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Monday, August 3, 2009

$3.4 Billion More in Shortfalls

Since Judge Kathleen McGuire’s ruling last week that Governor Lynch and State House Democrats could not raid the Joint Underwriters Fund in order to balance the state’s books, the talk around Concord has been how to close this $110 million budget hole.

Democrats in the House are suggesting new sources of revenue, in the form of either an estate or capital gains tax, to fill the gap.

An equally pressing issue receiving significantly less attention concerns the mounting deficits within the New Hampshire Retirement System.

A piece in this morning’s Concord Monitor shines some light on the problem:
The sinking economy has taken a billion-dollar bite out of the state's already-ailing pension system, leaving the New Hampshire Retirement System with about 59 percent of what it needs to pay its long-term liabilities, according to preliminary calculations, for a shortfall of $3.4 billion. …

The pension system's troubles aren't new: The New Hampshire Retirement System ranked sixth from the bottom of the 50 states in terms of pension system health in 2006, when there was a funded ratio of 61 percent, according to a compilation by the Pew Center on the States. Rhode Island was the worst off, with a funded ratio of about 54 percent.

The woes in the New Hampshire Retirement System date to 1991, when state lawmakers adopted an unorthodox accounting method that, lawmakers now say, led to years of overestimating the system's health and undercharging employers for their portion of the costs.

In 2007, as part of a broad effort to reform the pension system, the Legislature voted to return to the standard accounting system used by most pension systems nationally. Lawmakers at the time said the changes would put the retirement system on a long-term course toward restoring its health.

Since then, stock markets have dropped significantly; the Dow Jones, for example, shed about 39 percent of its value between the end of June 2007 and the end of June 2009, when the latest assessment of the retirement system's value was taken.

To Carroll's mind, the reforms should continue. Right now, employees pay in a fixed percent of their pay - 5 percent for most state and local employees and 9.3 percent for police officers and firefighters - while employers' rates are set by the board to make up the difference.

"I think we need to look at the employees sharing more of the risk," Carroll said. She noted that employee representatives hold eight of the seats on the 14-member board, while municipalities have one representative. "If only one party has a risk and that party is literally not at the table, then there's something about the system that doesn't work correctly."
No matter who is saddled with the increased fees to cover the massive shortfall, it will mean more money out of the pockets of New Hampshire’s citizens at a time when we can all least afford it.

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