If Budget Writers Sweep Dedicated Funds, Is It Legal?

Jan 12, 2015

It’s a budget year, and lawmakers will soon be hard at work trying to come up with a balanced two year spending plan. If past is precedent, one place where budget-writers on both sides of the aisle may look for money is from what are known as dedicated funds – pots of money raised by fees and earmarked for specific purposes. But this year the practice may face serious pushback.

New Hampshire has some 300 dedicated funds containing cash to pay for everything from making reflective license plates to sludge analysis. Most of them contain very little money, but some hold millions. One of the biggest is the Renewable Energy Fund, which pays for grants which help to make large projects like the state’s largest solar array in Peterborough possible. The fund also pays for the rebate the state gives people who buy solar panels, wood-fired boilers or other renewable tech.

“It’s a very big driver because it’s a check that the owner of the system directly gets,” says Kate Epsen executive director of the state’s Sustainable Energy Association, “They’re essential from what I hear from the installer community.”

While many funds were raided in the past ten years, three environmental programs - the Renewable Energy Fund, LCHIP, and the Greenhouse Gas Reduction Fund - have contributed 65% of the money raided by the general fund since 2005.
Credit Sara Plourde / NHPR; Data: NH Legislative Budget Assistant

The current state budget took more than $16 million dollars from this fund, and spent it on other things. It wasn’t enough to put a crimp on the rebates, but that was $16 million less that the state gave out to renewable developers in the form of competitive grants.

Epsen and others in the renewable energy industry are worried that’s about to be tapped again.I have also asked the governor’s office, and they have not said they will not raid it,” she says.

“You Will See Some Legal Action”

All told more than $46 million dollars have been taken from dedicated funds in the past decade.  Most of the money – as in 65 percent of it – has come from funds that go to environmental initiatives.

And the enviros are getting restless.

“I think if this continues, you will see some legal action to define is this really a constitutional taking or not,” says Jim O’Brien, who does government relations for the Nature Conservancy.

Back in 2011, he led a coalition of groups that were sick of seeing money taken from the Land and Community Heritage Investment Program (LCHIP), a fund that goes to restoring historic buildings and putting land in conservation. They hired attorney Gordon MacDonald, who in 2009 helped block the state from tapping a state-created malpractice insurance pool to the tune of $110 million dollars.

The legal question in that instance was different, but MacDonald says the bottom line is the same: the state has no right to the money.

“They’ve, so far, been able to get away with it, but that doesn’t make it right. And the fact that it’s been done over and over and over doesn’t rewrite the constitution of our state,” he says.

He argues it boils down to the legal difference between a tax and a fee and that moving funds from a dedicated fund into the general fund means what was a fee becomes a tax.

“All taxes need to be proportional and reasonable, and if a source of revenue does not meet that test, it’s an illegal tax,” MacDonald explains.

But this argument has never been before a court.

While the budget signed by Governor Lynch in 2010 swept more funds, the budget signed by Governor Hassan during the last cycle had the single biggest raid.
Credit Sara Plourde / NHPR; Data: NH Legislative Budget Assistant

More Raids to Come?  

O’Brien’s coalition presented a legal brief prepared by Macdonald to budget writers two years ago.

“We had a discussion with them, both the legal counsel of the governor and the state senate, about the problems we saw inherent in this taking,” he says

Their main concern at the time was the LCHIP account. LCHIP has been a go-to for lawmakers looking to plug holes, but in the last budget they ended up not tapping it.

But the fiscal picture as lawmakers begin on the next budget has people concerned about the dedicated funds. New Hampshire’s current budget faces a shortfall that could top $50 million dollars and will need to be plugged by July 1. Then of course there’s the next two year budget which will be finalized this spring.

So far, nobody is saying publicly that they are going to siphon money from any fund. The top budget writers in the House and Senate have they’ll steer clear of raiding.

“The Senate strongly believes that that process needs to stop,” says Senate President Chuck Morse, “And as you build the new budget, I think you’ll see the senate look to not doing that at all.”

But with the Renewable Energy Fund bringing in more than $9 million dollars above what was expected, budget writers could be tempted. No judge has said that taking these funds is illegal… not yet anyway.