I was taught at a young age that saving up for something I wanted was always going to be less expensive than buying it on credit. Sometimes the higher cost is worth it, such as when we buy a home or a car. We face a similar choice in trying to keep Gov. Kelly Ayotte’s promise to restore retirement benefits to police officers and firefighters hired before 2011.
In 2011, the legislature acted to protect the solvency of the New Hampshire Retirement System, which provides pension benefits to thousands of government employees and teachers (Group I) and police and firefighters (Group II). Without any changes, the underfunded system would have gone bankrupt. So, the legislature pared back benefits for employees who had not yet “vested” their pension by working for 10 years. Approximately 1,550 police officers and firefighters from that group are still working and have been pushing to regain their higher benefits.
In her budget, Gov. Ayotte proposed restoring all of the benefits to these Group II members who had been hired before the 2011 pension reforms. That would cost $275 million because it would be paid on credit. The credit payments would be $27.5 million per year for the next 10 years. I have drafted a more affordable path to achieve the governor’s goal. By breaking the higher benefits into four pieces and paying for each over the next four budget cycles we can reduce the plan’s cost by $121 million.
This alternative still gives the 1,550 Group II members everything that the governor proposes, but they’d have to wait to get all of the benefits. This year, we would increase the credit toward retirement earned for an additional seven years of their career. In two years, we would increase that credit for every year of their service. The following biennium, we would base their pensions on the top three earning years of their career, rather than the top five. And in the final budget cycle, we would allow them to earn higher pension benefits on duties outside their normal hours, such as traffic details and overtime. As each increase in benefits kicks in, the legislature would pay an additional $19.25 million into the New Hampshire Retirement System.
Unfortunately, neither of these paths would pay off the total costs of the higher benefits. Cities and towns would still be faced with a small property tax increase every year, starting in 2028. To offset this so-called “Normal Cost”, I proposed a small increase in pension contributions, split between employees (0.75 percent) and the state (1 percent). This would guarantee that property taxes would never increase to pay for higher pension benefits.
We would not ask police officers and firefighters hired since 2011 to pay higher pension contributions with nothing in return. My draft plan would increase their pension calculations after 20 years of service, significantly boosting their pension payments in retirement.
Our Group II law-enforcement officers and fire fighters provide exemplary service to the State of New Hampshire. As chair of the Senate Finance Committee, I want a plan that is fair to 1,550 employees affected by the 2011 changes and helps the governor fulfill her campaign promises. I also need to protect 1.3 million Granite Staters who pay state and local taxes. The phased-in approach restores lost benefits to Group II, provides a recruitment and retention incentive for our local police and fire departments, protects cities and towns from higher property taxes, and saves state taxpayers $121 million. I’m hoping the House and the governor can support this more affordable path.
