Should We Be Proud To Be Mediocre?

Charlie Arlinghaus

September 5, 2013

As originally published in the New Hampshire Union Leader

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 them, they are not in nearly as bad shape as much of southern Europe. For the future, we have the choice to wallow in our mediocrity and celebrate being not as bad as others or 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 shell games played with them. Because of all the gimmicks related to shifting moneys, 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 rare years with funny games played with borrowing).

Over the period from 2005 to 2015, total non-federal spending (the money raised by the state through whatever tax or fee, dedicated or not, as opposed to transferred by the federal government) increased by an average of 2% 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 ten year period includes 4 years where spending increased by more than 6% each year (FY2007-2011) 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% annual rate of increase.

In the same ten year period, federal spending increased by an average of 4.7%. If it had increased by only 3%, 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% in 4 years. That’s not quite as bad as the federal government who saw debt increase 65% in the same period but still horrible by New Hampshire standards. Our debt had been growing by only 1.4% each year before that.

Even now though, our general obligation debt is just under a billion dollars, about 25% of what we raise in a given year. By comparison, the federal government’s debt is over $17 trillion or 650% of what they raise 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 them is $5.3 billion. A separate retirement medical benefit plan is 100% unfunded to the tune of $2.3 billion. This $7.6 billion long term problem (compared to regular state debt of less than a billion) is probably understated. It presumes we will average just under 8% return on investments 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 fell 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.