N.H. school districts, towns facing big retirement-cost increases this year
Residents in hundreds of school districts and towns across New Hampshire will vote this spring on local budgets. And when they do, they’ll confront increased retirement costs for teachers, firefighters, police officers and other public employees.
The numbers for many communities are eye-popping: increases of 24.7 percent in Henniker, 28.3 percent in the Kearsarge Regional School District, a whopping 40.4 percent in Newmarket.
That’s because the trustees of the New Hampshire Retirement System, the state’s public-employee pension fund, have raised employer-contribution rates for the two fiscal years beginning July 1 to help deal with the fund’s multibillion-dollar unfunded liability. And that came on top of the state’s decision two years ago to end its long-standing contribution to local pension payments for police officers, firefighters and teachers.
Getting back that 35 percent subsidy would mean about $40,000 this year for the town government in Henniker, enough to cut the tax rate by 10 cents, said Finance Director Russ Roy.
“For us, that was a revenue source that helped offset the cost of this thing,” Roy said. “Now, the rates are going up and we’re seeing these kind of double-digit increases for the town. It makes it hard.”
But there appears to be little appetite at the State House for restoring that subsidy in the next state budget.
“Given our current budget constraints, I do not expect to see it reinstated,” said Sen. Sharon Carson, a Londonderry Republican and chairwoman of the Senate Executive Departments and Administration Committee, which handles legislation dealing with the retirement system.
Paying the bills
New Hampshire’s town-meeting season is approaching, with communities that use the SB 2 form of town meeting holding deliberative sessions last month and casting ballots March 12. Other communities will hold their meetings that month, though a few meet at other times during the year.
In Newmarket, voters will cast ballots in March on a proposed town budget for the fiscal year beginning July 1 that contains nearly $432,000 in general-fund payments to the pension system, up from nearly $308,000 in the budget for the current fiscal year.
For the most part, increases this year for Newmarket and other communities are being driven by an increase in the rates that employers pay into the pension system. (Employees also pay into the system, but their rates are fixed in statute.)
“There’s no other reason for that,” said Town Administrator Steve Fournier. “We have no additional new employees. Currently we’re budgeting with no additional funds for a collective bargaining agreement.”
For the biennium starting July 1, employer-contribution rates, as set by the New Hampshire Retirement System’s trustees, are increasing
∎ From 11.3 percent to 14.16 percent for teachers.
∎ From 19.95 percent to 25.3 percent for police officers.
∎ From 22.89 percent to 27.74 percent for firefighters.
∎ From 8.8 percent to 10.77 percent for other public employees.
That’s not because pension benefits are getting more generous. The rates are increasing because the pension fund has an unfunded liability, or shortfall in terms of the amount it needs to pay estimated future benefits, of $4.5 billion.
So the 475 public employers that participate in the system, including the state government, are being charged higher rates to fill that hole over the course of 26 years. And in May 2011, the trustees lowered the future expected rate of return on investments from 8.5 percent to 7.7 percent, triggering an increase in contributor rates this year to make up the difference.
“The unfunded liability is a debt that’s been incurred. . . . It’s got to be paid off, and that’s true no matter what happens tomorrow, no matter what would happen with regard to the plan in terms of any changes that could possibly be made. None of that would change the historical debt that has to be repaid, the note that’s already been incurred,” said George Lagos, executive director of the retirement system, during a presentation last week to the House Finance Committee.
Among the major causes of the unfunded liability: The actuarial formula used by the state for many years kept employer rates relatively low, but left the system underfunded.
“The system is not broken,” said Dave Lang, president of the Professional Fire Fighters of New Hampshire. “This is a symptom of what happens when the Legislature creates a system that does not require full payment of a bill that’s owed.”
The higher rates this year will show up in all local budgets, though the hit varies from community to community.
The new rates kick in July 1, when the fiscal year begins for the state, school districts and some towns. But most towns use a January-to-December fiscal year, so the new rates will only affect the second half of their budget.
