MUNICIPAL BUDGET LAW RSA CHAPTER 32 C. Christine Fillmore Staff Attorney New Hampshire Local Government Center September 2010

Municipal Budget Law General Principles Seven Key Budgeting Concepts Default Budgets Special Town Meetings

Municipal Budget Law RSA Chapter 32 Applies to all towns, school districts and village districts that adopt budgets at annual meeting (including SB 2) SB 2 towns – additional requirements in RSA 40:13 Towns with charters – may differ

Purpose of Budget Law To establish ‘uniformity in the manner of appropriating and spending public funds … including those towns, school districts and village districts which do not operate with budget committees’ RSA 32:1

Why Be Concerned? Violators may be removed from office, RSA 32:12 Upon petition to superior court Budget committee or any interested person may petition court Removal is not automatic DRA can disallow appropriations made in violation of budget law

Definitions Legislative body = town meeting, school district meeting, village district meeting Governing body = board of selectmen, school board, commissioners

Budget Committee Not required “Official” = RSA 32:14 adopted by legislative body “Advisory” = unofficial, appointed by selectmen or elected; RSA 32:14 not adopted by legislative body

Budget Committee Advisory Budget/Finance Committees Appointed by selectmen or town meeting 10% limitation does not apply Selectmen’s budget is posted with the warrant

Official Budget Referendum- SB 2 2 sessions for meetings, dates differ from traditional meeting dates First session (“deliberative”), voters discuss and amend articles Second session – voting and elections Vote on form of articles as set by first session Ballot vote only, no discussion or amendment

Seven Key Budgeting Concepts Appropriation Gross Basis Budgeting Warrant Notice No Spending Without an Appropriation Lapse of Appropriations Transfer of Appropriations 10% Limitation

Appropriation Key Concept #1 Legislative body policy decision, vote to spend an amount of money for a specified purpose Authorization to spend money; not the actual spending of money

Appropriation “Raise” is to collect or procure a supply of money “Appropriate” is to set apart a certain sum for a specified purpose “Purpose” is a goal or aim to be accomplished through expenditure of public funds, RSA 32:3, V Not limited to MS-6 or MS-7 form

Appropriation Purpose Towns: RSA 31:4 – any public purpose not prohibited by law or New Hampshire Constitution School districts: RSA 198:4 Limited to support of public schools Village districts: RSA 52:1 Purposes for which established

Appropriation Appropriate for valid “public purposes” only Not the same as “public benefit” Something that generally benefits public still might not be a “public purpose” Implied authority to appropriate

Appropriation Incidental private benefit may be legal Main purpose is to promote public welfare Quid pro quo Obligation to benefit municipality Reimbursement for purely private benefit – not legal Plowing private driveways

Appropriation How specific should warrant articles be? Voters set policy but may want to leave governing body flexibility re: details Too specific - may not be able to act Example: “New truck” instead of “truck” Always state specific amount

Appropriation Procedural Requirements for Valid Appropriations Public budget hearing Disclosure of all purposes and amounts Gross basis budgeting Recommendations Warrant notice Listing appropriations on posted budget

Appropriation Public budget hearing First hearing not later than 25 days before traditional meeting (3d Tues. in Jan. for March SB 2) Held by official budget committee; selectmen, if no budget committee At least 7 days’ notice for each hearing

Appropriation Public budget hearing All purposes must be “discussed or disclosed” at a public hearing, whether raised by committee, selectmen or public New purposes may be raised at a hearing SB 2 jurisdictions – default budget must be disclosed at public hearing, RSA 40:13, XI(a)

Appropriation Public budget hearing After close of hearing, no new purpose or amount may be added without another hearing. All hearings require at least 7 days’ notice

Appropriation Public budget hearing Also applies to petitioned appropriation articles Schedule at least one hearing after petitioned article deadline Budget Committee finalizes budget after close of last public hearing, at a public meeting.

