How the state can help restaurants survive the shutdown

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In the month before Gov. Chris Sununu ordered New Hampshire restaurant dining rooms closed, employment at New Hampshire full-service restaurants dropped by more than 8 percent (2,000 people), state figures show. In the month since the governor’s March 16 order, restaurant business has plummeted. State employment data are not yet available for those weeks, but industry insiders expect them to show catastrophic losses. 

Some New Hampshire restaurants already have gone out of business. Restaurant owners interviewed by the Josiah Bartlett Center in the last two weeks say things are bad and getting worse. If restaurants cannot reopen for in-person service in May, several said, the state can expect to see a wave of small-business closures.

A National Restaurant Association survey of restaurant owners nationwide found that 11 percent said they expected to close permanently within the next 30 days. Another 3 percent of those surveyed reported that they already had gone out of business. 

Restaurant revenue nationally is down by 50 percent for the year, according to data compiled by small-business software firm Wombly. That figure includes restaurants that specialize in take-out service, so the decline for dine-in restaurants would be even worse.

Full-service restaurants typically have low profit margins and high monthly expenses, including rent, insurance, taxes, and debt service on equipment. Reduced to take-out service only, many won’t survive if they can’t close the gap between their expenses and revenues. 

Anticipating that dining rooms are likely to remain closed beyond May 4, the Josiah Bartlett Center for Public Policy has drafted a list of policy recommendations to help full-service restaurants narrow their losses, and possibly return to profitability, so they can survive until the economy reopens. 

It’s important to understand that while on-premises service is halted by order of the state, other state laws and regulations prohibit restaurants from pursuing some potentially lucrative alternative sources of revenue. By temporarily relaxing some of these restrictions, the governor might be able to save numerous restaurants from closure, return some employees to work and reduce the burden on state services.

The policy changes listed below would help restaurants either bring in additional revenue or push back some expenses until later in the year, when dining rooms are expected to reopen.   

  1. Allow restaurants to sell beer in growlers. State law does not allow restaurants and bars to sell draft beer in growlers (large bottles, typically 64 ounces, with screw-on caps). With dining rooms closed, restaurants are sitting on thousands of dollars worth of draft beer inventory that they are prohibited by law from selling. The state lets restaurants sell draft beer for consumption on-site only. Keg beer has a short shelf life, so without an order allowing it to be sold for off-site consumption, some restaurants will be forced to pour out inventory worth tens of thousands of dollars. This waste is entirely unnecessary. An emergency order could allow restaurants to sell draft beer in their own growlers or to fill customers’ growlers after washing them in commercial washing machines. The order could require growlers to be transported out of reach of a vehicle’s driver.    
  2. Allow restaurants to sell mixed drinks in closed containers. The state objection to the curbside sale of mixed drinks is that drivers could open and consume the drinks while in the vehicle. But state law already allows patrons to transport open wine bottles from restaurants, provided the bottle is stored in a car’s trunk or out of the driver’s reach. Allowing restaurants to sell mixed drinks in closed, sealed containers, with the same distance-from-driver requirement that applies to opened wine bottles, could offer a significant sales boost for some restaurants without endangering public safety. 
  3. Allow restaurants to sell bottled liquor and wine. The Liquor Commission has let restaurants to return unopened liquor and wine, but only for store credit. That doesn’t help restaurants that need cash. State law allows restaurants to sell only opened liquor and wine, on premises. Temporarily allowing restaurants to sell unopened liquor and wine for take out would allow them to increase cash flow while reducing inventory. Though they wouldn’t be able to compete on price with state liquor stores, they could do a decent business from patrons who don’t want to drive all the way to a liquor outlet or who just want to support local restaurants. 
  4. Allow outdoor, in-person dining, subject to social distancing and other health protocols. Grocery aisles remain clogged with customers, many not wearing masks or following recommended social distancing procedures. Meanwhile, restaurant decks and patios where better health protocols can be enforced go unused. The state could let restaurants reopen outdoor dining areas subject to additional regulations, such as requiring restaurants to space tables at least six feet apart, disinfect tables and seats after each use, have staff wear masks, use disposable menus, and limit the size of parties and the number of customers allowed on site. Some restaurant owners suggested that they could make things work temporarily if the state cut their authorized seating capacity in half and banned large gatherings in lobbies.  
  5. Let restaurants defer rooms and meals tax payments. If restaurants could postpone their rooms and meals tax payments for 90 days, they could save some cash to help get through the emergency shutdown. Payments would still be made, but after business has picked up and more cash is coming in. 
  6. Municipalities can also help by letting restaurants defer property tax payments. 
  7. Give restaurants the same liquor and wine discount that grocers get. State law (RSA 178:28) grants grocers a 20% discount on the wholesale price of liquor and wine purchased from state liquor warehouses, but restaurants a discount of only 10%. Granting restaurants the same discount that grocers get will shave some of their costs when dining rooms reopen.

Restaurants operate on famously thin margins. Many will not survive a prolonged shutdown if the state continues to enforce regulations that prevent them from adapting to the forced closure of their dining rooms. Our recommended changes offer responsible adjustments that could keep many small businesses alive without creating additional risks to public health. 

