CONCORD, N.H. (AP) — Cutting taxes and combining higher education systems were among the priorities Gov. Chris Sununu outlined Thursday in his third biennial budget address.

The Republican governor initially vetoed the last New Hampshire budget in June 2019, forcing the state to operate under a temporary spending plan until a $13 billion compromise was signed into law three months later.

Since then, Republicans have regained control of both the House and Senate, likely providing a smoother path for the governor’s priorities, including a budget that neither increases nor adds taxes or fees.

Instead, Sununu proposed lowering the business enterprise tax and raising the threshold for filing it to exempt as many as30,000 small businesses, as well as reducing the rooms and meals tax from 9% to 8.5%. He also wants to start a five-year phase-out of the interest and dividends tax.

“Whether you are a small business just starting out, a family of four looking to enjoy a meal out or are retired and enjoying life in the Granite State, we’re providing equitable, across the board tax relief to the people of our state,” he said in an address that was streamed online.

“After such a tumultuous and uncertain year, now is not the time to be raising taxes on the people of our state and our small businesses, and that’s why we’re cutting them. It can and must be done.”

A few months into the pandemic, Sununu said the state was facing a budget shortfall of about $540 million. On Thursday, he said the shortfall is now projected to be less than $50 million, thanks to good management. That allows for a budget that focuses on “core, everyday services” that will improve the lives of the state’s citizens, he said.

“It’s a budget that ignores politics, it has no empty promises,” he said. “This budget makes smart, strategic targeted investments without having to balance it on the backs of essential workers.”

Republican legislative leaders praised Sununu’s proposed tax cuts and other measures.

“Restoring the strong economy New Hampshire enjoyed prior to the pandemic is a top priority for Republicans because we know that a strong economy is the best way to protect taxpayers," said Sen. Chuck Morse, R-Salem.

Democrats, however, disputed Sununu's claim that he was “downshifting cash to municipalities, not cost.”

They noted that while his proposal includes $30 million for school infrastructure projects and as much as $15 million in revenue sharing for towns and cities via the rooms and meals tax, the last budget provided an additional $138 million for schools and $40 million for communities.

“To be clear, if we reduce the amount of money we are investing in our schools and cities and towns, local property tax payers will be forced to make up the difference,” said Rep. Mary Jane Wallner, D-Concord, the ranking Democrat on the House Finance Committee.

Senate Democratic Leader Donna Soucy, who had previously proposed increasing the filing threshold for the business tax, said she also was glad Sununu wants to continue a rate increase for Medicaid providers. But she, too, expressed concern about education funding.

“While I am encouraged by the Governor’s projected enthusiasm for our public schools, the massive cut in his expenditures for education is a major cause for concern that I expect will lead to robust conversation," she said.

Sununu also proposed $6 million for mental health programs for seniors, veterans and schoolchildren. Another $10 million would expand funding for student loan repayment for those pursuing careers in health care, biotechnology and other fields.

But the most sweeping education proposal was his plan to combine the state’s 11 community colleges and four-year colleges and universities into one system, starting with merging the University System of New Hampshire board of trustees with the board that oversees community colleges.

Sununu said the change will save money and give students more flexibility at a time when campuses across the country are struggling with enrollment declines. A student at Nashua Community College, for example, would be able to pursue a research project at the University of New Hampshire.

“Each university and college will still maintain their own campus, their own brand, but this change will help open doors for our students and avoid each separate campus wasting time and money and frankly just competing with each other,” he said. “Allowing the students the ease of creating their own pathway in education will be the defining characteristic of this modernized, 21st century system.”