State Budget Recap – Twists and Turns

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 legislative session in each odd numbered year is dominated by the task of developing and adopting an operating budget for the ensuing two-year period beginning July 1. Each budget session is different from any in the past; with its own twists and turns and a few surprises, which helps keep even seasoned State House observers like ourselves here at NHMA on our toes! This year’s budget session was no exception, beginning with the Governor’s proposal to create a local infrastructure improvement fund, to the failure of the House to adopt a budget, and to significant municipal aid being provided “off-budget” in separate legislation. Ultimately, the state biennial budget adopted by the House and Senate, and signed into law by the Governor, along with funding contained in separate bills, provided a mixed bag for municipalities with both favorable outcomes and some disappointments.

The following recaps the funding provisions of municipal interest included in the biennial state operating budget (Chapter 155, HB 144) and the accompanying trailer bill (Chapter 156, HB 517) which includes statutory changes necessary to implement the budget. The budget, including all provisions described below, was effective for the two-year period beginning July 1, 2017.

• Meals and Rooms Tax Distribution. The operating budget includes the meals and rooms tax distribution to cities and towns in the amount of $68,805,057 for each year of the biennium. This is the same level of funding that was provided in fiscal year 2017. The actual amount paid to each municipality may vary from year to year since the distribution is based upon annual population estimates. Funding of this distribution in accordance with the “catch-up” formula is an NHMA policy position.

Section 75 of the trailer bill suspends the statutory “catch-up” formula for both years of the biennium. The catch-up formula provides that 75% of the year-over-year increase in revenue from the meals and rooms tax (but not more than $5 million in any one year) be added to the previous year’s municipal distribution to gradually reach the statutory apportionment of 40% of the revenue to municipalities and 60% to the state. Meals and rooms tax revenue has consistently grown over the past decade with the municipal portion reaching a high of 29% in 2010. However, with suspension of the catch-up formula in 2011-2014, 2016 and now 2018 and 2019, the municipal percentage of the meals and rooms tax revenue continues to decline. For fiscal year 2018, the municipal share will be 23%, and is estimated to decline to 22% in fiscal year 2019 based on official state revenue estimates.

• Revenue Sharing. Section 86 of the trailer bill continues the suspension of revenue sharing which provided $25.2 million per year to municipalities. Revenue sharing has been suspended every year since fiscal year 2010.
• Highway and Bridge Funding. The operating budget includes $30,681,888 and $30,811,690 for fiscal years 2018 and 2019, respectively, for highway block grants to municipalities. This money represents approximately 12% of the revenue that comes into the highway fund from the road toll (gas tax) and state motor vehicle fees in the previous year, and is apportioned to cities and towns based on road miles and population. An additional $4.1 million is provided each year of the biennium from revenue raised through the 4-cent road toll increase on July 1, 2014, and is distributed based on the same formula as the highway block grants. An additional $400,000 is appropriated each year to assist those municipalities with relatively high roadway miles and low equalized property values. Finally, section 241 of the trailer bill authorizes disbursement to municipalities of twelve percent of highway fund revenues regardless of the amount appropriated in the budget. This reflects NHMA policy.

Municipal bridge aid is funded at $6.8 million each year of the biennium, and is funded from revenue raised from the 4-cent road toll increase enacted in 2014. This reflects NHMA policy.

• State Aid Environmental Grants for Water, Wastewater and Landfill Closures. The operating budget includes $7,332,728 and $5,383,716 for fiscal years 2018 and 2019, respectively, to fund existing obligations (i.e. projects that have already received funding approval by the Governor and Executive Council) for water, wastewater and landfill closure grants. Grant payments are made over the life of the amortization period of the municipal financing (bonding or borrowing from the state revolving loan fund). The decrease in funding from fiscal year 2018 to fiscal year 2019 reflects the end of the payment period for some projects. This is an NHMA Policy position.

