New Hampshire Municipal Association
New Hampshire Municipal Association

New Hampshire Town And City

Legal Q & A: Capital Budgeting and the Planning Board

New Hampshire Town and City, October 2011

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The following is a short discussion about budgeting for major purchases of capital items at the municipal level. Sometimes this will be an important piece of equipment, like a fire truck or a snowplow, but it also includes much larger public works projects, such as a water line or sewer line, which may require years of planning before the actual work begins.

Q. Is there any requirement that a municipality adopt a separate budget for major capital items, like the State legislature creates every two years?

A. No, the municipal budget law, RSA Chapter 32, does not have a provision for a separate capital budget at the municipal level. Instead, the focus is on how major purchases will be funded. In approving an appropriation for the project, the voters may choose to pay for the item immediately through current taxes, or they may vote to borrow the money by issuing a note or a bond. If they decide to accomplish the project in the future, they may put money aside over a period of years by adding amounts to a capital reserve fund dedicated to funding the item.

Q. Is there any board or group who is responsible to identify these important items, and make recommendations about when they should be acquired, and how they should be funded?

A. There are several ways the issue may come before the voters. The selectmen are responsible for creating the language in the annual warrant for town meeting, and they may identify the items after consulting with department heads, or an advisory or official budget committee. Citizens may create warrant articles through the petition process, and thus any group in town able to persuade 25 citizens to sign a petition document will bring the issue forward for discussion and a vote.

However, the task of planning for the future infrastructure needs of a municipality is assigned by statute to the planning board, which must create a "master plan" that deals with a vision of how the municipality should apply principles of smart growth, sound planning and wise resource protection. If authorized by the local legislative body, either the planning board or a "capital improvement program committee" may also prepare a "capital improvements program" (CIP) report, which recommends projects that should be considered over a period of at least the next six years. These two tasks are related, but they are not the same. The statutory authorization is found at RSA Chapter 674 in sections 1 through 8.

Q. If a major infrastructure project, such as a water line or a sewer line, is identified by the master plan, does that mean that the municipality is required to construct the item?

A. The New Hampshire Supreme Court held in Treisman v. Bedford, 132 N.H. 54 (1989), that a master plan is meant to be a general guide to assist planning boards in making zoning decisions. The master plan created by the planning board does not commit a municipality to expend funds, since only the legislative body has the authority to appropriate funds for public purposes.

Q. What about the CIP? If we create such a plan, does that commit the municipality to actually go forward on all of the identified projects?

A. No. The legislature has clearly stated in RSA 674:5 that the sole purpose of the CIP is to "aid" governing body members and any budget committee in their consideration of the annual budget. If a CIP has been authorized by the voters, RSA 674:8 suggests that the recommendations be updated on an annual basis.

Q. If the master plan doesn't bind anyone, and the CIP doesn't bind anyone, then why is the planning board and/or the capital improvements program committee required or authorized to create these products?

A. Because the legislature has recognized that planning for land use and implementing zoning controls are about the future needs of a municipality. These bodies are assigned to spend time thinking about the future, to survey the desires of their citizens, to amass and study the available objective data, and to make recommendations to policy makers and voters about how these desires might actually be implemented through future decisions.

Q. How do the two products differ?

A. By statute, a master plan is only required to deal with the "vision" of the municipality's future, and specific statements about how land might be used in the future. Additional optional sections may be added to the plan to deal with issues such as transportation, utilities, natural hazard mitigation and economic development. These matters are discussed based upon the needs of the community as a whole.

The CIP is designed to deal with municipal needs identified at the level of the operating department and the school board. While a master plan might talk about the entire road infrastructure in a municipality, the CIP will help identify when to plan a purchase of a new plow truck or grader. The master plan might talk about health care facilities in the region, while the CIP will identify when a new ambulance should be acquired.

Q. Right now, it is difficult to maintain the current level of municipal services. Does it really make sense to put a lot of effort into these plans at this time?

A. Yes. In fact, it is times like these when resources are tight that planning is even more important. Every service that a municipality provides uses equipment that will wear out and must eventually be replaced. These planning tools allow citizens to work together to decide which services are most important, and how to best finance these needs in a way that minimizes wide swings in the local tax burden.

For example, by establishing a capital reserve fund, the voters make a statement that a certain project is important to them. When amounts are added to the fund annually, the voters are reminded that the project is moving forward, and they may either continue their support, or decide to use the funds for a different project. When replacement equipment must be purchased, either all or most of the funds will already be available. The need to borrow funds is reduced or eliminated, and costs for interest, bond counsel and other financial services may be avoided.

Q. But isn't there a chance that the master plan or the CIP will simply turn into a "wish list" for the various departments, without any real chance that the voters will approve the projects?

A. As with any planning tool, if the participants do not treat the process seriously, the results will not gain credibility with the voters as decision makers. Neither of these tools can be used to create a meaningful report in a short period of time. Instead, each takes a good deal of effort to collect the necessary information about the cost of these major capital items, how long items of equipment are expected to remain in service, comparisons of the cost to refurbish or rehabilitate an item as opposed to replacement, and the financial impact of a purchase as compared to financing the item through a bond or note issue.

The information needs to be updated annually in order to remain current and meaningful. It is really a continuous process, as projects are completed and decisions are made about which projects to add and which ones to modify or abandon. Since the work is mostly done by volunteers, it takes time and effort to perform the analysis and also to train both participants and users about how the process should be conducted. The time to do this work is now, since there are fewer applications to process and board members have the free time to consider these broader issues. There are resources available to assist boards that are just beginning the process at the state website, select "Capital Improvement Program" from the Resource Library.

Q. Are there any downsides if we simply don't deal with the master plan or the capital improvements program?

A. Yes. Pursuant to RSA 674:21, planning boards have the ability to implement various types of innovative land use controls. However, RSA 674:21, II requires the planning board to use the master plan as a guide to administration of the innovative land use controls. Also, RSA 674:21, V(b) prohibits the adoption of an impact fee ordinance unless the municipality has enacted a capital improvements program. If another period of intense growth occurs, a master plan and a CIP are prerequisites to the adoption of a growth management ordinance in accordance with RSA 674:22.

In the near future, municipal officials will be asked to review large issues, such as planning for future water use, planning for the disposal of solid and other wastes, and planning for transportation networks. The tools of the master plan and the CIP are important ways for the voices of citizens to be heard at the most local level, so that their elected representatives can move forward to make decisions that will appropriate large sums toward projects that will affect each of us every day both at home and at work.

Local officials in NHMA-member municipalities may contact LGC's Legal Services Attorneys for more information on this and other topics of interest Monday through Friday from 8:30 a.m. to 4:30 p.m. by calling 800.852.3358, ext. 384. School officials should contact the New Hampshire School Boards Association attorney at 800.272.0653.

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