The decision in this case confirms the extensive discretion of the governing body to transfer money within the lines of the town’s budget, including a default budget in official ballot referendum towns.
In 2005, the voters in Hampton rejected the proposed $26.3 million operating budget. Hampton has adopted the official ballot referendum (SB 2) town meeting in which all warrant articles, including the operating budget article, are voted on by official ballot. If the operating budget is defeated, RSA 40:13 allows for a “default budget” based on the prior year’s expenditures or, as an alternative, permits the governing body to present a revised operating budget to the voters at a special meeting.
In 2005, Hampton’s default budget was $23.5 million. RSA 40:13 requires the default budget amount to be stated in the operating budget warrant article and requires the governing body to post a form that indicates how the default budget amount was calculated.
When the 2005 Hampton operating budget was defeated, the board of selectmen decided not to call a special town meeting to consider a revised operating budget, but instead to abide by the default budget amount. The selectmen sought information on a 15 percent cut in each department budget to offset the 15 percent difference between the operating budget that was defeated and the default budget amount. The selectmen then held four public meetings during which they altered appropriations for the 2005 fiscal year that resulted in a budget that did not exceed the bottom line default budget total, but deviated from the prior year’s appropriations in 29 of 34 line items.
The plaintiffs, three town residents and taxpayers, petitioned the superior court for injunctive relief to prevent the selectmen from making the line item transfers. The town filed a motion to dismiss the petition, which was granted on the ground that RSA 32:10 gives the selectmen “unfettered” discretion to change line item appropriations within the default budget.
The taxpayers appealed to the Supreme Court, arguing that the governing body’s transfer authority does not apply to the default budget under the official ballot referendum form of government. The taxpayers also argued that the extensive transfers required the selectmen to follow the special town meeting procedures for a revised operating budget. As the Court noted, both were issues of first impression for the Court.
The taxpayers argued that the selectmen improperly exercised their line item transfer authority by adjusting the default budget line items immediately after defeat of the operating budget at town meeting while the statute permits transfers “[i]f changes occur during the year.” The town argued that defeat of the operating budget was a change in circumstances that merited changing the default budget line item amounts and that the selectmen’s action was permissible as long as they did not exceed the bottom line of the default budget amount.
The Court agreed with the town that defeat of the operating budget was “a sufficient change in circumstances within the meaning of RSA 32:10, I, to justify the use of transfer authority. Holding otherwise would force the selectmen to sit idly by awaiting the onset of a foreseeable budget crisis instead of acting to prevent it.”
The Court also said, “Discretionary transfer authority ensures that selectmen have the requisite flexibility to address unplanned needs by redirecting appropriated funds.” It noted that RSA 40:13 was amended in 2004 to define “default budget” and to require the governing body to disclose its calculation of the individual line item appropriations that make up the default budget. The Court said, “We find nothing in the language or structure of amended RSA 40:13, however, that restricts the discretionary authority of selectmen to transfer appropriations within an adopted default budget.”
The Court also rejected the taxpayers’ argument that the extent of the transfers required the selectmen to call a special town meeting to vote on a revised operating budget. Although RSA 40:13 doesn’t define “revised operating budget,” it does define “default budget” as an “amount” and prescribes how to calculate that amount. The default budget is put to the voters only as a dollar amount, the Court said. “Thus the selectmen need only to stay within the original budgeted ‘amount’ for the resulting budget to fall within the meaning of ‘default budget.’ Had the selectmen increased the bottom line of the ‘default budget,’ we might be inclined to agree that such a ‘revised operating budget’ was the result.”
The Court denied the taxpayers’ request to remand the case to the lower court to determine whether the selectmen properly exercised their transfer authority and whether they created a revised operating budget because, among other reasons, RSA 32:10, I(b) expressly denies citizens the “authority to dispute or challenge the discretion of the governing body in making such transfers.”