By CHARLES M. ARLINGHAUS

Twenty-five years ago, the Legislature would return in the second year on rare occasions to fix some loose ends in the budget. This coming year, the second session will deal with every hot button legislators face: a budget crisis, education funding and health care reform.

Since the budget was passed in June, legislators have watched it slowly unravel. A budget that seemed balanced five months ago has a hole of about $250 million. The Superior Court ruled that legislators couldn’t use $110 million in a medical malpractice trust fund because it doesn’t belong to the state. That decision could conceivably be reversed by the Supreme Court this month, but it’s unlikely.

The state also moved $18 million of stimulus money forward to balance last year’s budget. That added to this year’s hole. Finally, revenues are coming in well below the amount needed to balance the budget. We’ll have a better revenue picture in a month, when some big, end-of-the-year receipts come in. Based on historical trends, though, revenues are on pace to be $60 million to $70 million less than budgeted in the first year, which leads to a similar shortfall in the second.

A $250 million hole will be difficult to fill for a government that struggled to find just $25 million of savings in personnel costs a few months ago. The good news is that $250 million is just 5 percent of the two-year spending in the general and education funds, the parts of the budget paid with general state tax revenue.

This is work the Legislature and governor have to do anyway. Because this budget was balanced with one-time revenue such as the federal stimulus money, and with one-time temporary spending reductions, the next budget will start out $620 million out of balance — and that’s only if we solve the $250 million problem first.

As if this budget nightmare weren’t enough, looming over everyone’s head is the donor town issue in education funding. You’ll recall that under some education funding plans, most towns received state aid to help with their education costs. However, some towns didn’t receive a check from the state, but were forced to send a check to the state. This divisive “donor town” concept was eliminated when the Gatsas plan was adopted in 2005.

After yet another court decided that the Gatsas system didn’t meet with its approval, another legislature came up with a new plan. Legislators claimed this plan was constitutional and the old one was not. Unfortunately, their plan created 36 new donor towns — a concept legislative leaders of both parties and the governor firmly opposed. They passed a temporary fix to use the supposedly unconstitutional mechanism of the old plan just for two years to grant the 36 towns a temporary reprieve.

It’s now two years later, and this session requires the fix. Today, there is no fix making the rounds publicly and no discussion of what to do without going back to square one. Yet something has to happen in the next few months.

This issue usually requires months for a proposal to be pored over by every town and school district and for lawyers to try to guess what the court’s reaction to it might be. Realistically, if we don’t see a fully formed plan in the next six weeks, nothing will happen until after the election and towns will have to begin their budget processes assuming they’re making a donation to the state.

Finally, the biggest issue on which the state can have the smallest impact is health care. The federal government might pass massive changes to the way health care is provided in states. However, the state can’t just stand still and watch.

Lynch’s government-designed but privately provided plan called HealthFirst has not yet been adopted by many. Sen. Jeb Bradley has a proposal to allow New Hampshire businesses and citizens to purchase insurance approved in other states. This would be the beginning of a change that would slowly allow a different sort of competition for insurance products. Today, for example, it isn’t legal in New Hampshire for a young adult to buy catastrophic coverage that doesn’t cover basic health care, such as routine doctor visits, but does cover major health problems.

Like the governor’s HealthFirst plan, purchasing insurance across state lines won’t transform the market overnight. But it creates new choices and new pressures with little risk. It’s a step in the right direction, and it won’t add costs to a state budget that can’t afford them.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.