Statement Before the New Hampshire Senate Committee on Public and Municipal Affairs

I.Introduction

     ChairmanBarnes and Members of the Committee, my name is John Stephenson, and I am theState Government Affairs Manager for the National Taxpayers Union (NTU), thenation’s oldest and largest non-partisan advocate for overburdened taxpayers. I am honored to appear before you todayand to present these remarks on behalf of NTU’s 2,100 members in New Hampshire.NTU has 362,000 members nationwide, all of whom share the belief thatconstitutional tax and expenditure limitations are key elements of fiscalpolicy at all levels of government.

     I commend you for holding this hearing on Senate Bill 2 (SB 2),which would amend state law to allow towns, school districts, villages, andother municipal entities to adopt caps on expenditures and allow theflexibility to accommodate unanticipated needs through “supermajority” overrideprovisions. SB 2 currently has 17 cosponsors in the House and Senate, includingthe Chairman, members of this Committee, the Senate Majority Leader, and theSenate President. NTU members strongly support procedural safeguards againstgovernment overspending as a way to keep budgets manageable and to preventburdensome tax increases. Therefore, I urge you to support SB 2 and immediatelyforward this important legislation to the full Senate for an expedited vote.

 II. Background

     InNovember 2009, Manchester voters – by a 54-46 percent margin – approved anexpenditure limitation measure.The Manchester law tied the city’s increases in spending to the rate ofinflation, but would have allowed the city to spend above that limit withapproval from two-thirds of the city’s Aldermen. In enacting an expenditurelimitation, Manchester joined several other New Hampshire towns and citieswhose citizens sought to bring more fiscal accountability to local government.

     Despite a clear mandate fromManchester voters, a few city officials (and those narrow interests that relyon government spending) could not accept any restriction on their ability tospend taxpayers’ hard-earned dollars. Opponents of the Manchester measuresuccessfully challenged the limitation in court. The state Supreme Court ruledin City of Manchester v. Secretary ofState that the limitation was inconsistent with laws implementing the homerule amendment to the New Hampshire Constitution.

     Althoughour members disagree with the Court’s conclusion, we certainly accept that itis the law of New Hampshire. Now, however, it is necessary for the GeneralCourt to clarify the law’s true spirit by amending it so that towns, cities,and taxpayers who wish to enact or continue to have reasonable limitations onspending at the local level can do so with certainty.

III. WhyNew Hampshire Townspeople Deserve Expenditure Limitations

     Citizens of New Hampshire’s townsneed the ability to limit expenditures. This is because small government tendsto keep tax rates low, which allows economies to flourish and the quality oflife to improve. Smaller government also tends to be less burdensomefinancially. For years, New Hampshire has attracted countless numbers ofvisitors, residents, and businesses – including my family – in large partbecause it is a small government, low-tax state.

     Also,states and cities with smaller, more manageable governments tend to performbetter than those with large, bloated bureaucracies and can weather economicdownturns like this one better than others. Half of the net new jobs createdlast year were in Texas, a state that prides itself on low taxes and smallgovernment.[i]Consider also the experiences places like Illinois and Harrisburg,Pennsylvania, two places that on the verge of fiscal collapse, to Utah andNashua, two places that have weathered the recession reasonably well.

     Unfortunately, the pressures tocontinually increase government expenditures are heavy. Special interestsconstantly lobby elected officials for more money to be spent on their petcauses. To illustrate this point, ask yourselves, “Who hasn’t visited the StateHouse since Governor Lynch released his budget last week?” Further, specialinterests demand more money from taxpayers as the costs that these very sametaxpayers must bear, such as on state employee health care, rise withoutabatement. But there is a problem: with the exception of Washington, DC,governments cannot print their own money. Moreover, they cannot run deficitsexcept under very specific circumstances. So local governments, to increasespending, must “pay as they go.” They do so by boosting taxes on hard-workingNew Hampshire families. But those who reside in the Granite State do not havebottomless pockets. Their ability to carry these burdens is not infinite.

