NHMA Legislative Alert, Municipal Aid
Explanation of Municipal Aid Included in the FY 20/21 State Budget
This week the New Hampshire state treasurer issued checks to cities and towns for the $20 million of “municipal aid” included in the biennial state budget enacted last month. NHMA has received many questions about this municipal aid and offers the following guidance.
What is “municipal aid”? The fiscal year 2020-2021 biennial state budget, which was adopted on September 27 but effective July 1, 2019, includes $20 million in each fiscal year for unrestricted municipal aid to cities and towns. The appropriation, distribution formula, and payment dates are in section 172 on page 61 of the budget trailer bill, Chapter 346 (HB 4).
What is the municipal aid distribution formula based upon? While this money is strictly for municipal purposes, the formula for distribution is based upon the total number of students in each municipality and the number of students eligible for the free and reduced lunch program in the school year immediately preceding the distribution.
Although municipal aid distributions for each municipality were provided during the legislative session and included in previous NHMA Legislative Bulletins, these were only estimates, and the actual distribution is slightly different because the student counts have been updated since June, as required by Chapter 346. Here is the final list of Municipal Aid Payments for the first year of the biennium. The amount to be distributed in the second year of the biennium may be slightly different as a result of updated student counts that will occur before that second distribution.
What are the payment dates for municipal aid? The state treasurer made payments this week to cities and towns for the first year of the state biennium. Payments for the second year of the biennium will be made on or before October 1, 2020. (Please note that a previous Legislative Bulletin erroneously stated the second payment date as October 1, 2021. We apologize for any confusion that may have caused.)
What can this money be used for? This municipal aid is unrestricted, meaning that it may be (1) used to reduce property taxes, (2) expended for any purpose for which a municipality may legally spend money, or (3) used for a combination of both.
What action must be taken to use municipal aid to reduce the 2019 property tax rate? We recommend that the governing body vote on the specific amount of the municipal aid it desires to use to reduce the 2019 property tax rate and communicate that to the Department of Revenue Administration (DRA) as part of the 2019 property tax rate setting process.
What action must be taken to expend municipal aid this year? Chapter 346 indicates that municipal aid received by October 15, 2019 may be considered “unanticipated revenue,” accepted and expended under the provisions of RSA 31:95-b, II-IV, whether or not a municipality has adopted that statute. For unanticipated money in the amount of $10,000 or more, RSA 31:95-b requires the governing body to hold a public hearing on the action to be taken, with notice of the time, place and subject of the hearing published at least seven days before the hearing is held. For unanticipated money less than $10,000, the governing body must post notice of the funds in the agenda and include notice in the minutes of the public meeting at which the money is discussed.
Is municipal aid in the second year of the biennium also considered unanticipated revenue under RSA 31:95-b? No. Municipal aid in the second year of the biennium is not “unanticipated revenue” since it is in fact anticipated. To expend the municipal aid that will be received next year, cities and towns should appropriate that money as part of next year’s budget. Or it may be used to reduce the 2020 property tax rate.
Do cities need to follow RSA 31:95-b to spend the municipal aid this year? While the provisions of RSA 31:95-b generally apply to towns only, in this case we recommend that cities also follow the requirements in that statute by holding a public hearing on the proposed use of the municipal aid.
We haven’t held a public hearing yet, so what do we do with the check? The check should be deposited as soon as possible. You do not need to wait until after the public hearing to deposit the check.
If we don’t spend the municipal aid by year end, does it lapse to fund balance? If you exercise the provisions of RSA 31:95-b to accept and expend the municipal aid, then the money does not lapse to fund balance if unspent by year end. Paragraph IV(b) of RSA 31:95-b states that unanticipated money is “exempt from all provisions of RSA 32 relative to limitations and expenditure” of money. The lapsing requirement is RSA 32:7. Since RSA 31:95-b provides an exemption from RSA 32, we believe that the municipal aid received this year is non-lapsing.
But remember, the municipal aid that will be provided next year is NOT unanticipated revenue and needs to be included in the budget in order to be spent. The lapsing/non-lapsing requirements of RSA 32 will apply to next year’s municipal aid (i.e., if it’s appropriated in the operating budget it will lapse at year end if unspent; if it’s appropriated in a special warrant article, it may be non-lapsing for one year or up to five years if so designated in the article).
How much do we budget for next year if the distribution amount for the second year will likely change as a result of revised student counts? Our recommendation is to budget municipal aid next year for the same amount that you received this year.
As noted, the student population counts will likely change, resulting in a different municipal aid amount next year that will not be known until the end of the school year. However, this is no different from the meals and rooms tax distribution or the highway block grant, where a municipality can only budget for an estimated amount of revenue because the exact amount of that state aid is not known until the fall.
Additional questions regarding municipal aid may be addressed to: Governmentaffairs@nhmunicipal.org.