Appropriation Public budget hearing Ultimate deadline: posting of budget (14 days before meeting) or forwarding of budget from budget committee to board of selectmen (at least 20 days before meeting) (RSA 32:16)

Appropriation Posting of warrant and budget 14 days before meeting (last Monday in January for SB 2) List all appropriations on posted budget, including special warrant articles DRA will invalidate any appropriation not listed Post default budget (SB 2)

Appropriation Collective Bargaining Agreements (CBA) Disclose cost items by submission date Same as petitioned warrant article deadline ‘Cost item’ – any benefit acquired through collective bargaining whose implementation requires an appropriation

Appropriation Collective Bargaining Agreements (CBA) If cost items aren’t agreed on by submission date, need special meeting ‘Emergency’ court permission required If original article is defeated, special meeting required for revised cost items No court permission needed if authorization part of original warrant (RSA 31:5, III)

“Gross Basis” Requirement Key Concept #2 Budget must show anticipated revenue from all sources, not just taxes Revenues not shown cannot be spent Examples of errors, P Include total amount in raise and appropriate clause

“Gross Basis” Requirement “To see if the town will vote to raise and appropriate the sum of $60,000 to renovate the town garage and to authorize the withdrawal of $45,000 from the capital reserve fund created for this purpose; and further to combine this with the surplus in the highway department’s budget from last year and to authorize the selectmen to apply for a matching amount in federal stimulus funds.”

“Gross Basis” Requirement “To see if the Town is in favor of creating the position of Town Administrator, to assist the Board of Selectmen in overseeing the general operation and duties of our town government. The position to be funded in next year’s town budget.” Amended at meeting to change last sentence to “This position to start this year at a salary of $60,000.”

“Gross Basis” Requirement Special Warrant Articles Defined – RSA 32:3, VI, p. 21 Petitioned appropriations articles Bond issues $ into capital reserve or town trust funds Designated non-lapsing, non-transferable Recommendation(s) required

“Gross Basis” Requirement Recommendations Optional: Numeric tally of recommendations printed in warrant, if authorized by voters or governing body For special and separate appropriations articles “Budget Committee recommends this article by vote of 9 to 2; Board of Selectmen does not recommend this article by vote of 3 to 2.”

Warrant Notice Key Concept #3 Appropriation valid only if subject matter appears in warrant (RSA 32:6) New purposes/line items cannot be added from the floor of the meeting Whether traditional or SB 2

Warrant Notice Amendments Voters may amend from the floor (traditional meeting & 1 st session of SB 2) Line items and separate articles Selectmen’s, budget committee’s budget is advisory only Later transfers can’t be restricted by voters

Warrant Notice Amendments Amendment that alters mode of funding DRA has disallowed as failure to warn of subject matter Appropriation to capital reserve fund amended to accomplish purpose this fiscal year Amendment to name CRF agents to expend “Stay at Home” test

Warrant Notice Amendments Traditional meeting – voters can “table” SB 2 – deliberative session cannot delete article entirely, must be presented to voters in some form However – “to see” Grant v. Barrington (2008), deliberative session could delete all except “to see.”

No Spending Without Appropriation Key Concept #4 No spending unless that amount was appropriated for that purpose (RSA 32:8) Town meeting vote Includes non-tax revenue Violation = possible removal from office RSA 32:12

No Spending Without Appropriation Exceptions to the Rule Transfers by governing body Legal judgments, ordered by a court DRA permission to overspend bottom line or add appropriation Prior mandate of federal/state government

No Spending Without Appropriation Exceptions to the Rule Prior contract requiring spending more than appropriated Spending Jan. 1 until town meeting Reasonable in light of prior year’s appropriations and expenditures for the same purposes in the same time period

No Spending Without Appropriation More Exceptions Unanticipated revenue (RSA 31:95-b) Capital Reserve and Trust Funds Other Funds Conservation Fund, Heritage Fund, Recreation Revolving Fund Water and Sewer Reserves Revolving Funds (RSA 31:95-h)

No Spending Without Appropriation Out of money? What now? Transfer funds from one appropriation to another Ask DRA for permission to overspend the budget Special meeting (need court permission)

No Spending Without Appropriation Multi-year contracts Collective bargaining agreements Need to “Sanbornize” Multi-year equipment leases Need escape/nonappropriation clause or it is considered long-term debt Other multi-year contracts Governing body recommends, voters approve

Lapse of Appropriations Key Concept #5 Authority to spend lapses at year’s end Year’s end = fiscal year end Unspent money becomes part of fund balance Must be appropriated again, or Used to reduce following year’s tax rate, or Retained

Lapse of Appropriations What is fund balance? Not cash on hand; can’t be spent Not really “surplus,” not extra money to spend Net amount of: Unexpended appropriations, plus Excess revenues received; less Uncollected taxes and Liabilities

Lapse of Appropriations How to Use Fund Balance: Retain some for cash flow and emergency expenditures (RSA 32:11, requires DRA permission) Source of funds for future appropriations Retained Fund Balance 5 to 15% of regular general fund operating revenues; or 8 to 17% of regular general fund operating expenditures