     This is why SB 2 is so essential to preservingthe prosperity and financial freedom of New Hampshire residents. Laws that setboundaries on government’s share of the citizens’ earnings help to promotestability and accountability.

     Taxand expenditure limitations are neither foreign in concept nor problematic inpractice. At least 30 states have some form of this fiscal discipline, and severallocal governments across the United States operate under their own locally imposedtax and expenditure limits.[ii]They are also not new to New Hampshire, as Nashua, Franklin, Derry, Dover,Laconia, and Rochester – several of the state’s largest cities and towns – allhave some forms of tax and expenditure limitations on their books, some formore than a decade.

     Thesetaxpayer protection laws do not choke off all expenditures, nor do theyeliminate entire government programs. Instead, they encourage fiscal prudencein government and prioritize spending decisions … the very same prudence oneshould exercise in running a business or raising a family on a budget. Byprioritizing spending, cities and towns are forced to make decisions about whatthey can afford to do rather than doing more than what is in their means.

     Scholarlyresearch over the last several years also suggests that taxation andexpenditure limitations are effective tools for controlling spending. While not all such measureshave functioned perfectly, most of them have helped to keep public expendituresat affordable levels, in turn smoothing out revenue demands as well as budgetdeficits.[iii]Michael New, an economist at the University of Alabama, has also found that taxand expenditure limitations at the state level have saved taxpayers millions ofdollars through generating rebates and preventing tax hikes. Such reforms holdsimilar promise to save money for taxpayers in New Hampshire.

     WhileI could expound upon the theory and merits behind taxation and expenditurelimits all day, I think it is better if instead I tell you about the practicalexperience of such limits using a prominent local example. Consider theexperience of Nashua with a taxation and expenditure limit. According to the Nashua Telegraph, the city has operatedunder a taxation and expenditure limit for more than 17 years. Over the betterpart of two decades functioning under a tax and expenditure limit, Nashuaachieved a AAA bond rating, funded the construction of the Broad StreetParkway, and built a $150 million high school.[iv]Nashua is also New Hampshire’s third largest city and, last year, was listed asone of the Best Places to Live by Moneymagazine. [v]For Fiscal Year 2011, Nashua increased spending by 2.1 percent – and by anaverage of 2.3 percent over the last three years – and kept tax increases to aminimum, all within the strictures of the limitation.[vi]Nashua’s experience shows that provisions like those proposed in SB 2 are bothworkable and beneficial for New Hampshire.

IV. Conclusion

     NTU stronglysupports efforts to limit government spending, and in so doing preventburdensome increases in taxes. SB 2 provides such an option for New Hampshire’stowns and other local government authorities. I appreciate the opportunity topresent these views and I am happy to answer any questions. Thank you.



[i] Lowry, Rich, “The Texas Model,” National Review, October 15, 2010, http://www.nationalreview.com/articles/249868/texas-model-rich-lowry.

[ii] “What are tax and expenditurelimits?” The Tax Policy Briefing Book,Tax Policy Center, http://www.taxpolicycenter.org/briefing-book/state-local/fiscal/limits.cfm.

[iii] Kirchgassner, Gebhard, “The Effects of Fiscal Institutions on Public Finance: A Survey ofthe Empirical Evidence,” Center for Economic Studies & Ifo Institute for Economic Research,

CESifo Working Paper Series No. 617, December 2001, http://papers.ssrn.com/abstract=292219.

[iv] “Effects of Ruling on CapUnclear,” The Nashua Telegraph,November 12, 2010 http://www.nashuatelegraph.com/news/899304-196/effects-of-ruling-on-cap-unclear.html.

[v] Meighan, Patrick, “Nashua CracksMoney’s Top 100,” The Nashua Telegraph,July 13, 2010, http://www.nashuatelegraph.com/news/794640-196/nashua-cracks-moneys-top-100.html.

[vi] City of Nashua FY 2011 Budget.