A downloadable version of this brief is available here: Bartlett Brief — Restaurant Help During Shutdown 

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Regulations keep food trucks from riding to the rescue

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By Andrew Cline

Ken Spilman usually spends early April preparing B’s Tacos for the season. This week, the food truck he’s owned for seven years sits idle as he waits out the coronavirus. 

“We’re hunkered down and we’re not going to get out there until the curve starts to go down,” he said.

He’s already lost lucrative event contracts, he told the Josiah Bartlett Center.

“The cancellations are right across the board. We’ve lost a significant amount. I have contracts that have now been either canceled completely or rescheduled. Two weddings that were planned, early summer weddings, and they’ve decided to wait a year.”

In the rapid economic contraction following massive business closures last month, local regulations prevent Spilman and other food truck owners from improvising new ways to find clients. 

“I can think of neighborhoods in Londonderry and Derry that if I announced I’m going to be at this location on Wednesday night for an hour, I’d do very well. It’d be a huge opportunity for us food trucks to go into certain neighborhoods. It’d be more local. I could serve my local community instead of going down to Massachusetts.”

But food trucks generally are not allowed in residential zones. 

“Licenses or site vending permits shall not be granted for vending within any residential district,” states Londonderry’s vendor ordinance. 

“You’d be surprised how many people have reached out to me and said, ‘why can’t you come to our neighborhood like an ice cream truck,’” Spilman said. “With social media today, you really could come to a neighborhood.”

Location restrictions keep food trucks out of large portions of commercial and industrial zones, too. Portsmouth restricts food trucks to private property and a public parking space downtown. Seven sidewalk spaces are reserved for food carts. The city bans food trucks from doing business on city streets, with the exception of exactly one downtown parking space this year. (The ordinance allows for three.) The parking space is auctioned to the highest bidder annually. By ordinance, the starting bid is $5,000. 

State law requires food vendors to get a state license ($50), which allows them to operate everywhere in the state. They remain subject to local regulations. Fifteen New Hampshire municipalities regulate where, when and how food trucks can do business. Food truck operators say the local regulations are highly restrictive and the fees expensive. 

This month, with Granite Staters ordered to stay home and non-essential businesses closed, ordinances prohibit food trucks from going where their customers are — homes, public parks and hospitals — and force them into deserted downtowns and big-box-store parking lots.

“They could be operating more freely,” Aaron Krycki, environmental health supervisor for the City of Manchester, said. 

“Rules aren’t designed to tell you what you can do,” Krycki said. “They’re designed to tell you what you can’t do.”

But for food trucks, local regulations are so broad that they often amount to a short list of places vendors may operate.

Manchester reserves Stanton Plaza on Elm Street, in front of the DoubleTree hotel, for food truck vendors. It lets truck owners bid on spaces at eight city parks. Vendors must get written permission to use any other public property — and most private property as well. 

The city’s regulations require vendors to obtain “written permission of the abutting landowner and/or tenant” to do business on private property, even their own.

In Manchester and many other municipalities, it is illegal to sell food from an on-street parking space even if your truck is fully licensed, inspected, fits in the space, and the meter is paid. 

Cities typically prohibit food trucks from doing business on public streets even if not obstructing traffic. Some, like Manchester and Keene, make exceptions for “frozen confections” vendors (ice cream trucks). 

There is not a single licensed mobile ice cream truck in Manchester, and there hasn’t been one in years, according to the city clerk’s office. So Manchester residents stuck at home during the state of emergency can’t even be cheered up by a visit from the ice cream man. 

Keene generally prohibits mobile food vendors from doing business on public property, including roads and parking spaces, with a few center city exceptions. 

“We do have some locations downtown on the sidewalk where we allow food carts to be. Five right now,” Assistant City Clerk Terri Hood said. “They go through clerk’s office to get permission to use the space. In addition to normal license, they have to have additional license agreement and small rental fee.” 

The fee is $250 for a one-year permit, she said. 

Ice cream trucks can roam most Keene neighborhoods (there’s a list of narrow streets they are not authorized to use). But food trucks cannot sell in any residential area unless invited to cater an event on private property.

Keene recently revised its parking ordinances so city officials could allow vending from parking spaces at their discretion. Vending is allowed in “parking spaces or parking lots as may be designated from time to time by the city….”

Among food vendors, Concord and Portsmouth have reputations for being prohibitively strict and expensive. 

“I won’t go to Concord because of how expensive it is,” Spilman, owner of B’s Tacos, said. 

Concord’s license costs $212. (Nashua charges $10 for a day, $25 for a week, or $100 for a year.) 

Concord prohibits food vendors everywhere except in the central business district “at locations approved by the Licensing Officer.” By ordinance, “approved locations are limited to Eagle Square and to four (4) within the public way.”

That’s it for the city. Even for authorized spaces, vendors must get “the written approval of the landowner and tenant in front of whose property and business the applicant intends to operate and the written permission of the majority of the two (2) adjacent businesses located on both sides of the proposed location.”

With so many restaurants downtown, that likely means getting the permission of a restaurant owner, which is highly unlikely. 

“In Concord, if you could set up in front of the State House, that would be great, but they’d never let you do that,” said Chris Kozlowski, the award-winning owner of Crescent City Kitchen, a mobile food trailer. 

