Legal Q&A: The Critical Role of Department Heads in Municipal Budgeting

C. Christine Fillmore

If you asked a person with very little knowledge about municipal budgeting what a budget should look like, they might say it would be a good idea to have a budget that allows the governing body to provide (a) the right goods, services, and human resources (b) at the right time (c) in a way that meets all applicable laws and makes sense for the community, (d) that the town or city can afford. That person would be right. If you really think about it, that’s the goal we all hope to achieve in the end.

What that person might not realize is that there are a lot of obstacles to be overcome on the way to that goal. Municipalities have limited funds, and taxpayers are quick to point that out. There are competing priorities among departments and officials. The law sets out a schedule that everyone must follow and it leaves little room for error. In a town, there is usually only one chance each year to appropriate money, and it must be done on the basis of estimated revenues and expenses (which may turn out to be significantly inaccurate).

All of this, at its heart, begins with the department heads. They are in a unique position to see both the small details of their own department budget and the larger picture of overall municipal government. Developing a realistic departmental budget request is the first and, arguably, most important step toward achieving the goal of a budget that makes sense. If department heads are aware of the obstacles and the opportunities to avoid them, budgeting can turn into a very successful process.

Q: The Selectmen or Budget Committee or Town/City Manager puts together the proposed budget that goes to the voters.
How can I as a department head influence that process?

A: The Selectmen, Budget Committee, Town or City Manager will begin their budget preparation by asking you for your input. A good presentation at this point can be the basis of a proposed budget that meets your department’s needs. Likewise, a poorly planned or presented budget request can make the rest of the process an uphill battle.

Remember that in a town, you generally have only one chance every year to advocate with the voters to pass budget items. Getting your proposal right the first time can make the difference between great programs and services this year and having to wait again for next year. Cities have a little more flexibility, but major appropriations are usually handled in the annual budget process. This is really your chance to make a difference.

Q: Okay, it is important. How do I start?

A: The first step is to know how your city or town is governed and who runs the budget process.

In cities, the charter specifies when the City Manager or Mayor collects proposed budgets from department heads, and when the final proposed budget must be presented to the City Council/Board of Aldermen.

In a town, the budget process is run either by an official budget committee adopted under RSA 32:14, or (if no official budget committee) by the Board of Selectmen. RSA 32:5. (If you are unsure if your budget committee is “official,” one way to check is to look at which budget form is filed with the Department of Revenue Administration each year. An MS-6 form means there is no official budget committee; an MS-7 means there is an official budget committee.) If a town (with or without an official budget committee) has adopted the Town Manager form of government under RSA Chapter 37, the Manager collects department budgets and puts together the proposed budget to present to the Board of Selectmen, who then forward it to the budget committee. RSA 37:6, V.

Once you know which person or board you will have to begin with, you can start to tailor your requests and presentation with those people in mind.

The other key piece of information is the schedule. All municipalities develop their budget preparation schedule working backward from the date when the legislative body (town meeting or City Council/Board of Aldermen) will vote on the budget. For most towns, this is the second Tuesday in March. RSA 39:1. Some towns have an April or May meeting, and cities have a date in each of their charters for adopting an annual budget. Further confusing the process, some towns have adopted the official ballot referendum form of town meeting (“SB 2”). Those towns must hold a first or “deliberative” session at which voters debate and amend items in the proposed budget (RSA 40:13), approximately five weeks before voting day.

Several weeks prior to any of that, both towns and cities are required to hold at least one (and possibly several) public hearings on the proposed budget. RSA 32:5; RSA 40:13; RSA 49-C:23.

Putting that into perspective, whoever is preparing the initial budget proposal (Board of Selectmen, official Budget Committee, or Town/City Manager) must have it ready to go approximately two months (at least) before voters get an opportunity to vote on it.

