Even before he entered office Governor-elect Merrill faced a daunting challenge. Public Service of New Hampshire had appealed a special property tax imposed by retiring Governor Judd Gregg and the legislature as a way to balance the state budget, and in December 1992 this tax was declared unconstitutional. Governor Merrill therefore had to speak in his first inaugural address about new ways to meet an anticipated $40 million shortfall in state revenues. He proposed changes in state employees' Workmen's Compensation, and in March 1993 a number of changes in other state taxes, as ways to meet the fiscal emergency; in April 1993 he proposed to the legislature that the state's biennial operating budget be revised downward. But by then the state's economy was beginning to improve. Merrill got full credit in national and state media for fiscal responsibility. Merrill declined to run for a third term citing family obligations.