Some cities make the restaurant protectionism even more explicit. Manchester bans food trucks from doing business within 50 feet of a restaurant that sells a similar product. A truck that sells hot dogs, for example, can’t operate on the street near a restaurant that also sells hot dogs.   

That provision is probably unconstitutional. In 1979, the Los Angeles Superior Court in People v. Ala Carte Catering Co. struck down just such a regulation as unconstitutional, calling it a “rather naked restraint of trade.”

In 2011, the Institute for Justice, a public-interest law firm, sued El Paso, Texas, over its ordinance prohibiting food trucks from operating within 1,000 feet of any restaurant, grocer or convenience store. Rather than face a trial, the city repealed the rule, acknowledging that it served no public health purpose. 

The Los Angeles case helped food trucks to flourish there. The city is considered by many foodies to be the birthplace of gourmet food trucks. Its regulations are cited as a model for other municipalities because they are focused on health and safety and largely avoid anti-competitive restrictions.  

Remarkably, New Hampshire municipalities have food truck regulations that can be more burdensome than those in New York City or L.A. Even when one city’s regulations are relatively easy to meet, the costs of complying with different rules in multiple places adds up.

“The hardest thing about New Hampshire is that it’s not state-based, it’s not county-based, it’s local rule,” Krycki, Manchester’s environmental health supervisor, said. “Every individual town can create a list of ordinances that can differ from one location to another.” 

Kozlowski, who operates in New Hampshire, Maine and Massachusetts, estimated that he spent roughly $1,500 on government fees in New Hampshire alone last year. 

“I have a wall full of licenses inside my trailer,” he said.

The paperwork can be duplicative too. 

“The thing with the hawkers and peddlers that blows my mind is that you have to get a background check with the state, and then they want another for the permit, so it’s just a tax grab,” Kozlowski said. 

Some municipal officials understand how burdensome the rules can be. 

“I think the biggest issue that these food trucks face, and a lot of the complaints I get, is finding an area. That’s tough,” said Stacy Disabato with the Manchester City Clerk’s office. 

Having fielded lots of queries about the lack of food trucks over the years, there is interest at City Hall in becoming more accommodating, she said. 

“Anything we can do to bring business here, we’re really interested in learning.”

In Rochester last month, city officials invited four local food truck operators to set up in normally prohibited public spaces so they could keep their businesses alive.

“With the Covid-19 situation, their events and catering gigs had all dried up,” Rochester City Manager Blaine Cox said. “Two of our food trucks had semi-permanent locations. One was at the Home Depot and another was at the Harley Davidson dealership, and they were closed.

“They were basically shut out. And at the same time, with the governor’s order, we had quite a number of fixed-base restaurants that shut down. They didn’t bother to go to takeout, they just shut down.

“We reached out to our food truck operators and said, we know your business is drying up. If you’d like to come downtown, we have space for you.”

The idea was to keep the city’s four registered food trucks in business. With one of the newer operators, it worked, Cox said.

“One of our food truck operators said, If you guys haven’t done this for us, we wouldn’t survive.”

Food truck operators say the burden of so many costly and varied local regulations makes it hard to work in New Hampshire. 

“It seems to me that other states have their ducks in a row,” Spilman said.

If municipalities do not begin lifting onerous restrictions, state legislation is possible. 

Earlier this year, Kozlowski and other food truck operators went to Concord to petition legislators to adopt uniform, statewide regulations. They say they would rather have one set of state rules and a single fee than 15 different local ordinances and thousands of dollars in fees. 

Other states have already acted. 

After fielding similar complaints for years, Arizona legislators in 2018 passed a statewide food truck licensing bill that limited local regulatory authority. That same year, Rhode Island adopted a similar law that exempts food trucks from local hawkers and peddlers licensing. 

If municipalities want to avoid a statewide law that overrides their own ordinances, Los Angeles and some other California cities offer useful models. Food trucks flourished in L.A. after the city repealed regulations that restrained trade. Cities such as Fresno wrote regulations that achieved public safety goals without being overly restrictive. 

A 2012 Institute for Justice report, Food Truck Freedom, offers a list of suggested policies that would remove needless barriers while maintaining health and safety standards. The following suggestions are put together from recommendations made by food truck operators and the IJ report. 

To make immediate changes, leaders in municipalities that have declared a state of emergency might be able to relax rules temporarily during the state of emergency. This short-term measure could let food truck owners serve immediate local needs and relieve them from the burden of complying with regulations that sequester them to now-vacant downtowns.

