NH Pension Crisis Threatens Local Budgets

Across New Hampshire, city and town officials are getting a clear message from taxpayers. The costs of local government are running out of control at the same time as families’ incomes are stagnant. Taxpayers are increasingly insisting that elected officials manage the budget so local taxes don’t go up faster than taxpayers’ own incomes.

Unfortunately, there’s a ticking time bomb in Concord that threatens to blow local budget discipline right out of the water. It’s called the New Hampshire Retirement System – the pension plan for state, local and school employees.

New Hampshire ’s pension plan is in deep trouble. The plan has a “funding ratio” – the ratio of assets to obligations – of just 66%. For each dollar of pension obligations, the pension fund has assets of only 66 cents. This puts New Hampshire among the financially weakest of all public pension plans in America.

With 80,000 pension participants statewide, the funding gap adds up to big numbers. The financial hole at the heart of the NH pension plan is a whopping $2 billion, or5% of the state’s annual economy.

The pension bailout hasn’t been announced by Concord, but it’s already well underway. Under the funding system designed by the state legislature, the bulk of the bailout costs fall squarely on city, town and school districts. Local budgets and local taxpayers are getting hit hard by pension bailout costs. This is squeezing out other spending priorities.

The numbers tell the story. Today’s mandatory city, town and school district contributions to the state pension fund are at the highest level in more than 20 years. And the new contribution rates taking effect in 2007 shoot still higher -- up 57% for teachers, and up 28% for general municipal employees.

These are budget-busting numbers. Consider my town, Milford. From 2003 to 2007, Milford’s annual pension costs (town only, not school) will more than double from$220,000 to $480,000. Pension costs are already locked in at 8% of every taxpayer’s town tax bill. With these huge mandatory pension bills, it’s a lot harder to pay for roads and other customary town priorities.

And it’s about to get even worse. A few months ago, the NH pension fund estimated that city, town and school pension contributions will need to double again for the next 15 years in order to bring the pension plan back to financial solvency. For Milford, this means another $500,000 added to the town budget each year for the next 15 years. Town pension expense will run at an unbelievable $1 million annually, with 15% of every town tax dollar going to pensions.

It’s time for New Hampshire’s cities, towns and school districts to “just say no”. There are alternatives to the open checkbook.

Corporate America and an increasing number of states and municipalities have realized that old-style pensions – with their lifetime, cost of living-adjusted payouts for retirees -- are simply unaffordable. The new pension bill just signed in Washington recognizes the inevitable shift toward 401(k)-style, employee-controlled retirement plans. These plans are more cost-effective and let employees take control of their own retirements.

New Hampshire needs to bring our pension policy into the 21st century. We need serious structural reforms to our pension system, and we need them now. Continuing the shell game and secretly pushing huge pension bail-out costs onto local taxpayers won’t work much longer. The state legislature must step up to the plate.

Jim Dannis is a selectman in Milford. For more information on the pension issue, see http://jimdannis.blogspot.com.