Jim Donchess

NASHUA – As some Nashua residents are scratching their heads while others are throwing their hands in the air, Mayor Jim Donchess’ frustrations are fueled by a huge levy handed down from the state house for city workers’ pensions and also the increase in healthcare for city employees at the rate of $3 million per year.

In the past two years, property taxes have gone up 6.5 percent; the mayor said half of it is due to the rise in healthcare costs.

During a conversation on Thursday morning, Donchess also said that some of the city’s financial woes stem from months ago, when the state “drastically” increased the amount the city must pay for the pension system by $4.4 million.

“Virtually all city employees are in the state pension system,” he said. “And $4.4 million is a huge hit. That accounts for a 2 percent tax increase, and that is coming next year, on July 1, 2021. That’s a problem.”

Donchess said the city had a plan to solve the fiscal issue that will reduce the city’s costs for employees and costs for employees with regard to their healthcare. The crux is that strategy must be incorporated for all employees, not just some.

“We’ve had healthcare go up $6 million over the last couple of years,” he said. “That’s about 20 percent in two years. That impacted last year’s budget and the current year’s budget. And that was the principal driver of the tax increases for two years.”

The plan to reduce city and employee healthcare costs has been included in two collective bargaining agreements that have been finalized and two more that are pending. Donchess said it’s for unaffiliated workers, for a group of communication workers in the police department, and with two other bargaining units where a tentative agreement has been reached but has not gone public as of yet, as they haven’t been presented to the board of aldermen.

“That’s very close,” he said. “Pretty soon we’ll have it in five groups of employees. But we need them all in.”

Another challenge is that the city’s pension bill has been raised by $4.4 million.

“Then we found out in the last day or so that the state’s educational assistance to the city of Nashua will decline. One estimate is by $6 million; the other is by $4.5 million. Somewhere in that range.”

If that number is $6 million, that, plus the $4.4 million pension money, would result in a $10 million hit on the city in the next fiscal year, based upon state downshifting.

“That equates to almost a 5 percent property tax increase, imposed by the state of New Hampshire, before we get to the city budget,” Donchess said. “Ten million is a lot of money to collect from the taxpayers with no return.”

On Tuesday, Nov. 24, the city will address the firefighter’s contract, about which Donchess said he has had reservations.

“I’ve expressed reservations about this for quite a while,” he said. “That includes a 15.5 percent raise over four years, and does not include the plan design changes that we’re seeking.”

The fire commission took over negotiations as an independent board, which declined to have the city’s finance team participate at all.

“The city had offered 11 percent over four years last December,” Donchess said. “Pre-COVID-19, before getting hit with pre-retirement, and now with the educational reduction. I was fine with that. I appreciate what the firefighters do and I think they deserve a raise. And I thought that was what we could afford pre-COVID. And I think we should stick with it.”

Donchess said that the 11 percent number should not be decreased, but 15.5 percent in his opinion, is more than what the city of Nashua can afford under the current circumstances of the rapidly increasing healthcare costs and other pecuniary jolts that the city is facing.

“The difference between an 11 percent raise, which I consider to be pretty fair, and 15.5 percent is hundreds and hundreds of thousands of dollars on an annual basis as the years add up,” he added. “Possibly even over $1 million a year. And that certainly creates a precedent for other unions.”

The board of aldermen has already rejected a proposed 17.5 percent raise increase; 15.5 percent was the fire commission’s counteroffer.

“We really need these plan design changes in the contract,” he said. “I’ve already said to the board of aldermen, and I’m sure I’ll say it again on Tuesday, as much as we appreciate the firefighters, this is more than we can afford at this time.”

The city’s research has shown that firefighters are well paid compared to other firefighter departments in cities such as Manchester, Concord, and Portsmouth, Donchess expressed.

With regard to the healthcare challenges, Donchess noted that the city is self-insured.

“We save money that way by not paying money to any insurance company,” he said. “We estimate what the claims are going to be and hire someone to administer the claims. They may be the ‘face’ of it, but the claims are being paid by the city.”

The plan design change increases city employees’ prescription drug premiums “modestly” by Donchess’ account and increases deductibles significantly for inpatient and surgical-type of procedures.

“Because the city would save money on this, so would employees on a weekly basis,” he stated. “The first group to take it was the unaffiliated, un-unionized and City Hall. Their weekly contribution from their paycheck went down 11 percent right away, as they pay 20 percent, and the city pays 80 percent for their healthcare.”

Donchess pointed out that should a city worker face a more serious health emergency, that worker would pay a higher deductible.

“But we also offer an option that already exists,” he said. “A so-called ‘high-deductible’ plan, which can greatly benefit a city employee who elects it. The plan design changes that I’m talking about are for a basic HMO plan, which is what nearly everyone has if they’re not on a high-deductible plan.”

The way the plan works is that the city creates an incentive for city employees to closely watch their healthcare costs.

“For a family of four, or a two person plan, there is a deductible of $4,000 each year,” Donchess explained. “There are very few co-pays. But the city pays that employee $3,000 a year to elect this plan, so the maximum that they would have to pay is $1,000, in addition to their weekly contribution.”

Donchess said if they don’t use the $3K, they can carry it forward.

“And the next year they get another $3K,” he said. “There are people in City Hall, who have been on this for a few years, who have a significant balance in their account – even $10K or $12K.”

If money is kept in that employee’s account, that means that technically, they would never have to pay out.

“If you accumulated $4K in your account over a couple of years, in year three, you get another $3K, your deductible is $4K, so you meet that $4K deductible with the new $3K you’ve got, plus one of the fourth $1K’s you have in your account, you meet the $4K and haven’t paid anything,” Donchess said. “And you’ve still got $3K in your account.”

While it looks like a math equation, Donchess said if an employee developed a balance of $4K in their account, that worker could still go for years without having to pay out of pocket.

“Even if you hit the maximum,” he said. “You could go without paying anything. Some people have a big balance in their account. This plan will save the employee and the city considerably.”

Many residents have questioned how the Performing Arts Center plays into the city budget and tax increases.

Donchess asserted that they don’t equate.

“The project has been in development for 30 years,” he said. “More recently, for a number of years. And now, we’re nearly to completion, as approved by the voters. But I think to some degree, there is a misunderstanding.”

Donchess said that the entire capital part of the budget, with all the borrowing, the city only pays six or seven percent of the city budget in debt service. That includes the PAC and Nashua schools.

“That six or seven percent, with principal and interest on all the general obligation debt,” he said. “The fire department alone is nearly 10 percent of the city budget. And the police department is more than 10 percent. I’m just saying that the relative costs of the departments and operational increases is far, far more than you’re ever going to spend on the PAC.”

And Donchess said the Performing Arts Center will ultimately pay for itself.

“It will create enough downtown development that additionally taxes will come in to offset the cost of the performing arts center; that is already happening,” he said. “The proposal to build 150 units of housing on the School Street lot, which we estimate will bring in $400,000 a year. That developer said the reason that he became interested is because of the PAC. That won’t be the first time that happens.”

The borrowings, Donchess stated, are much less expensive than the salaries and wages paid throughout the city.

“I’m not saying that is a wrong set of priorities,” he clarified. “We want to make sure our salaries and departments operate effectively. But it is a very small portion of the budget compared with everything else.”