  1. Lower hawker and peddler fees. These fees should exist only to cover nominal paperwork costs, not to raise revenue or discourage applications. Fees that range into the hundreds of dollars are clearly unreasonable burdens that have no relation to actual application costs. 
  1. Remove “abutter approval” language that gives neighbors a veto over a food truck’s location. These rules have no relationship to public health or safety and are merely a restraint on doing business. 
  1. Remove any language that restricts food truck operation within a certain distance of a restaurant. These restrictions are likely unconstitutional and should be removed immediately. In any case, they harm consumers by giving established businesses a veto over potential competitors. They also hurt other local businesses by keeping popular food trucks, and the customers who seek them out, away.
  1. Allow food vendors to operate on public streets and sidewalks as long as they do not obstruct traffic. Instead of creating specific set-back distances, Fresno, Calif., simply requires that vendors not “obstruct the free movement of pedestrians or vehicles on any sidewalk.”
  1. Allow food trucks to do business in any metered parking space for the duration of the meter. This will free vendors to find the spots most convenient for customers while preventing them from taking a space all day. 
  1. Allow food trucks to operate on residential streets. These prohibitions sometimes are handled by zoning departments, which treat food trucks as if they are opening a permanent store in a neighborhood. They are not. Food trucks can take orders by apps or online, just as take-out restaurants do, and deliver directly to customers’ homes. They also can use apps and social media to respond to customers’ location requests. Instead of cruising streets like an ice cream truck, some food trucks can stop and vend for a few minutes or a few hours in neighborhoods at the request of residents.This would be an especially valuable service during a stay-home order. 
  1. Allow food trucks to operate on more public property, particularly in parks and parking lots. Though many municipal ordinances limit food trucks to a few public locations, city officials often retain the authority to open other spaces at their discretion. The result is a random, unpredictable, and changing list of extremely limited available spaces. Food truck vendor locations should not be subject to the whims of municipal employees. A better policy would be to open parks and off-hours parking lots as a rule. Scarce space, such as near public swimming pools in the summer, can be put out to bid. Manchester auctions food truck spaces at eight city parks. 
  1. Let vendors compete. Manchester prohibits two trucks of the same type from being at the same park. Because there are so few vendors (only eight food trucks bid for eight park spaces in 2019), it hasn’t been an issue recently. But in more popular parks it could hurt consumers once food truck business expands. Vendors often respond to trends (cupcakes, for example). A city might have multiple grilled cheese trucks but no burger truck one year, then four hot dog trucks the next year. There’s no public harm in having two taco trucks at the same park. Limiting options, though, could keep prices higher and reduce consumer choices. 

Andrew Cline is president of the Josiah Bartlett Center for Public Policy.

Download a pdf copy of this report here: JBC Food Truck Regulations.

 

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A disease outbreak is a bad time to ban disposable plastics and paper

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Forcing people to carry reusable food and beverage containers in public could accelerate the spread of microbes that cause infectious diseases, multiple academic studies suggest, the Josiah Bartlett Center for Public Policy shows in a new policy briefing paper. 

As government strives to suppress the spread of the novel coronavirus, policymakers should immediately repeal laws, regulations and ordinances that ban disposable food and beverage containers, utensils and plastic straws. 

Attempts to ban “single-use” plastic grocery bags, water bottles and straws, as well as non-recyclable utensils and to-go containers, have spread worldwide in recent years. New Hampshire legislators make annual efforts to impose such bans or restrictions, and several municipalities already have banned plastic grocery bags. Concord, Mass., banned single-serving plastic water bottles in 2013.

As these bans were debated, concerns about public health tended to be dismissed, even though studies have shown genuine potential health hazards. This briefing paper outlines the public health reasons why policymakers should reject these bans.

The full briefing paper can be read here: JBC Disposables Ban Coronavirus.   

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“Price gouging” and the toilet paper shortage

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If you haven’t stocked up on toilet paper, hand sanitizer, disinfectant wipes or milk yet, good luck. By the time you read this, your local supermarket might well be out. At noon on Friday, the Bedford Market Basket had some scattered half gallons and a single gallon-jug of milk left. (It was chocolate, indicating poor judgment on someone’s part.)

Supermarket shelves are empty all over New Hampshire as Granite Staters raid stores for milk and various sanitizing products. It’s as if the state’s been sacked by obsessive-compulsive pirates with rickets. 

But it wasn’t pirates (alas). Shelves are empty because basic market price mechanisms did not kick in. 

When demand surges as it did this past week, price increases typically follow. Higher prices discourage hoarding and encourage suppliers to boost production. But supermarket executives know that if they discourage hoarding by raising prices, people will accuse them of “price gouging.” So they don’t raise prices. Predictably, shortages result. 

A Union Leader story that credited the shortage to “panic buying” featured a Hannaford sign taped to a bare shelf. The store “may have frequent out of stocks on many toilet paper products for the foreseeable future,” it warned.

Well, of course. When toilet paper costs exactly the same during a period of peak demand that it did the week before, buying more than you need comes with zero additional cost. You might as well buy a bunch now “just in case” because it’s the same price now as it was last week and it will be next month. 

A price increase would make some people think twice about buying more than they think they’ll need. That would leave more for people who have a greater immediate need. 

Unwilling to raise prices, stores have tried to discourage hoarding by imposing purchase limits. “There is a daily purchase limit on this item of 2 per customer,” read one sign at a local Hannaford on Friday. It sat on an empty shelf. Such limits are a form of rationing. They’re just not as good a form as price adjustments are. 

Shortages, by the way, are also a form of rationing. They’re just a really bad one.  

“Price gouging” can have different meanings. Raising the price when one has a monopoly on a good or service is one. Raising prices in a competitive market when demand surges is another. The second meaning is the misleading one. People equate the two, but they aren’t the same.

Studies done on gas price increases after hurricanes Katrina and Rita found that the prices were regular supply and demand fluctuations, not arbitrary impositions, as in the case of the monopolist. A 2007 price gouging study published in the Journal of Competition Law and Economics analyzed the impact on the economy if price gouging laws had been in effect after those two hurricanes. The authors estimated that “economic damages would have been increased by $1.5–2.9 billion during the two-month period of price increases.”

