The decision by legislators to first reduce and then eliminate the state’s contribution to public employee pension costs resulted in, as Hampton Rep. Renny Cushing testified recently, the single biggest increase in local property taxes ever levied.
Cushing has sponsored a bill, HB 413, that would obligate the state to pick up 15 percent of those costs beginning next year.
Property owners should pay close attention to the fate of the bill and, if the bill gets that far, record how their representative and senator vote.
A half-century ago, lawmakers offered to pay 40 percent of employee pension costs in an effort to encourage cities and towns to participate in the state retirement system. Enrollment swelled and most police officers, firefighters, teachers and other municipal employees were soon covered by the retirement system.
In 1977, the state faced a budget crunch and lawmakers cut the contribution to 35 percent. During the 2009-2010 session, a Democratic-controlled Legislature suffering a recession-related budget shortfall voted to cut the state’s contribution again, this time to 25 percent.
Local taxpayers felt the sting.
The following year, a Republican Legislature led by a tyrannical speaker eliminated the state contribution entirely. The sting became a burn. The cost to Concord alone was $1 million, enough to raise the property tax rate by 3 percent.
To make matters much worse, the state reneged on its promise at the same time municipal costs were increased to help eliminate the massive underfunding of the state retirement system, which had overestimated future earnings and made promises to retirees that it couldn’t afford to keep. Reforms to the system are slowly increasing the long-term solvency of the system, but a safe balance between assets and liabilities remains years away.
Last year, the retirement system estimated that it would earn 7.25 percent on its investments, a figure below the 7.62 percent 25-year national average earnings of such funds. It earned just 1 percent, which was ½ percent below the national average for public pension plans, all of which had miserable earnings, according to Governing magazine.
If returns don’t even out in a few years, public employers, their employees and local taxpayers will be told they have to pay even more.
The elimination of its pension contribution wasn’t the only example of state downshifting of fiscal responsibility. The state suspended its practice of sharing revenue with cities and towns and froze the share of revenue from the rooms and meals tax it shared with municipalities.
School building aid was suspended, and the state stuck by its absurd claim that the cost of the adequate public education it was obligated to pay for is roughly $3,600.
As a result, New Hampshire property owners pay some of the highest local taxes in the nation. The state’s tax system is among the most regressive in the land, since property tax rates are unrelated to an ability to pay them.
In ways that are obvious but difficult to measure, the high property taxes that result from state downshifting have hurt New Hampshire’s ability to keep and attract both young people and new businesses. They have reduced real estate values and contributed to the increase in the average age of the state’s residents.
Restoring the state’s pension contribution, at least in part, would reduce local property taxes and slow their rate of increase. That’s even more important now, since so many public employees are nearing retirement age.
Voters whose lawmakers refuse to do so should plan on replacing them.