The plaintiffs in this case were three political subdivisions representing hundreds of towns, cities, school districts, and counties, claiming that legislative changes to the manner of funding the New Hampshire Retirement System ("the System" or "NHRS") violated the New Hampshire Constitution's prohibition on unfunded state mandates. The court ruled that there was no constitutional violation.
There are two classes of employees in the system. Police and firefighters are in group II, while teachers and all other employees are in group I. In the 1970s, the New Hampshire Legislature required all political subdivisions (cities, towns, school districts, counties) to enroll their teachers and group II employees in NHRS. Political subdivisions may choose, but are not required, to enroll other employees in the system.
Funding for NHRS comes from three sources: investment returns, employee contributions, and employer contributions. From 1977 to 2009, the governing statute, RSA 100-A, required political subdivisions to pay 65 percent of the employer's contribution for teachers and group II employees, and required the state to pay the remaining 35 percent. (Political subdivisions have always paid 100 percent of the employer share for their other employees, and that was not at issue in this case.) In 2009, the Legislature increased the political subdivisions' share of the employer contribution for teachers and group II employees to 70 percent for fiscal year 2010 and 75 percent for fiscal year 2011, reducing the state's obligation accordingly. In 2011, the Legislature eliminated the state's contribution entirely, thus requiring subdivisions to pay 100 percent of the employer contribution for future years.
Part 1, article 28-a of the New Hampshire Constitution, ratified in 1984, states:
- The state shall not mandate or assign any new, expanded or modified programs or responsibilities to any political subdivision in such a way as to necessitate additional local expenditures by the political subdivision unless such programs or responsibilities are fully funded by the state ...
The plaintiffs asserted that by requiring them to enroll their police, firefighters, and teachers in NHRS with the promise that the state would pay 35 percent of the cost, and then withdrawing the state's contribution and requiring the plaintiffs to pay the entire amount, the legislature had violated article 28-a. The initial 65 percent requirement was not unconstitutional, because it predated the adoption of article 28-a. However, the plaintiffs argued that increasing their obligation from 65 to 75 percent, and ultimately to 100 percent, was clearly an "expanded responsibility" that required additional local expenditures.
The Superior Court disagreed and granted the state's motion for summary judgment. On appeal, the Supreme Court affirmed the superior court's decision.
In ruling that the mandated increase in retirement funding does not violate the prohibition on unfunded mandates, the Supreme Court held, for the first time, that the term "responsibilities" in article 28-a must mean "something more than merely a financial obligation." Instead, for article 28-a to be implicated, "the state action must impose some substantive change to an underlying function, duty or activity performed or to be performed by local government." Since the change in the funding obligation "did not change any underlying activity or function," it "merely" imposed a significant new financial obligation, the court concluded that it did not violate article 28-a.
Justice Conboy, dissenting, pointed out that "nothing in Article 28-a states, or even implies, that the amendment only prohibits … a new, expanded, or modified 'substantive' obligation, as distinguished from a … financial obligation," and that "the majority does not adequately explain why a financial obligation is not a 'substantive' responsibility." She noted that the court had previously stated that article 28-a "was designed to provide a safety net to save cities and towns from the burden of coping with new financial responsibilities, not of their own creation," and it failed to explain why it was now abandoning this interpretation.