That’s because laws that ban “price gouging” are really just price caps. And price caps create shortages during periods when the market price otherwise would rise above the cap. 

Economist Milton Friedman made exactly this point when writing about the U.S. gas shortages in 1973. 

This week’s supermarket sell-outs are caused by the failure of prices to find their natural market equilibrium. If government forbade sellers from raising prices, the result would be the same. 

Thankfully, New Hampshire has no anti-price-gouging law to make shortages even worse.

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Addicted to tax revenue: The potentially dangerous rush to raise the vaping tax

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The state’s first vaping tax took effect on January 1, just nine weeks ago. On Thursday, the House approved a bill to more than quadruple it. But the revenue is unlikely to be the bill’s biggest effect.

House Bill 1699 raises the tax on the liquid used for e-cigarette vaping to 40% of the wholesale price. The current rate is 8% for open systems (fill your own) and 30 cents per milliliter for closed systems (cartridges). 

On a 12-8 vote, the House Ways & Means Committee asserted that the increase was justified because of the potential negative health effects of nicotine contained in vaping liquid.

“The nicotine delivered by electronic cigarettes is a toxic addictive chemical derived from the tobacco plant,” Rep. Richard Ames, D-Jaffrey, wrote for the committee. “We know it is addictive. But we don’t yet fully understand the extent of the damage to vital human organs, particularly the lungs and heart, that may be caused by its inhalation through the vaping process. We don’t yet know its effect on the human brain, particularly its effect on the still developing brain of a young person.”

But nicotine researchers have repeatedly pointed out that nicotine should be treated as less harmful than tobacco smoking.

“We need to de-demonize nicotine,” Ann McNeill, professor of tobacco addiction at the Institute of Psychiatry, Psychology and Neuroscience at King’s College London, told Scientific American in 2015.

The reason is that switching from cigarette smoking to vaping produces dramatic reductions in health risks and has been associated with declines in tobacco use.

A study McNeil published in 2018 concluded that the health benefits of switching to e-cigarettes were so profound that e-cigarettes should be prescribed by doctors as smoking-cessation tools. 

“When people smoke tobacco cigarettes, they inhale a lethal mix of 7,000 smoke constituents, 70 of which are known to cause cancer. The constituents in tobacco smoke that cause the harm are either absent or at much lower levels… in e-cigarettes so we are confident that they are substantially less harmful than cigarette smoking,” McNeil told the BBC.

“People smoke for the nicotine — but contrary to what the vast majority believe, nicotine causes little if any of the harm. The toxic smoke is the culprit and is the overwhelming cause of all the tobacco-related disease and death.”

The health argument being used for HB 1669 perpetuates the misconception that there’s little difference in the health risk between tobacco smoking and vaping. 

In fact, there’s a huge difference, and a growing body of research shows that vaping helps smokers quit, leading to improved health outcomes. A study published in the New England Journal of Medicine last year found that e-cigarettes “were more effective for smoking cessation than nicotine-replacement therapy, when both products were accompanied by behavioral support.”

The presence of nicotine in vaping liquid plays a significant role in helping smokers make the switch from tobacco to less-harmful e-cigarettes. A 2016 National Institutes of Health study and a 2015 Society for Research in Nicotine and Tobacco study found that smokers preferred e-cigarettes with higher nicotine content, suggesting that e-cigarettes with higher levels of nicotine helped people quit smoking by offering a satisfying substitute for tobacco. E-cigarettes with lower nicotine levels were less effective. 

Were the state leaving people alone to make their own decisions, the health outcomes would be a matter of individual choice. But in this case legislators are attempting to use the tax code for the express purpose of changing people’s behavior.

That puts the government on the hook for the outcomes. Given the strong link between vaping and smoking cessation, any government effort to discourage vaping would likely lead directly to worse health outcomes for smokers. 

Because the research showing vaping to be an effective smoking cessation method is well publicized, skeptics might conclude that a more powerful motivation for such a tax would be the revenue. (As with nicotine, collecting and spending tax revenue can be habit forming.)

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Will legislators add new unfunded liabilities to State Retirement System?

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On public policy, New Hampshire should always beat Vermont, as a matter of principle. That goes double for the handling of money. The state that sends a self-proclaimed “socialist” to the U.S. Senate should never get to say it’s more responsible with a dollar.

New Hampshire has bragging rights here. The Granite State is 12th in the Mercatus Center’s ranking of states by fiscal condition. Maine is 34th, Vermont 39th, Massachusetts 47th. 

And yet there’s one area where New Hampshire and Vermont are uncomfortably close: the Pew Center’s national ranking of the best-funded state retirement systems. Both states are down in the 30s, with less than 70 percent of their pension liabilities funded. 

So Vermont officials might have watched approvingly on Wednesday when the House advanced a bill that would worsen the financial position of the New Hampshire Retirement System. 

Instead of edging the State Employee Retirement System closer to the point at which it might some day have enough money to pay what the state owes its retirees, House Bill 1205 would edge us slightly in the opposite direction.