Working backward from that, department heads should expect to be contacted anywhere between four to five months before voting day for their budget proposals. The exact schedule will vary from one municipality to the next, depending on how many layers the budget must pass through before it gets to the voters. In a traditional town without an official budget committee, the Selectmen must hold at least one public hearing on the budget no later than 25 days before town meeting. RSA 32:5, I. In contrast, in an SB 2 town with a Town Manager and an official Budget Committee, the budget must pass through three administrative layers, plus public hearings, plus the deliberative session, all before voting day. Knowing the structure and schedule can take some of the surprise out of what may seem like a very early request for your department budget.

Q: What can I do to prepare?

A: Your preparation should begin at the start of your fiscal year. (If you haven’t done this yet, don’t panic. Just start where you are, reconstruct what you can, and remember these tips for next year.)

During the year, track how the budget matches up with your actual revenue and expenditures. If the budget was adopted in March but your fiscal year began on January first, you may need to adjust your planned expenditures if the budget you have differs from the one you asked for. Keep good notes as you go. Everyone assumes they will remember the important things, but the truth is you probably won’t. This isn’t the only thing on your plate. If you write it down, you won’t have to remember. That is the beauty of notes.

Some of the things you may want to note include:

  • Where did your department go over or under budget? Can you explain why?
  • Did the Board of Selectmen or Town/City Manager transfer any of your department’s appropriations into another department’s budget during the year? (Yes, that can happen, under all city charters and under RSA 32:10 for towns.) What effect did that have on your department’s operation?
  • Were there unexpected increases or decreases in your expenses or revenues?
  • Were there one-time events that changed things, or has something changed that will affect future years as well?

All of these details can help you answer questions from citizens, Selectmen, Budget Committee members, Managers, and City Councilors or Aldermen. They can also help you shape next year’s budget, and help you sell it to the right people when the time comes.

Q: What should I consider going forward with planning my department budget?

A: When you start to think about what the budget should look like, there are some critical items to consider:

  • What worked in last year’s budget and what didn’t? Why? (“Why” is the key word here.)
  • Were you given any guidelines by the governing body, Manager, or Budget Committee? If so, and your proposal deviates from the guidelines, be prepared to explain why you think an exception should be made for that item.
  • What are your fixed costs? These are the things you can’t change, or at least not easily. These may include utilities, debt, and contracts.
  • What are your personnel, equipment, and capital needs? Why do you need these?
  • Separate the “needs” from the “wants.” If there is a wish list for projects, new hires, raises or bonuses, include them, but be able to identify what you can live without if you are forced to make choices.
  • At the same time, determine what will happen if this budget is reduced or portions of it are removed. What are the real-world consequences if these new programs, equipment, improvements, or personnel are not approved? Can any of them wait a year? Why or why not?
  • What revenue is needed to support this budget? Can you raise any of it from non-tax sources?
  • Are any of the items in your budget things voters have been requesting? For example, if you are the Public Works Director and the public has been asking for more hours per week at the transfer station, include that fact in the notes accompanying a request for additional personnel to meet that request.
  • If you are proposing contributions to a capital reserve or trust fund for a future purchase or project, can you explain what the ultimate goal is and why saving for it now instead of borrowing for it later makes sense?
  • Put everything in the context of the economy. If something is available now for one price but is likely to cost more in the future (or the opposite), it can help guide policy decisions.

Q: I’ve put together a great budget. How can I get the Selectmen, Budget Committee, Town or City Manager to support it?

A: First, consider your audience. They may all be concerned about the same few general issues. Everyone is driven by the budget schedule and has only a certain amount of time to get through this stage of the process. They also have to put your department’s budget into the context of all the other departments. Where does yours fit? Then there are what might be called the “Big Two” concerns: the impact on the tax rate and the public relations fallout from a big budget.

It is also worth the time to consider the individual personalities involved. Boards are made up of people, and everyone is a little bit different. If you know that certain officials are for or against an idea, you may have to tailor your presentation to account for it. Some are extremely concerned about the bottom line; others care more about the tax rate. Some have a particular opinion about certain departments (pro or con). Personal relationships may also play a role. Some board members are more influential than others. And even one new member on a board can change the entire balance of power. These are important pieces of information to gather throughout the year.

