NH lawmakers approve cigarette tax hike, wine discount cut

CONCORD, N.H.—A possible cigarette tax hike, a cut in a wine discount and borrowed money will be used to balance New Hampshire's books.

The Democratically controlled Legislature approved those measures in two bills in two heated sessions Wednesday, frustrating Republicans who had argued Gov. John Lynch and Democrats ignored warnings last year that the budget was just too large. Republicans argued the state should instead cut spending.

Republicans objected vehemently to a plan to use the state's credit card to fill $40 million or more of a looming budget hole. Lynch and the Executive Council called the Legislature into special session so that could be done by majority vote. Otherwise because deadlines had passed, a two-thirds vote would have been needed -- allowing Republicans to block the bill.

In the House, Republicans tried unsuccessfully to delay a vote by forcing Democrats to hold a hearing next week. When they lost, Republicans streamed for the exits, forcing House Speaker Terie Norelli to temporarily lock the doors. Democrats said Lynch had to sign the bill by Tuesday so the state can borrow money to cover this year's deficit, if there is one, and to comply with Internal Revenue Service rules.

"We do not have an emergency. We may have a political emergency," complained Manchester Republican William Infantine.

The first budget cutting bill contained the cigarette tax hike and wine discount cut which, with spending cuts, was worth $34 million.

"I don't believe we have a revenue problem. We have a spending problem," Senate Republican Leader Ted Gatsas said during debate on the bill. "How do we do this? New Hampshire is supposed to be a business friendly state."

The second bill contained the borrowing and several other, less controversial measures.

Lynch has proposed a series of measures over the past four months to deal with a possible $180 million revenue shortfall in the two-year $10.3 billion state budget. The state is expected to end this fiscal year in the black, but not next year when his budget adviser estimates the state could have an $83 million deficit without the borrowing.

The House initially rejected Lynch's plan to borrow $80 million of the state's share of school construction aid in 2008 and 2009 to make up the difference. The final deal allows him to borrow up to $40 million of the aid money each year if revenues drop below a certain point.

"What has suddenly made that bad idea a good idea a month later," said House Republican Leader David Hess.

"Borrow and spend? That's not the New Hampshire way," said Weare Republican Neal Kurk who instead proposed taking money from the state's savings.

As the weary Senate took up the bill after midnight, Gatsas objected that "bonding a deficit is unheard of."

Democrats defended the plan as necessary to ensure the state has a balanced budget.

Lynch also plans to present roughly $40 million in budget cuts for 2009 to a legislative committee June 17.

Besides the borrowing, the second budget bill also will require the Pease Development Authority to repay about $10.5 million it has owed the state for many years and authorize the community college system to borrow $5.5 million to complete the sale of its Stratham campus and renovate its Pease campus.

The first budget bill includes a 25-cent-per-pack hike in New Hampshire's cigarette tax.

The deal delays implementation of the cigarette tax hike to give grocers and convenience stores a chance to market New Hampshire's lower prices to other states, especially Massachusetts, which is considering raising its tax $1 to $2.51 per pack. New Hampshire's tax currently is $1.08.

The hike won't take effect if the state gets at least $50 million in revenues from the tax between July 1 and Oct. 1.

Currently, retailers get a 20 percent discount when they buy wine at the state warehouse and a 15 percent discount for buying it at state liquor stores. The discount would drop to 10 percent both places.

Retailers who sell no more than $350,000 annually would be exempt from the cut in the wine discount.

The judicial and legislative branches also would make cuts -- $2.6 million and $1.5 million respectively.

The school construction aid program -- which was begun in 1955 -- would be studied to see if it should be overhauled.

In February, Lynch won lawmakers' support to freeze most hiring, equipment purchases and out-of-state travel paid with general tax revenue until July 2009. Lynch also has ordered state agencies with surpluses to return the extra money to the general fund to help ease the shortfall.

Lynch later expanded the freeze on purchases of equipment and other commodities -- with the exception of food, drugs, medical supplies and other items needed in an emergency.