The state’s retirement system ended the 2019 fiscal year 64.8% funded. The system hasn’t been above 70% funded since 2004. Vermont has two state retirement systems, one for state employees, which is just over 70% funded, and a separate system for teachers, which is funded at about 54%. Pew’s latest ranking (using 2017 data), puts Vermont at 64.3% funded.

By contrast, Maine is a Northern New England lighthouse beacon of frugality, with 82% of its obligations funded. 

HB 1205 would nudge New Hampshire downward by eliminating an existing 10% reduction in retiree benefits that kicks in for Group 1 employees (general government employees and teachers) at age 65. The bill would cost the retirement system $37 million, according to its fiscal note. It would cause a slight (less than half a percentage point) increase in government contributions to the system (that is, taxpayer contributions).

When the mandatory cut was passed into law in 1988, 65 was the Social Security retirement age. The age has since inched up to between 66 and 67 years for retirees born in 1938 or later, but state law has kept the pension reduction pegged to age 65.

As a technical update, one can see the logic behind HB 1205. But that logic doesn’t generate its own money. The bill includes no funding to pay for its increased cost.

It’s a $37 million “giveaway,” Rep. Carol McGuire said when speaking against the bill. 

McGuire wasn’t able to convince her colleagues to vote against the bill. But she did succeed in tabling a bigger one, HB 1341. That bill contains a lot of changes, the largest being that it would raise the contribution rate for a large chunk of Group II employees by changing the formula for calculating their pensions. Municipalities would be hit with a large, mandatory increase in their retirement contributions. 

The bill as originally drafted would have added $142 million in unfunded liabilities to the State Retirement System. An amended version on the House floor on Wednesday had no fiscal note, but legislators say it would cost less than the original. 

Supporters tried and failed to remove the bill from the table on Wednesday, so it remains in limbo for now.

Though New Hampshire’s general frugality has kept the state from issuing the sorts of lavish unfunded promises to state employees that have made jokes of the retirement systems in Connecticut, Illinois and New Jersey, most state pension funds are more fully funded than ours. 

Recent returns indicate that loading the system with more unfunded promises would be particularly risky this year. The retirement system’s rate of return on investment was only 5.7% last year, below the assumed 7.25% and well below the previous year’s 8.9%. That translates into a $229 million (32%) drop in investment income from 2018 to 2019.

The retirement system has a plan to move toward full funding over the next two decades, but it relies on hitting investment revenue targets. Consistently lower market returns, like last year’s, and adding large unfunded liabilities would throw off the plan.

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Governor’s focus on growth, opportunity and innovation is paying off for New Hampshire

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The takeaway message from Gov. Chris Sununu’s State of the State address on Thursday was that New Hampshire, like comedian Larry The Cable Guy, gets her done.

The governor even said at the end of his address, “Let’s Get It Done.”

By solving problems through innovative, decentralized, low-cost methods, the state enables high levels of economic opportunity and growth, the governor said.

“Over the last year, New Hampshire families have benefited greatly from record levels of economic growth. Our focus on our workforce, while making high-paying, quality jobs available has paid enormous dividends.

“Business taxes are at their lowest this century, and more people are working than ever before. The model works — and it’s proven.”

We generally agree with that assessment of the New Hampshire model. But out of curiosity, we checked state economic data published in the state’s monthly New Hampshire Economic Outlook for this month, then compared it to the same report from February of 2017, the month after Gov. Sununu took office. These February issues report data from December of the previous year. We found that:

  • From December of 2016 to December of 2019, New Hampshire added 29,520 people to the labor force and 30,720 to the state’s employment rolls.
  • The number of unemployed individuals shrank by 1,210 persons, from 18,940 to 17,730.
  • New Hampshire’s unemployment rate fell from 2.8% to 2.6%.
  • Wage growth was up from an average wage of $890.46 to $939.21. That growth is lower than the rate of inflation as measured by the Consumer Price Index, but above the rate as measured by the Personal Consumption Expenditures method, which better accounts for the added value of improved consumer goods.

New Hampshire has experienced strong economic growth since the end of the last recession, and this growth has continued during Gov. Sununu’s tenure.

The governor can take credit for keeping business tax rates down and preventing numerous growth-harming taxes and regulations from becoming law during the last two legislative sessions. His defend-the-economy mindset has prevented the state government from reversing these positive economic trends.

Generally speaking, high business tax rates reduce, economic growth, opportunity and innovation.

A 2017 study by professors from Columbia, Duke and Harvard, for example, found that higher corporate tax rates led to lower corporate profits, which in turn led to lower domestic investment and, subsequently, lower economic growth.

And a 2018 study by economists from the University of Chicago and Harvard found that “taxation of both corporate and personal income negatively affects the quantity, quality, and location of innovation at the state level and the individual inventor and firm levels.”

Since taking office, the governor has focused a lot of his energy on protecting the economy from legislative proposals that would impeded growth, hiring, innovation and economic opportunity. That approach is working well for the state, which has hit record levels of employment in the past year and is, at long last, attracting young people again.

In other words, that approach is getting her done.

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2020? No, it’s 2019, suckers

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Nine days ago, you thought you woke up in a new year and a new decade. A fresh start! A chance to leave the past behind and venture into a bold new future of limitless possibilities!

