Updated: Political blame game follows state bonds outlook downgrade

By JOHN DiSTASO, Editor

(Wednesday, April 23, Update)

CONCORD –  A day after a top rating agency lowered its outlook of the state’s general obligation bonds from stable to negative,  a coalition of groups representing employees in the state public retirement system said Senate Republicans share in the blame.

Standard and Poor’s cited the state’s  “significantly underfunded pension funding levels” combined with its small rainy day fund and a recent court ruling that the Medicaid Enhancement Tax is unconstitutional in  its report (see story below).

State Treasurer Bill Dwyer wrote in a memo to elected officials on Tuesday night that after speaking with a S&P official, “The overall impression is that S&P has been waiting for an opportunity to put the State’s credit on negative outlook due to the low level of reserves (rainy day fund balance) and the unfunded pension liabilities in place for the past few years and that the MET ruling afforded that opportunity.”

That assessment appeared to back up Senate President Chuck Morse’s initial reaction that the outlook change was “about much more than the recent MET ruling.”

The retirement coalition, which includes public employees unions, said in a statement Wednesday however that state Senate Republicans “were quick to attack their fellow legislators and public employees” after the Standard & Poor’s announcement.

The coalition said that in 2007, “responsible and bipartisan retirement reforms were enacted. Instead of allowing these changes to work, in 2011 Sen. Jeb Bradley (R-Wolfeboro) and his fellow Senate Republican colleagues added to the unfunded liability by slashing employer contributions.  Due to Senate Republicans’ so-called pension reforms in 2011, they increased the (unfunded liability)  by 11.5 percent,  adding over $400 million to the state’s underfunded status, exacerbating the problem. “

“Embracing real pension reform for newly hired employees and encouraging an open discussion with public employee groups would have been a responsible solution to our state’s financial concerns,” the coalition said. “Unfortunately, Senate Republicans refused to discuss retirement security for all public workers, and sentenced newly hired police officers and fire fighters to a future reliance on taxpayer-funded services.”

(An earlier report follows.)

TUESDAY, APRIL 22:

CONCORD — A major rating agency’s downgrade of its outlook of the state’s general obligation bonds from “stable” to “negative” set off a firestorm of election year finger-pointing Monday as Republicans blamed Gov. Maggie Hassan and Democrats blamed the Republican-led Legislature of 2011 and 2012.

The move by Standard & Poor’s was not unexpected given the recent ruling by a Superior Court judge that the state’s Medicaid Enhancement Tax is unconstitutional.

Under the Medicaid Enhancement Tax, hospitals initially paid the state the tax on what they earned for treating patients but the state would reimburse the hospitals, plus an “enhancement,” and the state would be reimbursed with federal money that went into the state’s general fund.

But the state continued the practice even after the reimbursement system ended, prompting several hospitals to sue.

The court ruling, which is being appealed, punched a hole of about $185 million in the current budget, according to S&P.

Standard & Poor’s cited not only that ruling but also the state’s overall “thin financial position and significantly underfunded pension funding levels, which we believe lowers its flexibility to withstand the potentially large effects of the loss of Medicaid Enhancement Tax (MET) revenue.”

It noted the Medicaid Enhancement Tax revenue “is significantly larger than the state’s stabilization balance,” known as the rainy day fund, and “represents a significant portion of general fund revenues. In addition, we believe that the timing of the ruling and the appeal increase the difficulty of adjusting the 2014-2015 budget, which is nearly half over.”

S&P said the state’s rainy day balance is “less than 1 percent of expenditures,” while its pension funding level of 56.7 percent is “well below that of most other states, which we believe could result in additional pressure on future budgets.

“The loss of the MET, if upheld by the state’s Supreme Court, would likely have a substantial effect on the state’s finances, as the gross collections of the tax are budgeted at about $185 million for fiscal 2014, or 13 percent of general fund revenues, and a similar amount for fiscal 2015,” S&P wrote.

“While the state has a stabilization fund that is available in the event of a projected biennium-end deficit, the balance of the fund is only $9.3 million and therefore would be relatively insignificant if all or a large portion of the MET was required to be refunded for fiscal 2014 or unavailable in fiscal 2015.”

Gov. Maggie Hassan said the downgrade “reinforces the need for hospitals, providers, legislators and state officials to quickly work together to address the budget and healthcare challenges posed by the Medicaid Enhancement Tax ruling, a direct result of shortsighted action taken in the FY 12/13 budget” produced by a GOP majority in the Legislature.

 “We have worked together to address issues that affect our bond rating, such as finally funding a new women’s prison and reaching a landmark settlement in the state’s mental health lawsuit. In addition, I continue to believe that using a significant portion of our surplus to strengthen the state’s Rainy Day Fund is a fiscally responsible step forward that will improve our long-term financial standing,” she said.

House Speaker Terie Norelli, D-Portsmouth, blamed the previous GOP legislature, saying the downgrade “reflects the long term damage done by short term thinking in the Fiscal Year 2012/2013 budget. We worked with the governor and Senate during the budget process last year to begin the recovery from the decisions made by the prior Legislature that left us vulnerable to litigation, weakened our communities and lacked the forward thinking that is essential to keeping the state’s economy strong.”

“Fiscal stewardship is about more than just spending as little as possible today, it’s about ensuring that we make smart choices about how we spend each and every taxpayer dollar,” Norelli said.

Republicans, however, blamed the Democrats.

Candidate for governor Andrew Hemingway said the move “falls squarely on Governor Hassan’s inability to manage state finances. This will have dire consequences and cost ramifications for New Hampshire businesses and taxpayers. Her status quo mentality and failure to advance New Hampshire’s economy, on any level, is at fault here.”

Fellow GOP candidate for governor Walter Havenstein said, “For too long our Democrat governors have used fiscal tricks to balance our budget, but these have been short-term fixes not long-term solutions. Unfortunately, Governor Hassan hasn’t shown any real leadership in resolving the MET problem.”

Republican state Senate President Chuck Morse said the downgrade requires “a long-term solution to how we fund our state’s health care safety net programs. However, we should not overlook the fact that the rating adjustment is about much more than the recent MET ruling.”

He said S&P addressed “our inadequate rainy day fund and underfunded pension system.”

Morse said that “legislation to transfer the existing budget surplus into the Rainy Day Fund as advised by (the state treasurer) continues to meet with opposition, while at the same time some legislators have sought to undermine recent pension reforms by creating new public sector retirement benefits.  These are precisely the wrong steps to be taking.”

House Republican Leader Gene Chandler said Republicans have tried to address “the massive unfunded liability in our pension system. Unfortunately, our efforts in the House this year to study alternatives to our current broken system have been dismissed by the Democratic leadership.”

Author: John DiStaso

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