Section 144 of the trailer bill continues the moratorium on environmental grants for projects that received local financing approval after December 2008, and which are not funded through previous legislation.

• Flood Control. The operating budget includes $866,250 each year for payments-in-lieu-of-taxes (PILOT) to municipalities in the Merrimack River and Connecticut River flood control compacts, regardless of payments, or lack thereof, from other states involved in the compacts.

This is NHMA policy.

Section 142 of the trailer bill requires the New Hampshire Department of Justice to undertake every reasonable legal effort to collect all amounts due to the State of New Hampshire from other states under the Merrimack River flood control compact.

• Land and Community Heritage Investment Program (LCHIP). The operating budget appropriates $3.5 million each year of the biennium for LCHIP, continuing the funding for this program from revenue raised by the surcharge on the real estate transfer tax recording fee. This is NHMA policy.
• Police Standards and Training. The operating budget fully funds the Police Standards and Training Council, including the New Hampshire Police Academy, through general fund appropriations of $3.4 million and $3.6 million in fiscal year 2018 and fiscal year 2019, respectively. This is NHMA policy.
• Drinking Water and Ground Water Trust Fund. Section 208 of the trailer bill amends RSA 485-F dealing with the Drinking Water and Ground Water Trust Fund by changing administration of the trust from the New Hampshire Department of Environmental Services to the commission established under Chapter 11, laws of 2016. The composition of the commission is also amended to include among others, additional municipal and public water system representatives.
• Education Funding. The operating budget includes $925.6 million in fiscal year 2018 and $912.1 million in fiscal year 2019 for adequate education grants to school districts. Special education aid, formerly known as catastrophic aid, is funded at $22.5 million each year of the biennium. School building aid is $35 million in fiscal year 2018 and $33 million in fiscal year 2019.
• State Aid for Funeral Expenses. Section 65 of the trailer bill repeals state payments of funeral expenses for recipients of public assistance.

Municipal funding was also contained in legislation separate from the biennial budget as follows:

• State Aid Grant (SAG) Funding. Chapter 207 (SB 57) appropriates $3,518,391 to the New Hampshire Department of Environmental Services to fund nineteen specific water and sewer projects that received local financing approval prior to December 2008, and/or were completed prior to July 1, 2013. This is an NHMA policy position.

The bill also authorizes a $5 million loan from the Drinking Water and Groundwater Trust Fund that was established in Chapter 11, laws of 2016, to extend a water line in Amherst to properties impacted by contamination.

• Highway and Bridge Funding. Chapter 227 (SB 38) appropriates $36.8 million from surplus funds in the 2016-2017 biennium to the New Hampshire Department of Transportation (DOT) to provide targeted funding for local highway and bridge infrastructure projects. The bill allocates $30 million for highway funding in addition to the funding included in the state operating budget under Chapter 155 (see above). These grants will be apportioned between municipalities under the same formula as regular highway block grants (Apportionment A) pursuant to RSA 235:23, I. The bill also allocates $6.8 million as additional aid for the municipal bridge program under RSA 234. These funds shall not be used to supplant local budget appropriations, but may be accepted and expended as unanticipated revenue under RSA 31:95-b whether a municipality has adopted the provisions of that law. A list of additional block grant funding by municipality is available on NHMA’s website (www.nhmunicipal.org) in the Legislative Bulletin box in the top link titled SB 38 Anticipated Block Grant Funds. This reflects NHMA policy.

See 2006-2019 State Aid to Municipalities Graph

A copy of NHMA’s 2017-2018 Legislative Policy Positions is available on our website at https://www.nhmunicipal.org/Advocacy. The full Final Bulletin with a recap of all new laws of municipal interested can be found on our website. Please contact NHMA Government Affairs at Governmentaffairs@nhmunicipal.org with questions related to the biennial state budget or any other legislation.

Barbara T. Reid is the Government Finance Advisor for the New Hampshire Municipal Association. She can be reached by telephone at 603.230.3308 or by email at breid@nhmunicipal.org.