Millions in lawsuit settlements strain state's budget

Lawsuits include one over inadequate mental health services and another over hospital tax

By Kathleen Ronayne
Associated Press

CONCORD, N.H. (AP) - As Gov. Maggie Hassan and lawmakers create the next state budget, the potential $104 million price tag of two lawsuits looms large, the latest in a series of legal actions that directly affect New Hampshire's bottom line.

The state settled a federal lawsuit over inadequate mental health services in 2013 that's predicted to cost $24 million in the upcoming budget. A second settlement with hospitals over a controversial tax could mean roughly $80 million less in the state's general fund. In an already tight budget of $10.7 billion, these costs won't be easily swallowed.

Hassan will present her budget Thursday, then House and Senate lawmakers will write their own versions. A final budget must be signed by June 30.

This isn't the first time lawsuits have put a crunch on the state budget.

The state spent $38 million in the current spending plan to build a new women's prison after a class action lawsuit filed by female prisoners. Lawsuits over school funding stretched out for decades when towns said the state was shortchanging them on aid, costing the state millions after the ruling in the so-called Claremont suits of the 1990s.

In 2014, the state had a financial stake in 28 lawsuits, according to the state's annual financial report. Of those, the state lost one, won six and settled three. Eighteen are still undecided.

"This isn't a problem of costs coming up unexpectedly, this is a problem of not being able to pay our bills when they come due and the Legislature seeing how long it can dodge the bill collector," said Andru Volinsky, the lead attorney on the education funding lawsuits.

House Finance Chairman Neal Kurk, a Weare Republican, said the lawsuits happen when interest groups aren't happy with the Legislature's policy decisions.

"The question about the right level of services is something that ought to be left to the Legislature and not decided by the courts," he said.

Facing lawsuits over service levels is not unique to New Hampshire, especially as states have faced tightening budgets in the wake of the Great Recession, said Bill Galston, senior fellow at the Brookings Institute.

"New Hampshire may have unusual problems to an unusual degree because of its commitment to low taxes, but that doesn't mean New Hampshire is alone in facing that squeeze," Galston said.

Six plaintiffs, joined by the federal government, sued the state over inadequate community-based mental health care in 2012. The settlement requires the state to improve access to community-based treatment and expand employment and housing opportunities, among other things. Lawmakers agreed to spend $30 million on the services: $6 million in the current budget and $24 million in the next.

The Department of Health and Human Services, which runs the programs, already faces a budget hole and not funding expanded mental health services isn't an option - unless the state wants to face another lawsuit.

"There are going to be some very, very challenging discussions that will need to be had regarding what the priorities of government are going to be," said HHS Commissioner Nick Toumpas.

The hospital lawsuit was years in the making. In 1991, New Hampshire began imposing the "Medicaid Enhancement Tax" on hospitals. Under a federal matching program, the state fully reimbursed the hospitals then pocketed some of the federal money for the general fund.

But the state changed its repayment formula in 2011, sending less money back to the hospitals and prompting them to sue. The settlement deal says all of the tax revenue must be used to support Medicaid services, hospital provider payments and other health care-related costs.

For the state, that means about $40 million less every year going into the general fund where it can be spent more flexibly.

"We can always avoid lawsuits by accommodating (people's) needs, but when you do that, someone else is shortchanged," Kurk said. "We have to make a judgment given limited resources and, generally speaking, the unwillingness of the general population to contribute more resources through higher taxes, as to how best to allocate these resources among competing interests.

"In doing that, we will always disappoint some group of people."

Published: Tue, Feb 10, 2015

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