Municipal Budgeting and the Annual Meeting

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.

In preparation for annual town meeting we have collected together our legal inquiries and responses related o Municipal Budgeting and the Annual Meeting. This allows NHMA to share our guidance on these topics to all of our members related to the annual meeting and budgeting from the last two years.

SB 2 MUNICIPALITIES: As of 2023, 73 municipalities operate their annual meeting using the Optional Form of Meeting – Official Ballot Referenda, RSA 40:13. These inquiries and answers are tailored to those towns:

Are special or separate warrant article appropriations included in the default budget? The default budget means the amount of the same appropriations as contained in the “operating budget” authorized for the previous year (with some adjustments for debt service, contracts and other obligations previously incurred or mandated by law). RSA 40:13, IX (b). The operating budget is then defined as the total appropriations, excluding separate and special warrant articles. RSA 40:13, IX (a). Thus, if at the 2025 Town Meeting a town approved a special warrant article appropriation (not in the operating budget) to pay a new full-time code enforcement, that appropriation would not be included in the default budget calculation. Only appropriations that appear in the operating budget would determine the amount of the default budget.

Timetable for holding required public hearing when borrowing in an amount exceeding $100,000 under SB 2: SB 2 modifies the timetable for holding the required public hearing on a bond to borrow in an amount exceeding $100,000. As stated in RSA 40:13, II-a (c) “hearings under RSA 33:8-a shall be held on or before the third Tuesday in January.” That being the case, RSA 40:13, II-a (c) modifies the timetable in RSA 33:8-a. For the purpose of completeness, the date the bond will be voted on at a March SB 2 town meeting will be at the second session, official ballot voting day, March 11, 2025. Since the third Tuesday in January is 1/21/24, and there will be 49 days between that date and March 11, 2025, this will also be in full compliance with both RSA 40:13 and RSA 33:8-a (not more than 60 days prior to the meeting).

Important factors to keep in mind when the annual meeting will be asked to approve a warrant article to borrow by bonded indebtedness:

• Paying for bond issuance costs and interest: In order to appropriate funds to cover bond issuance and interest costs to be incurred in fiscal year 2025 you would add the following language to the bond appropriation warrant article:
  “. . . and to raise and appropriate the additional sum of (insert the amount of projected bond issuance and interest costs to be incurred in fiscal year 2025) for bond issuance costs and for payment of the first year’s interest on said bond or note and to further authorize the governing body to take any other action or to pass on any other vote relative thereto?”
  The bond amount to be raised would remain the same, however a separate amount from taxation would be appropriated for the cost of bond issuance and for payment of the first year’s interest on the bond. These expenses would not be put into the operating budget warrant article and would only be appropriated if the bond article itself passes.
• Override of 10% Limit due to Non-recommendation by Budget Committee: In towns with an official budget committee, if a bond request is not recommended in its entirety by the budget committee, the select board may vote at a duly noticed public meeting to permit the town meeting to override the 10% limitation provided in RSA 32:18 pursuant to RSA 32:18-a. The following statement shall be placed at the beginning of the warrant article for such bond request: "Passage of this article shall override the 10 percent limitation imposed on this appropriation due to the non-recommendation of the budget committee."
  Immediately below the bond request on the warrant shall be displayed (1) the recommendation of the select board governing body and (2) the recommendation of the budget committee, as included in the budget forms for the annual meeting pursuant to RSA 32:5, IV.
• Can the purpose and amount of a bond article in an amount greater than $100,000 be amended?: If there is any intent to amend the language and purposes of the proposed bond article that would raise and appropriate an amount greater than $100,000, it shall be necessary to consult with bond counsel on the permissible boundaries of such amendments. Furthermore, like any other warrant article, the subject matter of a warrant article cannot be modified contrary to RSA 39:2. In addition, any amendment to the language or purposes of the bond article where the amount is in excess of $100,000, might put in jeopardy compliance with RSA 33:8-a. That statute prescribes a public hearing “on any proposed municipal bond in excess of $100,000” and changing the purpose of the proposed bond might trigger the need for another public hearing, a public hearing that was required to be held before the deliberative or business session. However, the dollar amount of the bond article can be amended.

Could the town meeting vote to have 5% of the 2025 operating budget warrant article be funded from the unassigned fund balance? In order to fund any warrant article from fund balance two things must be true. First, there is an adequate amount in fund balance for that purpose, and, second, the amount to be appropriated from fund balance is a sum certain. Thus, a warrant article to purchase a new backhoe for $100,000,
with $25,000 to come from unassigned fund balance and the balance from taxation would be permissible. However, having 5% of the operating budget funded from unassigned fund balance would be problematic. It might be safer for the select board to use fund balance to reduce the tax rate rather than as a source of funding the operating budget. The budget approved by the annual meeting is based in part on projected revenues to be received by the municipality during the fiscal year. As the revenue picture between March and September can change, if too much fund balance was applied at the annual meeting when adopting the budget, this could deprive the governing body of the ability to make a more strategic decision to use fund balance when the tax rate is being established.

