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September 03. 2013 5:02PM

Charles Arlinghaus: NH's budget looks OK, but the debt is scary


 

The State of New Hampshire's long-term fiscal health is mediocre. Fortunately for us, the abysmal state of the federal government makes us look good by comparison. Fortunately for Washignton, it is not in nearly as bad a shape as much of southern Europe. For the future, we can wallow in our mediocrity and celebrate being not as bad as others, or we can try to fix things before they get even worse.

I don't want to be overly critical of the state's last budget because we don't do a bad job of avoiding the sins of the federal government. In general, state spending is more or less balanced and every time our spending gets a bit out of control, the lack of funds and a requirement that we achieve balance brings us back to Earth.

Looking at the state budget is always difficult because of the variety of numbers and the shell games played with them. Because of all the gimmicks related to shifting money, it's hard to figure out exactly which number compares apples to apples. For the most part, comparing all non-federal money across years is appropriate (with the exception of a couple of rare years in which funny games were played with borrowing).

Over the period from 2005 to 2015, total non-federal spending (the money raised by the state through taxes and fees, as opposed to transferred by the federal government) increased by an average of 2 percent per year, from $3.1 billion to a projected $3.75 billion.

Of course averages don't tell the whole story, and most decades in New Hampshire's fiscal history feature periods of profligacy followed by restraint. That 10-year period includes four years in which spending increased by more than 6 percent each year (fiscal years 2007-2011) followed by a significant cut when the end of borrowing and bailouts forced the Legislature to spend only what it raised. The last budget includes a below-average 1.3 percent annual rate of increase.

In the same 10-year period, federal spending increased by an average of 4.7 percent. If it had increased by only 3 percent, the budget would be balanced.

But the state's problem is debt, not balancing its budget. Unlike the federal government, our debt is offline in a separate capital budget. New Hampshire had frugal debt policies for many years. But debt skyrocketed from 2007-2011, rising by 47 percent in four years. That's not quite as bad as the federal government, which saw debt increase by 65 percent in the same period. But it is still horrible by New Hampshire standards. Our debt had been growing by only 1.4 percent each year before that.

Even now, though, our general-obligation debt is just under $1 billion, about 25 percent of what we raise in a given year. By comparison, the federal government's debt is more than $17 trillion, or 650 percent of what it raises in a given year. If the federal government were a state, we would declare bankruptcy and turn over its management to the former government of Detroit as an improvement.

Where we fare particularly badly is in the area of long-term debt that actually drove Detroit out of business: pensions and other retirement obligations. New Hampshire has one of the most underfunded retirement obligations in the country, and it's getting worse.

The unfunded liability of the regular pension system and the smaller retiree medical fund managed by it is $5.3 billion. A separate retirement medical benefit plan is 100 percent unfunded, to the tune of $2.3 billion. This $7.6 billion long-term problem (compared to regular state debt of less than $1 billion) is probably understated. It presumes we will average a return on investment of just under 8 percent and that the number of employees paying in and their average salaries will continue to rise much faster than is reasonable to expect.

Considered on its own, New Hampshire has serious debt issues, especially over the long term. The budget is balanced and our system pressures it to stay that way. But there is no pressure to push state debt levels down to the stable level of the decade prior to 2007. And the pension problem continues to grow. From 2007 to 2012, just the retirement system portion increased from $2.8 billion to $5.3 billion (growth half again as fast as the federal debt).

If you want to feel better, just tell yourself that, as a state, we're nowhere near as bad as those bozos in Washington. But deep down inside you know that it would be somewhat easier to act early instead of waiting until it gets too big to fix.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord. His email is arlinghaus@jbartlett.org.


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