If New England were a family, Massachusetts and Connecticut would be the parents, Rhode Island and Vermont the aunt and uncle, and Maine and New Hampshire would be the northern siblings.
Specifically, New Hampshire would be that older, smarter sibling that Maine is always critically compared to – the successful, college-educated one who has a great job, makes a ton of money and has a perfect family.
It’s not such a crazy metaphor. Time and again, economists, politicians and policy makers point to New Hampshire’s level of taxation, government services and overall prosperity and ask why other states in the region can’t be the same way. That’s the case not just in Maine, but in other states around the region.
In fact, that’s the topic of a report released this week by the Federal Reserve Bank of Boston’s New England Public Policy Center, titled “How Does New Hampshire do it?”
The report, authored by Senior Policy Analyst Jennifer Weiner, breaks down New Hampshire’s revenue streams, where its governments spend money and compares the data to the regional average and to other New England states.
Early on, the report warns there’s “no silver bullet” for states seeking to emulate New Hampshire — something Weiner reiterated in an interview.
“For states who are interested in trying to replicate New Hampshire’s approach, the takeaway is it’s not necessarily an easy thing to do — there’s no one easy answer to do what they do,” said Weiner.
Weiner said the idea for the report came from Maine Sen. Richard Woodbury, U-Yarmouth, an economist who was a visiting scholar at the center a few years ago. Woodbury on Friday said the report would be useful for politicians and decision makers who often look to New Hampshire as an example.
“The answers aren’t easy, and they’re not all controllable. Some of them are circumstance and some of them are choices,” said Woodbury. “At the very least, this will become the primary resource for answering that question that we keep asking — how does New Hampshire do it? This will provide the quantitative, analytics basis. That in itself is hugely useful in making policy evaluations.”
In her report, Weiner examined state and regional data from 2007.
Both Maine and New Hampshire have roughly identical populations at 1.3 million. Maine’s population is more spread out, with the state land area at 30,854 square miles, compared to New Hampshire’s 8,952.
“We have three times the land mass of New Hampshire,” said Laurie Lachance, a former state economist and president and CEO of the Maine Development Foundation. “We’re trying to deliver public services to a population that is dispersed — much more so than New Hampshire. New Hampshire’s teensy, for crying out loud.”
Other comparisons are revealing. The median household income in Maine is $48,568, the lowest in New England. The highest in the region is New Hampshire, at $67,508. Maine has 12.5 percent of its population below the poverty line — again, the highest in the region — compared to 7.5 percent in New Hampshire.
And New Hampshire governments spend the least per capita in New England, at $6,442. Maine, at $7,632, is next lowest. The highest regionally is Vermont, at $8,500, and the New England average is $8,064 — 20 percent higher than New Hampshire’s expenditures.
In her breakdown, Weiner reports that New Hampshire actually does outspend Maine in some broad areas, including public safety and education. Transportation spending is roughly the same; Maine spends $600 per capita, New Hampshire $560.
One area that Maine far outstrips New Hampshire in is “social services and income maintenance.” Maine spends $2,354 per capita, while New Hampshire spends roughly $1,000 less. The regional average is $2,116.
Weiner notes that New Hampshire’s below-average spending is partly due to circumstances beyond governments’ direct, near-term control.
“New Hampshire is a high-income state with a low poverty rate. These favorable circumstances reduce the need for government services,” she wrote.
Overall, those circumstances account for about 40 percent of the gap between New Hampshire’s overall spending and the regional average, she wrote. In the case of public welfare spending, it contributes to about 80 percent of the gap.
But the remaining 60 percent of the overall gap “stems at least partly from the fact that New Hampshire governments have made choices to limit the size or scope of public services,” Weiner wrote.
One example she pointed to was the state’s restrictive income eligibility criteria for Medicaid. Others were the absence of state-funded pre-K programs and the limited availability of public hospitals.
Alan Caron, president of the non-partisan think tank Envision Maine, said the report does highlight, by comparison, choices that Maine leaders have not confronted — and that’s caused problems, he said.
“We have a chicken and egg problem in Maine. You can’t have a weak economy and spend more than other people — as long as we spend more, we’re not going to have a stronger economy,” said Caron. “We have to find a way out of that box we’re in.”
Caron said Maine compounds that problem by also allowing more people to get services on top of the existing greater need — i.e., the higher rate of poverty here.
“That, it seems to me, is the real problem,” said Caron. “We can’t afford to be more generous when we have a weaker economy — the numbers don’t add up over time.”
On the revenue collection side of the equation, Weiner revealed some interesting situations in New Hampshire.
New Hampshire governments in 2007 collected $3,608 in taxes per capita, 28 percent below the New England average. Next lowest was Maine at $4,363; the high was Connecticut at $6,171.
New Hampshire also collected the lowest in overall revenues at $6,504 per capita, compared with Maine’s $7,873 and the regional average of $8,341.
While New Hampshire doesn’t have a sales tax, it does have a sort of income tax, though that’s commonly believed not to be the case. In New Hampshire’s case, instead of having employees pay the tax, companies are taxed on wages and salaries, interest and dividends paid — essentially, the income tax is moved farther upstream.
“It’s kind of like a hidden income tax, and it has helped New Hampshire have a reputation for being a no-income-tax state,” said Woodbury.
Weiner notes that New Hampshire’s per capita property taxes are high relative to most of New England and account for a larger share of overall revenue. It represented 34 percent of New Hampshire’s overall revenues, compared with 20 percent in Maine and Massachusetts. According to Weiner, New Hampshire governments collected $2,215 per capita in property taxes; Maine collected $1,565 and the regional average was $1,911.
New Hampshire’s state government revenues are more diverse than those of other states, Weiner noted, with no single revenue source accounting for more than 20 percent of the total.
Revenue sources included state liquor sales and the use of “creative Medicaid financing arrangements” to use federal monies for general fund expenditures. Essentially, said Weiner, New Hampshire was assessing a tax on hospitals, then returning the payments to the hospitals, but using those payments to qualify for federal funding that supported other general fund activities. In the mid-1990s, the level of those federal funds hit a high of $250 million. In recent years, it’s been at about $100 million. And Weiner said health care reform may limit states’ ability to access such loopholes.
J. Scott Moody, chief economist at the conservative-leaning Maine Heritage Policy Center, said one of the limitations of the study was the fact that it largely looked at the region at a moment in time.
“When you’re talking about taxes and spending, I’m a firm believer you really have to look at this stuff over time,” said Moody.
In 1950, Maine and New Hampshire’s prosperity was at parity, said Moody. Maine enacted a sales tax in 1951, then the income tax in 1969, and those fueled the growth of government spending programs that crowded out the private sector, he said.
Moody said New Hampshire’s system of government has also had an impact on the state’s spending and on its refusal to enacted broad-based taxes. It has a large Legislature, and all officials including the governor face re-election every two years, he said. The politicians, he said, are more accountable to the people.
“Effectively, what they have done is they have kept the old model of local control,” said Moody.
Moody did agree that there was no quick way to turn Maine around in a New Hampshire fashion.
“It took Maine decades to get into this situation,” said Moody. “It may very well take Maine decades to get out.”
The report, said Caron, showed that a lot of Maine’s problems may be geographic in nature, but that more of them are man-made. The state needs to confront those decisions, he said.
“This isn’t a conservative, liberal, Republican, Democratic thing. We’re all in this together,” said Caron. “If we don’t confront these things, we’re never going to have enough money to educate, retrain, incentivize the economy. We’re going to look at another 50 years of being stuck.”