Sorry, it’s Groundhog Day and you’re Bill Murray.

Welcome to Week 54 of 2019.

The Legislature opened its session on Wednesday by taking up bills that remain from the previous year, as is its custom. Even with hundreds of leftover bills awaiting disposal, a majority party can set the agenda and tone for a new year on the first days of a session.

The message coming from Concord this week was crystal clear: 2020 is going to be 2019 all over again.

The last legislative session was defined by its clashes between the governor and the Democratic majority in the Legislature over the imposition of new costs on employers and consumers, from business tax increases to energy price hikes to costly employer regulations such as mandatory paid leave and large minimum wage increases.

The House this week signaled that Democrats intend to make the 2020 elections about all of these same issues. They are determined to impose through the legislative process new financial burdens on employers and consumers.

Of course, they don’t view these issues this way. They would say they’re protecting Granite Staters from businesses that refuse to do the morally right thing. That philosophical difference drives these two competing agendas and will shape the 2020 state elections.

Last year, Gov. Chris Sununu famously vetoed 57 bills, including many of the Democrats’ top priorities. This week was a parade of zombie bills killed by the governor but reincarnated and sent staggering back out by legislators.

The House this week passed a mandatory paid family leave plan like the one Gov. Sununu vetoed last year. It was no accident that paid family leave was Senate Bill 1 in 2019 and a top item for the opening of the 2020 session.

Like last year’s plan, this one would create a government-run family leave program and pay for it by imposing a tax of 0.5% on wages. Also like last year, the Department of Employment Security estimated the cost to be $168.6 million a year.

Also returning from the dead was the minimum wage increase. But this time the zombie returned with new weaponry. The bill passed this week would more than double the state minimum wage to $15 an hour. The version that passed last year raised it to $12 an hour.

A representative who argued for letting the market decide wage rates was shouted down and the Speaker of the House had to restore order. The prevailing view was that greedy employers must be made to pay morally correct wages.

But the public sector pays less than $15 an hour too. The bill’s fiscal note states that 224 state employees currently earn less than $12 an hour, the minimum that would kick in this year were the bill to become law. By forcing government wages higher, the bill would put upward pressure on taxes.

The bill goes even further by allowing municipalities to establish minimums higher than the state’s. (Look out, Portsmouth and Hanover restaurants.) Naturally, no city could set a minimum lower than the one passed by the Legislature. So Berlin, Claremont, and Charlestown would have to find the money to pay all of their employees $15 an hour too. Those greedy plutocrats.

Imposing more employer costs that would be passed on to consumers, the House approved a plastic bag ban, also a zombie from last year, though not one vetoed by the governor. The bill’s summary states: “This bill requires businesses to charge customers for single-use bags.”

But it does more. It even regulates the composition of paper bags that might be offered in place of plastic ones. “Paper bags shall be made of recycled paper defined as 100 percent recyclable containing a minimum of 40 percent post-consumer recycled materials,” the bill asserts. “The bag shall be visibly labeled as ‘made from recycled materials’ and ‘recyclable and reusable.’”

Legislators who made a big show of trying to subsidize New Hampshire’s forest products industry last year just passed a bill to reduce demand for paper bags made with fresh-cut trees. Politics is strange.

It’s 2020 (allegedly), and this is how the legislative session began, with zombie bills and rehashed debates from 2019. It’s not likely to change much between now and November. So cue up Old Town Road and put on your House Stark T-shirt. This session is going to feel like a remake no one asked for but studios just couldn’t resist forcing on everyone.

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A 2020 priority: Protecting N.H. from unlicensed art therapists?

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The Legislature opens its 2020 session on Wednesday, and among the bills recommended out of committee for passage that day is a proposal to protect Granite Staters from the cruel predations of… art therapists?

Really.

This urgent action wasn’t mentioned among the Legislature’s 2020 priorities, yet here is House Bill 546. Why?

Well, in every legislative session, a small group of art therapists comes to the Legislature with an urgent request: Please outlaw our competition.

They don’t put it quite that way, of course. The messaging is always about licensing being needed for insurance coverage, or the danger posed by poorly trained art therapists. Yet the bills always define art therapy as broadly as possible and include criminal penalties for its unlicensed practice. Classic rent seeking.

Usually, common sense prevails and the bill dies. Committee revisions to the latest version of this anti-competitive legislation might allow it to pass.

New Hampshire does not license art therapy as a separate therapeutic practice. In fact, only eight states do, according to the American Art Therapy Association. Art therapists who have advanced degrees, and sometimes licenses from another state, have for years argued that artists and therapists who blend art instruction with even a small dose of therapeutic practices are a danger to the public and must be stopped.

Never mind that art has been considered therapeutic since cave men started scratching on rocks, or that the practice known as art therapy was invented by an artist, not a licensed therapist.

Art therapists who hold advanced degrees and out-of-state licenses want the state to require that anyone who offers “art therapy” services… hold an advanced degree and a state license.

See how this works?

Currently, licensed therapists in New Hampshire can incorporate art into therapy sessions without having to spend several more years in school to obtain a separate art therapy degree.

For example, a child therapist might have a child express his or her feelings by drawing pictures. Children don’t have the biggest vocabularies, so this can be a great way to help children communicate complicated emotions.