Next, plan your presentation for this audience. Whether you are talking with the Selectmen, Budget Committee, Town or City Manager, this group needs details. They need to understand what you propose and the reasons behind it, they need to buy into it, and they need the knowledge and tools to help you sell it to the voters. Expect a lot of questions and be prepared to answer whatever you can. If a question arises and you don’t have an answer, remain calm and say something like “that is a great question. I will find out and get the information to you as quickly as I can.” (And then be sure to follow through!) Questions are not a bad thing; don’t take them personally. They are just a part of the process.

Some questions you may reasonably expect to be asked are some of the same questions you asked yourself when you developed the budget. How was last year’s money handled? Did anything unexpected happen (good or bad)? Why do you need this? Why is now the best time for this? Are there other options?

As you go, highlight the goals but provide the factual basis for your requests. Details are important here. However, different people take in information in different ways. Some respond best to numbers, others prefer descriptions, and some are visual learners. Consider preparing your material in a variety of formats so that everyone can really appreciate what you are proposing. Some formats you might consider are narratives (long form or bullet points), numbers, charts, graphs, and photos.

Since the details are important at this stage, you might consider including some of the following:

  • History (trends, experiences over time, where things may
    be headed)
  • Contractual obligations the town/city must meet
  • State or federal requirements the town/city has no choice but to meet
  • Efforts that your department has or is making to reduce costs and increase efficiency
  • Revenue sources (existing as well as anything new you are suggesting)
  • Successes! This is your chance to shine as you explain how your department was a good steward of the people’s money over the past year.
  • Explain the unexpected. Did something very good or very bad happen? Describe it and put it into the context of your proposal. For example, if you were awarded a large grant last year and were able to do more than you expected with your budget, or if you used the grant money and subsequently had a large surplus in your appropriations at the end of the year, explain that. Sometimes people assume that if you didn’t spend it, you didn’t need it. So if that grant money won’t be available again this coming year, it may mean you need the same appropriation for that purpose that you got last year even though you didn’t have to spend it all last year.

Q: Should we include information about the estimated tax impact of our budget?

A: Generally yes, although the emphasis may be different depending on what the effect is going to be. You need to have an estimate of the tax impact because someone may ask. If the impact will be fairly large, you may not want to highlight that information or mention it unless you are asked. Of course, if the estimated tax impact is very small or zero, make that a central point in your presentation!

You should also be aware that if you are in a town that has adopted RSA 32:5, V-b, the Board of Selectmen will be required to include the estimated tax impact on all budget items that are expected to have a tax impact.

To provide a ballpark estimate of how much a certain item will add to the tax rate, the Department of Revenue Administration developed its “three finger rule.” Begin with the total assessed property value in your town or city (this is available in your annual report or from your tax collector). Take that number rounded to the nearest dollar, and cover the last three digits with three fingers. The resulting number is approximately the size of an appropriation that would add one dollar to the tax rate. Cover the last four digits, and you have the amount of appropriation that would add ten cents to the tax rate. Cover five digits, and you see the size of an appropriation that would add one penny to the tax rate. (For more information on this topic, refer to “Property Tax: Understanding the Math, Dispelling the Myths,” published in the March 2012 issue of Town and City Magazine.)

This number will be only an estimate. Many factors influence the final tax rate and it is almost impossible to get the number exactly right at this point. However, the estimate is extremely useful to demonstrate the scope of the impact a proposed project may have. The Selectmen, Budget Committee or Town/City Manager will likely be very interested in whether a proposed appropriation will add dollars, dimes or pennies to the tax rate. If the number is zero, of course, you may want to begin your presentation with that happy fact.

Q: We’ve gotten through the preliminary steps and the proposed budget is going before the voters at the public hearings and town meeting. How can we help the voters understand the importance of our proposals?

