Spending Without An Appropriation – Gifts & Grants As Off-Budget Expenditures

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

The Municipal Budget Act prohibits expenditures unless an appropriation for the proposed purpose has been approved by the legislative body. Since the appropriation of funds is limited to either the annual town meeting or town or city council budget approval, any expenditures for purposes not supported by a legal appropriation would require court and legislative body approval. See RSA 31:5. However, there are statutory exceptions involving gifts and grants to the “No-Spending-Without-Appropriation” rule which this FAQ will review and explain.

Q: Is there statutory authority for a municipality to approve expenditures of unanticipated revenue?

A: Yes. RSA 31:95-b generally authorizes the governing body to accept unanticipated funds made available during the year. Before using RSA 31:95-b to accept unanticipated funds, the town or village district meeting must first adopt the mandatory warrant article language found in RSA 31:95-b, I(a), that indefinitely authorizes the select board or village district commissioners to accept and expend unanticipated money. Once adopted by the town or village district meeting, the authority to accept unanticipated funds remains indefinitely until rescinded.

Q: What is unanticipated money from the state, federal or other governmental unit or a private source which becomes available during the fiscal year?

A: RSA 31:95-b is generally understood to apply to federal, state or private grants that become available to a municipality through an application or award process by the granting entity. The money offered to the municipality must be unexpected and unforeseen. This would ordinarily not include state grant programs that are typically budgeted for by municipalities on an annual basis, such as bridge aid funds, RSA 235:5, and highway grant funds, RSA 235:23. Examples of unanticipated revenue would be a grant from the New Hampshire Department of Safety, Division or Homeland Security, for the purchase of equipment funded from the federal Emergency Management Performance Grant, or a grant from the New Hampshire Department of Justice to make funding available from the federal Violence Against Women Formula Grant. In each of these instances, the municipality would have to apply for and be awarded the grant, thus the grant money would be unanticipated until the funding agency approves the grant. In the case of grants from the State of New Hampshire, the grant documents may require final approval by the Governor and Executive Council after approval by the supervising state agency.

Q: Our Town Meeting did adopt RSA 31:95-b. What else must we do to accept and expend a grant?

A: If the amount awarded is $10,000 or more, the governing body must hold a public hearing and after the public hearing vote to accept the grant. Notice of the public hearing must be by posting and publication at least 7 days before the hearing. For an amount awarded that is less than $10,000, the governing body can decide if a public hearing is required for any amount less than $10,000. The governing body should adopt a policy stating when a public hearing will be required for grants that are proposed to be received by the town in amounts under $10,000. 

Q: The grant our town has been awarded requires the town to pay a share of the grant cost. Is this allowed?

A: RSA 31:95-b, IV (a) provides that the grant cannot require the expenditure of other town or village district funds except those funds lawfully appropriated for the same purpose. This statute does not define the word “purpose,” but that word is defined in RSA 32:3, V as “a goal or aim to be accomplished through the expenditure of public funds.” Assume the grant described above for funding from the Violence Against Women Formula Grant required the town to match the federal grant funds with a dedicated amount of time by a certified police officer to carry out the grant purposes. As long as the town had an appropriation for police salaries, and sufficient funds in the budget to use for that purpose, the town could accept the grant. In the absence of there being an appropriation in the existing budget for the expenditure of matching funds or in-kind services as required by the state, federal or private granting entity, the municipality could not accept the grant.

Q: What if the town is offered a gift of $15,000 to purchase computer equipment for the town offices? Must this gift be received and spent through the procedures in RSA 31:95-b?

A: No, not if the legislative body has adopted RSA 31:19. That statute permits the town meeting to authorize the governing body to accept and hold in trust gifts, legacies and devises. A legacy would be a gift of personal property payable in money or other items from an estate. A devise is the act of giving real property through a will. If the town meeting has adopted RSA 31:19, II, the select board could receive and spend the gift for the purposes designated by the donor or in the will, provided it was clear in the terms of the gift that the entire amount could be spent. In certain instances, such a gift would only permit the expenditure of the income and not the principal. The gift would be held in the custody of the trustees of trust funds, RSA 31:25, and the trustees would pay those funds to the agent(s) designated in the trust or gift. Thus, if a select board is going to vote under RSA 31:19 to receive a gift, it should be made clear with the donor whether the income and principal can be spent and that the select board are given the authority to expend the gift. All such gifts must be for public purposes.

Q: The town has been offered a used backhoe. Is there a way to formally accept such an offer?

A: The town meeting can authorize the select board to accept personal property which is offered to the town for a public purpose. RSA 31:95-e. An intangible thing or other property not attached to real estate is considered personal property, including of course, a used backhoe. Gifts of personal property having a value of $5,000 or more require a public hearing before acceptance. For gifts of personal property having a value of less than $5,000, a public hearing can be held at the discretion of the select board. An important aspect about accepting personal property is that it will not bind the town “to raise, appropriate or expend any public funds for the operation, maintenance, repair, or replacement of such personal property.” RSA 31:95-e, III. This would not prohibit the town from repairing the donated backhoe, but it would not obligate that repair be undertaken.

Q: Are there any other municipal boards or commissions that are authorized to accept grants or gifts?

A: Yes, these include:

• Library Trustees can be authorized to accept unanticipated grants under RSA 202-A:4-c. The statute substantially duplicates the provisions RSA 31:95-b.
• Library Trustees can also be authorized to accept donations of personal property under RSA 202-A:4-d, which duplicates the provisions of RSA 31:95-e.
• Local Land Use Boards, as defined in RSA 672:7, can accept and use gifts, grants or contributions for the exercise of their functions. RSA 673:16, I.
• Conservation Commissions can receive gifts or grants of money, personal property, water rights or real property subject to the approval of the governing body. RSA 36-A:4, II.

Q: Do these statutes that regulate gifts and grants apply to cities?

A: Yes, these statutes do all apply to cities because RSA 47:1 states that “[a]ll the powers vested by law in towns, or in the inhabitants thereof, shall be exercised by the city councils by concurrent vote, each board having a negative on the other.” Meaning, in short, that RSA 31:95-b, RSA 31:95-e and RSA 31:19 apply and authorized the receipt of gifts, grants and acceptance of personal property by New Hampshire cities.

Stephen C. Buckley is Legal Services Counsel with the New Hampshire Municipal Association. He may be contacted at 800.852.3358 ext. 3408 or at legalinquiries@nhmunicipal.org.