inc. and Nanocomp Technologies Inc. are the kinds of companies that are the face and voice of high tech in New Hampshire.

That’s the good news. Now the rest of the story. While the New Hampshire economy may be in less of a freefall than those of the other New England states, the Granite State is facing a record deficit with almost nowhere to turn for savings without pain, except budget cuts, business taxes and perhaps gambling.

New Hampshire’s budget is projected to be $250 million in the red this fiscal year, and there are think tank organizations that predict the deficit could grow dramatically over the next three years. Gov. Lynch has placed a freeze on state hiring, and called for limits on state employee overtime, use of state vehicles and cell phones. The governor has already made three rounds of budget cuts totaling $50 million, with more on the way. He has said he will tap the state’s rainy day fund of $89 million as a last resort, but some lawmakers in the state Legislature don’t think that will be enough. Enter the gambling option.

The gambling option has been in the state Legislature for years, but it’s never gone anywhere. Those promoting the gambling option say the current budget climate increases the chances that an expansion of gambling in New Hampshire might be possible. Their argument rests on the prediction that the state could reap $150 million a year or more from slot machines. Gov. Lynch has indicated he wants more information on gambling’s impact on the economy and social concerns before he takes a position.

Such a budget climate does not bode well for an expansion of the R&D tax credit, something the high-tech community will eventually propose. The Legislature put an R&D tax credit back on the books in the 2007 session, but capped the funds at $1 million for each of the next five fiscal years. The amount of the credit is the lesser of 10 percent of a company’s R&D expenditures or $50,000, The first year saw more than 70 companies apply with an average award of a little more than $20,000. Total demand was more than $2 million. The High Technology Council wants to see the cap raised to fit the demand. R&D creates new products that create new jobs and more tax revenue. The R&D tax credit is an economic tool that can help New Hampshire recover from the current downturn.

Let me end with some good news. New Hampshire exports were up 28 percent in the third quarter (year over year). Most of that gain was in tech products.

Fred Kocher is president of the New Hampshire High Technology Council, based in Peterborough.