New Hampshire's long-term health continues to decline
December 03. 2013 5:26PM
At the risk of sounding like Navin R. Johnson in "The Jerk," let me rejoice in telling you that the new bond statement is here. The most informative and legally accurate snapshot of the state's financial status does not paint a pretty picture. The state's short-term finances improved in small ways over the last few years, but the long-term prospects are grim and are not getting better.
One of the great problems for your average concerned citizen is finding accurate and dependable information about our government, which supposedly works for us. Most government statements are governed by politics, not accuracy, and they place a greater premium on spinning than informing.
My favorite exception to this information fog is the state's bond statement. Periodically, the state borrows money by issuing bonds in the market. These are essentially loans from investors to the state government. To accompany the bond offering, the state includes a 130-page statement which explains in great detail all the financial underpinnings of the government.
Because these documents are regulated by the Securities and Exchange Commission as part of a bond offering, they are held to a different degree of accuracy than are the political communiqués that form the basis for too much of our information, or lack thereof.
During a typical budget cycle, we focus on the immediate-term budget balance and ignore the long-term implications of many actions. The bond statement presents an accurate picture of both the long and short terms.
The state's short-term finances have improved dramatically. The current administration is fond of maligning the two-year budget passed in 2011, but it served as the basis of everything the Hassan administration has done since. A binge of borrowing and one-time federal bailouts had eaten up the state's surpluses, increased the state debt dramatically, and left an $800 million hole to be filled.
The 2011 Legislature took the common-sense step of limiting spending to the amount of revenue coming in. Therefore it had to cut state spending for the first time since the Merrill administration — and by the largest amount in modern history.
Tellingly, even with the House and Senate controlled by different parties, the 2013 Legislature adopted exactly the same principle and limited spending to existing revenues. Although total spending did increase, it was able to only because of the previous cut.
Further, we find in the bond statements that the maligned 2011 budget produced a $75.7 million surplus. That is the largest surplus since the $82 million Craig Benson surplus of a decade ago. It is only because of that surplus that the current budget is balanced. The restraint of 2011 created excess funds that allow the current budget to spend $57 million more than it expects to raise.
But the long-term picture continues to erode. State debt, after more than a decade of stability, skyrocketed from 2007 to 2011. The increase in just four years from $654 million to $939 million was roughly the same as the increase in the prior 20 years.
Even after budget cutters took over, the state's debt increased by 2.5 percent from 2011 to 2013, although that is a tiny fraction of the previous explosion. Someone thinking long term (which probably rules out most elected officials) might propose limiting new debt to 80 percent of the retired debt in any given biennium.
But the biggest nightmares come from the state's unfunded pension and other retirement obligations. New Hampshire has one of the worst-funded pension systems in the country. The state retirement system alone faces an unfunded liability of $4.638 billion plus an additional $710 million medical subsidy shortfall. On top of that, the state maintains another $1.857 billion unfunded OPEB (Other Post Employment Benefits) obligation outside of the retirement system. These liabilities of $7.2 billion dwarf the state's general obligation debt.
But there is light at the end of the tunnel. Word comes this week that lawmakers are going to issue credit cards to help with the pension problem. If their optimistic estimates are met, the state might generate $500,000 each year from people who for some odd reason or another want to have a Retirement System brand credit card.
After four years, the state might generate enough to lower the pension liability from $4.638 billion to $4.636 billion. Another 2,318 ideas like that one and the problem is solved. Well, except that the unfunded liability grows every year and the system is not designed to address that.
I was going to close by recommending that you read the bond statement, but you might want to wait until the new year. It's a little depressing.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.