In Weare, retirement costs are expected to come in about $12,000 higher in 2013 than last year, said Tina Connor, the town’s finance administrator. That’s roughly a 4.6 percent year-over-year jump, and must be paid whether voters approve the town’s proposed budget in March or not.
“It goes in proposed or default, so whether or not we get a budget approved or not, that is an expense we have to pay,” Connor said.
In Henniker, the rate increase will cost the town’s general fund about $22,000 more in the second half of the year compared with the first half, Roy said. That’s a 24.7 percent increase, he said.
In the Merrimack Valley School District, retirement costs are going up about $450,000 from the current year, said Superintendent Michael Martin.
The district’s budget hasn’t been finalized yet. But even if everything else stayed flat, he said, the retirement costs alone would create a 1.3 to 1.4 percent increase in the district’s budget.
And in the seven-town Kearsarge Regional School District, retirements costs are up 28.3 percent in the 2013-14 budget going before voters in March.
Retirement-system officials say they expect rates will increase much less in the next biennium, fiscal years 2016 and 2017. But there are also several pending lawsuits that could result in higher rates, depending on how they are resolved.
State subsidy gone
The state government used to help local communities pay their contributions for teachers, firefighters and police officers. When the retirement system started in 1967, the state paid 40 percent of local employers’ annual contributions for teachers, a rate that was lowered to 35 percent a decade later when it was expanded to include police and fire department members.
In 2009, a Democratic Legislature, looking to balance the state budget, lowered the rate to 30 percent in 2010 and 25 percent in 2011. It was supposed to return to 35 percent in the budget for fiscal 2012 and 2013, but Democratic Gov. John Lynch proposed eliminating it, and the Republican Legislature did so in the budget approved two years ago.
The Legislature in 2011 did approve an injection of $3.5 million to help soften the blow. But losing that 35 percent subsidy downshifted $124.7 million in costs, according to the New Hampshire Retirement Security Coalition. Lawmakers intended for most of that cost to be borne by employees, not employers, in the form of higher contribution rates. But that scheme was challenged in a lawsuit by several unions and last year a Merrimack County judge sided with the unions, though that ruling is not yet final.
The state is on solid legal ground. The Supreme Court, in a 3-1 decision last August, ruled that reducing or eliminating the state’s contribution doesn’t constitute an unfunded mandate, which would be unconstitutional.
Still, the New Hampshire Municipal Association lists restoring that 35 percent subsidy as one of its priorities for the coming two-year legislative session. (Fournier, the Newmarket town administrator, is chairman of the association’s Municipal Advocacy Committee.)
But it’s not clear if finding that money is a priority for lawmakers.
“I just don’t know where it comes from,” said Lang, the fire-union president.
Rep. Lucy Weber, a Walpole Democrat who chairs the House Executive Departments and Administration Committee, said she’s not placing bets.
“I’m not making any predictions . . . especially given we have a split Legislature,” she said.
Carson, who chairs the equivalent Senate committee, said she doesn’t expect the money to come back.
But, she said, new Gov. Maggie Hassan gets the first crack at the state budget, with the Exeter Democrat’s proposal due to the Legislature by Feb. 15
“I’m sure that the towns and the cities are really in contact with her,” Carson said, adding, “We’re just going to sit back and see what she gives us.”
Hassan’s office wasn’t tipping her hand Friday.
“We’re still working through the process of putting together a fiscally responsible, balanced budget,” said spokesman Marc Goldberg.
(Ben Leubsdorf can be reached at 369-3307 or firstname.lastname@example.org or on Twitter @BenLeubsdorf.)
An earlier version of this article imprecisely described the 2011 downshifting of an estimated $124.7 million in pension costs by the Legislature. Lawmakers intended most of that cost to be borne by public employees, not public employers, in the form of higher contributions. Several unions filed suit and a Merrimack County Superior Court judge last year sided with them to block the higher employee contributions. But that ruling is not yet final.