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New Hampshire’s Growing Public Pension Funding Crisis

New Hampshire’s Growing Public Pension Funding Crisis. J. Scott Moody President New Hampshire Center for Economic Policy. On the web at: http://nheconomics.org/ On Facebook at: http://www.facebook.com/pages/New-Hampshire-Center-for-Economic-Policy/167461656611296

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New Hampshire’s Growing Public Pension Funding Crisis

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  1. New Hampshire’s Growing Public Pension Funding Crisis J. Scott Moody President New Hampshire Center for Economic Policy On the web at:http://nheconomics.org/ On Facebook at: http://www.facebook.com/pages/New-Hampshire-Center-for-Economic-Policy/167461656611296 On Freedom Connector at: http://connect.freedomworks.org/groups/new-hampshire-center-for-economic-policy Liberty in economics

  2. What is the New Hampshire Center for Economic Policy? • Founded in 2010 • A 501(c)3 non-profit, non-partisan organization. • Dedicated to pursuing public policies that are focused on “Liberty in Economics.” • Constitutional Government—setting limits to government activism • Fiscal Federalism—clearly defining the roles between state and local governments • Balanced Budgeting—debt should be used only as a last resort • Introduce Martin Sheehan, Director of Communications Liberty in economics

  3. Unfunded Pension Liability is $3.4 billion Liberty in economics

  4. Unfunded OPEB Liability is $1 Billion Liberty in economics

  5. Growth in NH’s Pension Payment Liberty in economics

  6. BUT, Pension Liability is Understated ! ! • Economist Robert Novy-Marx (University of Chicago) and Joshua Rauh (Northwestern University) dispute the “discount rate” • According to the Government Accounting Standards Board, the discount rate is based on the long-term return of a 60 percent mix in stocks and 40 percent in bonds which is around 8 percent. • Novy-Marx and Rauh argue it should be the default-free rate of return—proxied by the 10 year yield on Treasuries or currently about 3.43 percent. • New Hampshire uses an 8.5 percent discount rate. Liberty in economics

  7. NH’s Pension Liability Could Nearly Double • NH’s total pension liability, in 2008, was $7.8 billion. • Novy-Marx and Rauh estimate that the pension liability is at least $9 billion and could be as high as $14.2 billion. • This means the annual pension payment should be much larger. • Rauh estimates that the pension payment should be at least 75 percent higher. • In 2011, that means a payment of $486 million versus the actual payment of $277 million. Liberty in economics

  8. NH’s Pension Burden in Perspective Liberty in economics

  9. Conclusion • Only serious reforms of the pension system will bring down the pension liabilities to sustainable levels. • Another study will examine reforms in more detail . . . complicated by court-mandated pension property rights. • But . . . the one obvious solution is to move from a defined-benefit system to a defined-contribution system for all new employees. • The OPEB liability is a lost cause and should be eliminated as WV recently did. Liberty in economics

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