Therapists are not alone in using art to help people deal with emotional or physical issues. Art instructors routinely help people express previously unarticulated emotions through the creation of art. Museums even offer programs that, while not conducted by licensed therapists, are therapeutic in nature.

For example, the Currier Museum of Art’s “Art of Hope” program “provides support for loved ones whose family members suffer from substance use disorder.”

Under House Bill 546, it would be illegal for anyone to offer “art therapy” services unless the instructor has “a masters or doctoral degree from an accredited college or university in a program in art therapy….”

The bill contains an exemption for art teachers who do not present themselves as therapists. But under the definitions in the bill, any presentation that an art instruction program is therapeutic in nature could be construed to run afoul of the law.

Included in the bill’s definitions of art therapy is:

“Using the process and products of art creation to facilitate clients’ exploration of inner fears, conflicts, and core issues with the goal of improving physical, mental, and emotional functioning and well-being.”

Art instructors have been doing this for centuries. Without a license. Suddenly, in 2020, it’s a danger to the public?

There’s no evidence that unlicensed art therapists are inflicting psychological damage on Granite Staters. In fact, as mentioned earlier, only eight states have a distinct art therapy license and only five cover the practice under another license.

But there’s plenty of anecdotal evidence that the absence of an oppressive licensing regime has allowed many people to find services that have helped them through difficult times.

Though presented as a public health measure, this bill is simply an effort to restrict competition. It serves a small special interest, not the public interest.

Artificially reducing the supply of a valuable service by writing unnecessary restrictions into law would be an odd way to start this new decade.

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Janus ruling reversed years-long growth in state employee union membership

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Last year’s U.S. Supreme Court ruling in Janus v. AFCSME triggered a 5.9% reduction in New Hampshire state employee union membership, state payroll data obtained by the Josiah Bartlett Center for Public Policy show. The sudden drop reversed a years-long trend of rising union enrollment in state government.

Prior to the Janus decision, New Hampshire was one of 22 states plus the District of Columbia that forced non-union employees to pay union fees. Janus forbade states from collecting those fees.

New Hampshire halted this “agency fee” collection immediately after the ruling last June. In the following 12 months, state employee unions collectively lost 420 members, or 5.9% of their enrollment.

The vast majority of those losses (92.4%, or 388 members) came from the State Employees Association, according to state payroll figures.

Because the state withholds union dues from paychecks, union membership is trackable through payroll records. Those records show that in the previous five years, state employee unions had grown steadily, adding an average of 184 members a year.

Twelve months later, payroll records show that the Janus decision wiped out nearly half of those gains in just one year. The Josiah Bartlett Center obtained the data through right-to-know requests.

The inescapable conclusion is that hundreds of New Hampshire state employees had been joining labor unions only because they were being forced to hand over their money whether they joined or not.

Finally free to decide for themselves whether to support a union, they’ve chosen, along with more than 2,000 other state employees, to keep their money.

“Agency fees” and free speech

“Agency fees” were withheld from state employee paychecks and given directly to the unions on the theory that collective bargaining agreements benefitted all employees.

In Janus v. AFCSME, the Supreme Court held that state government “extraction of agency fees from nonconsenting (sic) public-sector employees violates the First Amendment.”

The court concluded that agency fee collection “violates the free speech rights of nonmem­bers by compelling them to subsidize private speech on matters of substantial public concern.”

As of the date of the Janus decision, 2,161 non-union N.H. state employees had been compelled to pay $1,012,055.83 in agency fees during the previous 12 months, payroll data the Josiah Bartlett Center obtained last year showed.

Instead of seeing those employees rush to join, unions lost withholdings from another 420 employees the next year. The figures show that agency-fee payers were not the only ones bankrolling unions reluctantly, in violation of their First Amendment rights. So were hundreds of union members.

The Janus drop

To see whether the decline in membership since the Janus ruling was an outlier, we obtained the union membership figures for the five years leading up to the court’s decision.

Conveniently, the Janus decision was handed down on the final week of New Hampshire’s fiscal year, which gave us the ability to look at union membership at the end of each state budget year.

State payroll data show a steady increase in union dues withholdings from 2013-2018. During those five years, state employee unions gained 922 dues-paying members. In no year did union membership drop.

Then, in the fiscal year following the Janus decision, state employee unions lost 422 dues-paying members, or 45% of the enrollment they had gained during the previous five years.

The financial losses that accompanied this membership decline appear to be small, however. According to state figures, unions lost only $5,388.50 for the year.

A drop, not a disaster

The drop in membership is not the financial catastrophe some advocates on both sides had predicted. Long-term effects won’t be known for years, but the immediate effect, though notable, is less dramatic than many had anticipated.

The largest financial losses came with the abolition of agency fees. New Hampshire state employee unions lost more than $1 million a year in agency fee collections from non-members after the Janus decision. But they managed to hold on to 94 percent of their members, losing only a few thousand dollars in membership dues.

The payroll data suggest that most state employees find value in union membership while a smaller portion either doesn’t want to associate with a union or has concluded that the costs outweigh the benefits.

The state payroll data spreadsheets can be viewed here: Union Dues 2013 Through 2019 Web.

A pdf of this brief can be downloaded here: Janus Effect Union On NH Union Membership.

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