In 2015, Concord spent $2.3 million on overtime for nearly 500 employees across all departments.
In the same 12 months, the city paid more than double that amount – $4.6 million, to be exact – into the New Hampshire Retirement System for its workers. For the 103 employees in the fire department, the city paid the retirement system $2 million. For the 104 employees in the police department, that bill was yet another $1.8 million.
Those payments are mandatory by state law, and they aren’t getting any smaller.
Concord’s personnel costs are a combination of contractual salaries and built-in pay raises, unpredictable overtime and rising health care costs. But every year, City Manager Tom Aspell must also factor in a growing contribution to the state’s retirement system, which is calculated as a percentage of employees’ total earnings.
“It’s even more relevant in terms of what we’re paying folks, because we understand what the retirement costs are,” Aspell said. “It’s 100 percent on the communities now.”
In the proposed fiscal year 2017 budget, Concord would pay $5.1 million into the state retirement system. That figure – the highest ever – accounts for 8.6 percent of overall general fund spending. Set by the Legislature, those contribution rates are now a necessary evil for city officials, one that only shows signs of increasing.
“You can only control your very small piece of the world,” Aspell said.
One option to reduce retirement costs is to cut salaries or staff. But to the city manager, it’s not that easy.
“If you need paramedics or police officers or school teachers or whatever, you need it,” he said.
In fiscal year 2015, Concord paid 493 people in full-time and part-time positions. Their salaries and overtime added up to $28.8 million.
On top of that, Concord paid $4.6 million to the New Hampshire Retirement System for those employees. Workers themselves contribute 7 percent of their paychecks to the system, while the city pays up to 30 percent per person, depending on the job.
Cities and towns didn’t always pay so much money into pensions.
The New Hampshire Retirement System has more than 47,800 active, contributing members, and it distributes a pension to more than 31,300 former public employees. Across the state, 468 employers participate in the system – the state of New Hampshire, counties, municipalities, schools districts and others.
In the 1990s, the Legislature changed the formula used to calculate contribution rates for public employers. Meant to be temporary, that method remained in place for years and resulted in an unanticipated shortfall of $4.5 billion.
Marty Karlon, public information officer for the retirement system, put it this way: “There’s a hole in your balloon, and you didn’t realize it.”
The state has made a number of changes to address that unfunded liability, and the state is currently in the sixth year of a 30-year plan to close that gap. Rates also depend on investment returns, which fluctuate with market performance.
As a result, the amount of money communities pay into the system has more than doubled since 2003.
“A hole had been dug for 15 or 20 years, and now we’re filling it in,” Karlon said. “There’s a fairly significant portion of what the employers are paying that is going to pay the unfunded liability.”
Simultaneously, the state also dropped its retirement contributions to cities and towns from 35 percent to zero. At the time, Concord’s contribution immediately jumped by more than $1 million; it has continued to increase in the years since.
Pensions are determined based on an employee’s years of service and highest earnings. While reforms to the retirement system have eliminated severance packages from that calculation for future retirees, overtime pay is still factored in.
In calendar year 2015, 31 city employees earned $15,000 or more in overtime. Those people added between 14 and 57 percent of their regular salaries to their total earnings, which in turn boosts the city’s contribution to the retirement system and their eventual pensions.
Five employees exceeded $30,000 in overtime, which bumped each of their total earnings for the year over $98,000. Almost all work in the police or fire department, for which the city pays the highest retirement rates.
To Aspell, paying retirement rates on a higher salary for one employee could still be cheaper than paying salaries and benefits for two employees.
For example, Concord paid into the New Hampshire Retirement System at a rate of 25 percent for police officers in 2015.
That year, one of the highest-earning police officers made about $66,000 in salary and $34,000 in overtime. That means the city paid roughly $25,000 into the pension system for that employee. In addition, health insurance costs between $17,000 and $25,000 per employee, depending on the plan. So Concord spent between $142,000 and $150,000 on that police officer in 2015.
By comparison, if Concord employed two officers at that salary and spent nothing in overtime, their combined earnings would be roughly $132,000. For the two officers, the city’s contribution to the retirement system would total about $33,000. Even if both officers chose the least expensive health insurance plan, the city would still spend about $200,000 on two employees.
“Is it better to pay someone overtime, even though there’s retirement costs associated with that, than to pay health benefits?” Aspell said. “That has really shifted.”
When the Legislature cut its contribution to the retirement system, the city of Concord signed on to a lawsuit challenging that decision. The state supreme court ruled in the state’s favor.
“I think the state needs to step back in and put back in their contribution that was promised,” Aspell said. “It doesn’t have to be 40 percent, but it shouldn’t be zero. That was just a way to balance the books over at the State House.”
Is he hopeful that will happen? Aspell answered without hesitation.
“No.”
The city’s final budget hearing and vote on the proposed budget for fiscal year 2017 is Monday at 7 p.m. in council chambers. For coverage and a complete searchable database of city employee salaries, visit concordmonitor.com. To read Aspell’s transmittal letter and the budget proposal, visit concordnh.gov.
(Megan Doyle can be reached at 369-3321, mdoyle@cmonitor.com or on Twitter @megan_e_doyle.)