How does a town with a tax cap under RSA 32:5-b calculate the amount that may be proposed to appropriate for the operating budget and all other warrant articles for 2025? First, understand that an adopted tax
cap is a limitation on the amount that may be proposed by the governing body or budget committee for the 2025 budget. First, examine the 2024 MS-636 or MS-737 forms for the approved 2024 budget. From those forms determine the total amount of taxes raised in 2024. If the total amount of taxes raised that year was $1,500,000, and the adopted cap was 5%, the total increase in the proposed budget for the year 2025 would equal $75,000 or 5% of $1,500,000. Thus, in the year 2025 the estimated amount of taxes proposed to be raised could not exceed $1,575,000 ($1,500,000 + $75,000). However, if in the year 2024 the select board had used $100,000 from the unreserved fund balance to reduce taxes, that amount would be added into the total amount to be raised by taxes so that the amount to be raised would increase to $1,675,000 and 5% of that amount would equal $83,750. Therefore, if that had occurred in 2024, the maximum amount that could be proposed to be raised in 2025 would equal $1,758,750 assuming a 5% tax cap was in effect.

What is the role of official budget committee in proposing and drafting separate warrant articles? The budget committee only states whether it recommends or does not recommend a separate or special warrant article containing an appropriation. The budget committee has no role in composing the content of a separate warrant article.

What is the role of an official budget committee to provide recommendations on warrant articles that may affect the distribution or receipt of tax revenue but do not contain appropriations? If a warrant article does not contain a proposed appropriation, the budget committee does not have the authority to state whether or not that warrant article is recommended by the budget committee. There would be many instances where the budget committee could argue that a warrant article proposing an optional tax exemption, or a warrant article proposing a zoning amendment, would have an impact on the collection of real estate taxes or assessed values in the community. But, where the article does not contain a dollar amount appropriation, the budget committee does not weigh in on that warrant article.

The duties and authority of the budget committee are set forth in RSA 32:16, and that statute does not delegate to the budget committee the authority to provide its opinion on warrant articles generally, only to provide it recommendations on “special warrant articles.” As defined in RSA 32:3, VI a special warrant article:

Means any article in the warrant for an annual or special meeting which proposes an appropriation by the meeting and which:
(a) Is submitted by petition; or
(b) Calls for an appropriation of an amount to be raised by the issuance of bonds or notes pursuant to RSA 33; or
(c) Calls for an appropriation to or from a separate fund created pursuant to statute, including but not limited to a capital reserve fund under RSA 35, or trust fund under RSA 31:19-a; or
(d) Is designated in the warrant, by the governing body, as a special warrant article, or as a non-lapsing or nontransferable appropriation; or
(e) Calls for an appropriation of an amount for a capital project under RSA 32:7-a.

How should appropriations for payment of salaries or stipends for elected and appointed officials be handled?
The town can appropriate the funds to pay stipends and salaries to elected or appointed town officials in two ways. First, the town can have a separate warrant article (or warrant articles) that raises and appropriates the annual compensation for designated town officials. Second, the amounts to be paid to town officials can be appropriated through the operating budget. Either approach is permissible.

If town meeting defeated a separate warrant article to appropriate funds to build a municipal facility could the town still spend unanticipated revenue received under RSA 31:95-b or a gift received under RSA 31:19 for the same purpose? RSA 32:10, I (e), colloquially known as “No Means No”, provides that “if the meeting deletes a purpose, or reduces the amount appropriated for that purpose to zero or does not approve an appropriation contained in a separate article, that purpose or article shall be deemed one for which no appropriation is made, and no amount shall be transferred to or expended for such purpose.” Without question no amount may be spent from municipal revenues for the proposed municipal facility during that fiscal year. However, a question that is unresolved is whether unanticipated funds receive under RSA 31:95-b, or funds received as gifts under RSA 31:19 could nevertheless be spent on the proposed facility.

As provided in RSA 31:95-b, IV, action taken to accept and expend such unanticipated funds shall “[b]e exempt from all provisions of RSA 32 relative to limitation and expenditure of town or village district moneys.” Based on this language, so long as the received unanticipated money did not require expenditure of other town funds, arguably that unanticipated revenue could still be expended. However, it is recommended that to put the town meeting on notice, and to potentially avoid the impact of “No Means No” separate and special warrant articles containing appropriations could include the following language: “In the event this article is defeated or amended to zero out any appropriation, this would not prevent the governing body from spending unanticipated funds received pursuant to RSA 31:95-b or a gift received under RSA 31:19 for the same purpose.”