Politics ain’t beanbag. But math is brutal.
And it’s the brutal math of a tight budget and even tighter labor supply — with a dollop of GOP politics thrown in — that’s at the heart of the battle over Group II retirement funding.
On the campaign trail, Republican Kelly Ayotte made a promise to about 1,500 police officers, firefighters, and other public safety employees that she would boost their retirement payouts.
Once in the governor’s office, Ayotte was presented with the fiscal realities of fading revenues.
But Ayotte isn’t backing down. She’s proposing more than $300 million in spending over the next decade to benefit this relatively small number of public servants.
“Gov. Ayotte has made clear that restoring the state’s promise to those who keep us safe must be a top priority,” Ayotte spokesman John Corbett said in a statement. “Our communities depend on these men and women, and keeping our state the safest in the nation requires that we keep our promises.”
Critics appreciate the sentiment, but they point to the same old problem: math.
The total cost, according to an internal funding proposal prepared by the state Senate, amounts to nearly $327 million, spread out over the next 10 fiscal years (through FY 2035).
That amounts to roughly $218,000 per employee.
“That’s a huge amount of money,” former Senate President Jeb Bradley (R-Wolfeboro) told NHJournal.
Bradley is at the center of the debate because he played a leading role in 2011 when the original math problem emerged. Thanks to overly generous pension payouts and liberal retirement rules, New Hampshire’s retirement system was sliding toward fiscal disaster.
At the time, the state had a $4.3 billion unfunded pension and health-benefits liability, and the state only had 57 percent of the funding on hand to cover its future obligations, according to the New Hampshire Retirement System (NHRS). Anything below 70 percent is widely viewed as problematic. The state had to act.
The result was a plan that split retirees into two groups, with higher payments and lower payouts for those hired on or after July 1, 2011, or not vested before January 1, 2012. The unfunded pension liability improved, and state employees still enjoy very generous benefits.
Today, the NHRS reports that the system is 68.6 percent funded, with an unfunded liability of $5.6 billion. An improvement, but still not great. In fact, New Hampshire ranks 41st for its pension funding ratio.
“I took heavy fire in 2011,” Bradley recalled. “But we did the right thing.”
Now, Ayotte and her allies in the legislature are working to undo it. Their proposal is to use revenues from the new video state lottery terminals (VLTs) set to go online within the coming year to pump an additional $275 million into the Group II retirees’ fund through 2034.
Ayotte argues that with this new gaming revenue, covering the costs should be no big deal. Her administration is projecting that video lottery machines will likely generate upwards of $198 million in revenue over the next two years.
“The idea that the legislature would shirk this responsibility while new revenue streams are available for restoring these benefits is irresponsible,” Corbett added.
Several Republican legislators pointed out that the current legislature can’t bind future bodies, and the deal only works if elected House and Senate majorities continue the spending. Asked if Ayotte’s proposal will add to the state retirement system’s unfunded liabilities, Rep. Dan McGuire (R-Epsom) said, “Not if we keep making the payments.”
Defenders of the proposed spending point to another math problem–not enough people. Specifically, not enough first responders.
Mayor Jay Ruais, a veteran of his own budget fights, says the green-eyeshade folks focused only on the cost of the Group II pension fix should check their math. The shortage of police officers and firefighters leads to increased spending on overtime to cover all the shifts. And without more generous benefits, the trend is likely to lead to even greater shortages of police officers and firefighters in the future.
“Recruiting and retaining law enforcement comes at a tremendous cost to cities like Manchester, and the current solution in the budget will help reduce that cost while ensuring we can continue to hire these dedicated men and women. This is a commonsense, responsible solution that will ensure New Hampshire remains the safest state in the nation,” Ruais told NHJournal.
Ayotte has made the same “penny-wise, pound-foolish” argument, noting that cities and towns have been forced to dip into overtime reserves and dole out hefty bonuses just to retain first responders who otherwise would be bolting for greener pastures.
In her budget, Ayotte proposed injecting $33 million into the Group II retirement system over the next two years “to help recruitment and retention” as part of “delivering on promises to law enforcement and first responders.”
And even if the state doesn’t want to pay more, the courts may step in.
The New Hampshire Group II Retirement Coalition has filed a lawsuit claiming the 2011 deal deprived first responders of benefits they had previously been promised.
“Benefits that they were promised at the time of hire were, basically, taken away from them, from underneath their feet,” Seifu Ragassa, the coalition’s president, said at the time.
Ragassa said the coalition simply wants the pre-2011 pension package originally promised to employees at the time they were hired and claimed the $26 million constituted just one percent of what they were owed.
Meanwhile, the New Hampshire House earlier this spring introduced its own plan to revive Group II benefits. With little to no debate, lawmakers from both parties approved a Group 2 package projected to cost taxpayers a baseline of $55 million in the upcoming two-year budget and $275 million overall through 2034.
But perhaps the most significant math in this Group II equation is the political math.
Republicans have traditionally been the law-and-order party, and it’s an issue that has worked for them. At the same time, GOP candidates have struggled to get the endorsement and active support of public sector unions, which are traditionally allied with Democrats.
But those politics have been shifting recently. For example, Ruais was just endorsed by the same Manchester Professional Firefighters Local 856 that endorsed his Democratic opponent two years ago.
Asked about breaking with the tradition of union backing for Democratic candidates, President Chad Gamache said it wasn’t an issue. “We support those who support us,” he told NHJournal.
Is Ayotte taking care of the law enforcement community that supported her in last year’s elections?
“She wouldn’t be fighting this hard for the trash collector’s union,” one political operative told NHJournal on background.
And Ayotte is fighting hard. She’s made it clear that if the Group II spending doesn’t go through, she’ll kill the VLT expansion that state budget writers — and the state’s influential charitable gaming industry — are counting on.
Some fiscal hawks are still fighting. They point out that Group II retirees already scored $26 million in one-time payments out of the general fund from Republican Gov. Chris Sununu.
And the 2011 deal did more than just right-size payments. It also implemented reforms, such as curbing the habit of employees accumulating sick days and overtime work to increase pension payouts.
“You’re going to see them (Group II members) spike their pensions to the max and leave as quickly as they can,” if the proposed package passes, Bradley predicts.
Senate Majority Leader Regina Birdsell worries the price tag is just too steep.
“For me, this goes a little too far,” Birdsell said last week during Finance Committee deliberations. “I think it pits the wants of 1,500 employees against the needs and requirements of 1.4 million.”