A: This should go without saying, but department heads should definitely attend all budget hearings, and should probably attend the deliberative session in an SB 2 town and the business session of a traditional town meeting. If you aren’t there to answer questions and to provide information, who will? If you aren’t excited or interested enough about your budget to show up, why should voters be interested? Your governing body may decide to speak for all departments at the deliberative or business sessions, and the meetings may have a rule that discourages non-residents from speaking at the meeting. Therefore, the presentation to the public should be planned with the governing body in advance.

To prepare, remember that this is a different audience from those you have already spoken with. Voters have diverse levels of experience and a variety of interests and priorities. Some are very familiar with town government, while others are not. Consider the following short and by no means comprehensive list of the people who vote at town meeting:

Parents, homeowners, renters, business owners, unemployed people, retired people, stay-at-home parents, people with no children, students, teachers, elected officials, long-time residents, new arrivals from other states, people with and without high school diplomas and those with multiple higher degrees (in a subject that provides no special understanding of municipal government or finance), environmentalists, pro-business people, and those who live in close proximity to something they don’t like (a cell tower or wind turbine, transfer station, cement plant, gravel pit, or busy highway).

Obviously, the voters may not all be “numbers” people. It may be more effective to develop a simpler, consistent message to reach everyone. Focus on the goals and how they fit with the community’s values and concerns. If there is a change being proposed, be prepared to explain why a new way will work better. Whatever you do, don’t try to hide changes. That usually backfires and then voters begin to mistrust their government officials. It’s much more difficult to regain trust than it is to lose it.

At the budget hearing(s), it can be helpful to bring handouts with factual, simple information. This same information, perhaps with more detail that voters can read if they want to, can be posted on your department or town/city website. You can also, in some cases, attend Selectmen’s or City Council meetings and speak about an issue (if the board permits that). If your town or city creates a voter’s guide to hand out to voters, you may wish to contribute to it. Be careful with these, however, because excessive advocacy using public funds may raise issues under the First Amendment right to freedom of speech. To avoid this problem, a voter guide should include only factual information rather than language urging voters to vote one way or another. For instance, a town public works department could explain in a voter’s guide that an article to purchase a snowplow was proposed because the town’s fleet is 20 years old, the life expectancy of a plow is 15 years, and the town’s mechanic predicts that at least one truck will become unusable within the next year. These are factual statements to help voters make their own decision on the issue.

At the deliberative session in SB 2 towns or the business session in traditional meeting towns, consider it an opportunity to educate people about your proposal and how great your department is. Recognize the work your coworkers have done this year, and how they responded if there was a crisis or something unexpected. Bring your enthusiasm and your best attitude and use them! When you are asked questions, treat them as an opportunity to teach and explain, rather than as a challenge or a battle. Even if the person asking the question is clearly challenging you, it is difficult to start an argument if the other person doesn’t play along. Don’t play along. Stay calm, don’t be defensive, and use all of your preparation to answer the question.

This is also a good time to consider presenting information simply, but in a variety of ways. Just like your original audiences, voters take in information in different ways. Narratives, bullet points, pictures, charts, and graphs are often useful and can help make your point more quickly.

Some other things to include are the positives. If you plan to use non-tax revenue, highlight that point. How will spending money now save money later? Conversely, why is saving money little by little for a large project the best way to approach it? And although a simple message is usually the best way to begin with voters, be sure to have all of the details and numbers in your pocket if someone asks for them. The right information, a pleasant attitude and some patience can really make a difference.

Q: Phew! The budget has passed. I can stop now, right?

A: Well, no. Now it is time to begin all over again. A good place to start is to take stock of what just happened. What worked in the budget process and what didn’t? Can you learn from that and do something different next year? Should you start discussions with the Selectmen, Manager, or Budget Committee earlier? Could you emphasize different things? Should you use different methods to present your ideas? These are all valuable lessons to take with you as you start to prepare for next year.

C. Christine Fillmore is Staff Attorney for the New Hampshire Municipal Association. she may be contacted at 800.852.3358 ext. 3408 or at legalinquiries@nhmunicipal.org.