CONCORD - Gov. John Lynch today presented the House Finance Committee with a financial strategy, including $125 million in spending cuts for the biennium, to address the impact of the national economic downturn on state revenues.

“New Hampshire, like states across the nation, is being impacted by the slowdown in the national economy. We know our families are feeling the impact, and so is state government. Revenues are falling short, certain costs are increasing, and so is demand for some of our most critical services,” Gov. Lynch said. “I have been working with our state agency heads and lawmakers to address revenue shortfalls caused by the downturn in the economy in a manner that ensures a balanced budget and protects essential services for our people.”

Gov. Lynch’s strategy calls for $125 million in spending reductions for the biennium, changes in some state business practices, a slight increase in the tobacco tax timed to coordinate with increases in Massachusetts and Maine, and closing the tax loophole for games of chance.

Already, Gov. Lynch proposed, and the Joint Legislative Fiscal Committee approved, $50 million in spending reductions for this fiscal year, as well as freezes on general fund hiring, out-of-state travel and non-essential purchasing. Gov. Lynch will soon bring forward further spending reductions for Fiscal Year 2009, and will continue the freezes on hiring, out-of-state travel and non-essential purchasing.

“We are making significant cuts. But after careful review of agency budgets and budget submissions, I have found that we cannot cut much deeper without seriously impacting essential and direct services to our people. We must take a responsible, balanced approach to the budget - reducing spending, changing how we do business in some areas, and increasing some revenues,” Gov. Lynch said.

In addition to the spending cuts that the Governor will bring to Fiscal, the legislation reduces the budgets for the legislative branch for fiscal years 2008 and 2009; reduces the judicial branch budget for 2008 and contains a placeholder for a 2009 judicial branch reduction about which the Chief Justice will be presenting to the legislature; allows any excess retirement funding to lapse at the end of 2008; and lapses funding for House Bill 721, which passed last year. The bill intended to provide a one-time adjustment in nursing home reimbursement, but the federal government has made clear that it will not allow the state to use the funds as intended.

The strategy also includes changes in the state’s business practices. It reduces from 20 to 10 percent the discount at which the state sells wine to non-state controlled stores, from the current 20 percent discount to 10 percent. The discount was originally intended to help small stores, but now exists mostly as a benefit for large retailers.

In addition, the proposal shifts the way the state funds the building aid program for local schools. The proposed legislation will pay the state’s 2008-2009 contributions for local school building programs through capital dollars rather than from the general fund. It also establishes a committee to look at the state’s entire building aid program so that changes can be made in the next biennium.

The proposal will increase the tobacco tax by 25 cents. With tobacco tax increases expected in Massachusetts and Maine, border stores in New Hampshire will have an even greater competitive advantage, and the increase will allow the state to protect critical services.

Gov. Lynch also reiterated his support for legislation closing a loophole in the way games of chance are taxed. Currently, Bingo and Lucky 7 games that raise money for charity and are regulated by the state are taxed. Unlike these other games of chance, poker games - which are primarily a cash industry - are not subject to the same kind of tax due to a loophole in the law.

“We are cutting spending by $125 million and enhancing revenues by $40 million. It will take a combination of cuts and revenue proposals to address the shortfall we are facing,” Gov. Lynch said. “We have worked hard to manage the state’s financial situation in a proactive manner, and this hard work must continue.”

Gov. Lynch cautioned about using the Rainy Day Fund.

“We have worked together to increase the Rainy Day fund to a record $89 million, but we cannot be tempted to hastily use those funds to address this shortfall. Using the Rainy Day Fund to make up for a shortfall in revenues is a last resort,” Gov. Lynch said. “New Hampshire is in better shape than many other states impacted by this national economic downturn. Our economy is still stronger, our unemployment rate is lower and our budget shortfall is much smaller. Also, we have set aside $33 million carried forward from the last fiscal year to help cover unanticipated shortfalls this biennium.”

Gov. Lynch is continuing to work with agencies to identify spending reductions for Fiscal Year 2009. He will present that strategy to lawmakers shortly.

“We must continue to carefully watch revenues and spending closely. Working together, we will weather this national downturn. I am committed to ensuring we continue to be proactive and fiscally responsible, and that we end the biennium with a balanced budget,” Gov. Lynch said.