Lapse of Appropriations General fund balance sheet From audited financial statements or financial report filed with DRA Must be published in town report or posted at annual meeting RSA 41:9 – towns RSA 198:28-a – school districts

Lapse of Appropriations Exceptions to Lapse Rule Encumbered funds (contracted obligations or special warrant article – very different) Bonds Anticipated grants (RSA 32:7, IV) Capital Reserve Funds (RSA Chapter 35) Town-Funded Trust Funds (RSA 31:19-a) Special Revenue Funds (RSA 31:95-c, d) Revolving Fund (RSA 31:95-h)

Lapse of Appropriations Other Non-Lapsing Funds Conservation Fund – RSA 36-A:4 Sewer Fund – RSA 149-I:10 and 35:7 Water Fund – RSA 38:29 and 35:7 Impact Fees – RSA 674:21, V Recreation Revolving Fund – RSA 35-B:2

Transfers of Appropriations Key Concept #6 Governing body may transfer from one ‘purpose’ to another No transfers out of special warrant articles Public record must be kept Cannot overspend the bottom line Line item voting – very limited

Transfers of Appropriations Sullivan v. Hampton, 153 N.H. 690 (2006) Affirms governing body’s ‘unfettered’ authority to transfer Applies to ordinary operating budget or default budget No limit on the number of transfers

Transfers of Appropriations Failed Separate Articles, “No Means No” Purpose deleted, amount zeroed, or failed separate appropriations article, means no appropriation is made No amount can be expended for that purpose No amount transferred to that purpose

The Budget Committee ‘To assist voters in prudent appropriation of public funds’ – RSA 32:1 Budget committee is actually supposed to second-guess the governing body Work hard not to personalize differences

The Budget Committee Duties of the Budget Committee Review current year’s expenditures for perspective on budget preparation Review recommendations of governing body Prepare budget Schedule and hold budget hearings Forward final proposed budget to governing body for posting with warrant

10% Limitation Rule Key Concept #7 Total amount appropriated can’t exceed 10% more than total amount recommended by budget committee Affects bottom line only, not individual line items (purposes)

10% Limitation Rule Official Ballot Referendum (SB 2) If 1 st session amends a special warrant article, recommendations of budget committee/governing body may be revised RSA 32:5, V(b) Revised recommendation appears on official ballot (second session) BUT 10% limitation based on initial recommendations of budget committee

10% Limitation Rule 10% Calculation: Total of all appropriations recommended by budget committee, less any “fixed charges” Bonds Notes (except TANs) State/federal mandatory assessments

10% Limitation Rule Exceptions to 10% Rule Bond articles Meeting can override budget committee’s vote on bond article if not recommended in its entirety Requires language added to warrant article by governing body CBA cost items not recommended are automatically exempt from 10% rule

10% Limitation Rule Exceeding the 10% Limit DRA practice is to treat meeting chronologically Disallow first appropriation to exceed 10% limit and all others after that DRA form to calculate 10% limit, useful for moderator to keep meeting informed Contingent articles in SB 2 towns

SB 2 - Default Budget RSA 40:13, IX Amount of previous year’s appropriations, increased or decreased by: Debt service, contracts, mandated expenditures One-time expenditures “Operating budget” for purposes of default budget is defined not to include separate or special warrant articles.

SB 2 - Default Budget Essentially, a budget freeze Except for legally enforceable obligations and one-time expenditures. Amount of money from previous year, not the amount needed for same items or services in the coming year (i.e., fuel). No new purposes, either.

SB 2 - Default Budget Prepared by governing body/budget committee before meeting, on DRA form, disclosed at budget hearing, posted with budget and warrant Voters may not amend Selectmen may amend at any time before ballots are printed, acting on new relevant information

SB 2 - Default Budget If operating budget fails, governing body has option to call one special meeting without court permission to consider revised operating budget Otherwise, default budget takes effect Broad transfer authority within default budget

Special Town Meeting Same procedural requirements, Appx. B Official budget committee involvement Public hearing on budget ‘Disclose or discuss’ all purposes, amounts Court permission not needed if no money is to be appropriated

Special Town Meeting No appropriations of money unless: 50% of voter checklist or superior court permission ‘Emergency’ required – RSA 31:5, I(b)(c) Factors considered, p.22 Severity of harm Urgency of need Foreseeable Alternatives not requiring appropriation

Special Town Meeting Special Meetings – ARRA, other similar funds through , again in 2010, bills passed to allow special meeting without court permission “An appropriate response” to such funding Streamlined process for meeting No other subject matter may be acted on

Local Government Center Questions? Call Legal Services attorneys: x384