‘May You Live in Interesting Times’
Local officials certainly do “live in interesting times" in the current climate of reduced revenues and rising costs. Just as with the families we serve, we need to find ways to meet our responsibilities within the limits of the resources entrusted to us. The appearance of “interesting times" can be thought of either as a curse, or as an opportunity to make improvements in the way we implement our service plans.
The core plan for services is the budget. The Municipal Budget Law, RSA Chapter 32, requires every governing body to prepare “statements of estimated expenditures and revenues for the ensuing fiscal year," which then serve as the information from which the legislative body makes appropriations. With only a few exceptions, governing bodies may expend funds only for those purposes for which an appropriation has been made. Once the budget is prepared, the public has an opportunity to review it and make comment at public hearings held for the purpose. In those communities which have adopted the official budget committee, the governing body’s proposed budget is scrutinized by the members of that committee. Once the review is complete, the legislative body debates the issues, votes and makes the appropriations which are then implemented by the governing body during the fiscal year.
Since the process is conducted every year, one might assume that it is a repetitive and controlled task. However, most participants find it to be difficult and challenging. Here are some of the reasons why:
Any budget is a plan for the future. Because none of us can know the future with certainty, there is always an element of guesswork involved. For example, in a town with a March town meeting and a calendar fiscal year, the appropriations when made actually cover a period that is about two and one-half months in the past and nine and one-half months in the future. The budget estimates were initially prepared the previous September. At that time, the governing body must make an informed guess as to what actual conditions will be some 15 months down the road.
Memberships on local boards change constantly. Memberships on local boards change constantly, either at the annual election or by resignation as members relocate and move away from the municipality. The budget will likely be prepared and reviewed by at least some governing body and budget committee members who will leave office on the day their work is considered and approved. New members assume office to implement a plan they did not formulate, and almost immediately start formulating the next annual plan. Depending upon their past participation in the process in some other capacity, the new governing body or budget committee member may be well prepared, or totally overwhelmed.
Other levels of government make decisions that impact the budget. Their processes do not necessarily follow the local budgeting timeline. For example, the federal government uses October 1 as the start of its fiscal year, meaning that most grant applications are submitted while the annual budget is being prepared, and the results of the applications are often not known until after town meeting has been held. The New Hampshire Legislature finishes its annual session in May, and new laws imposing new requirements or changing how state agencies conduct their business are often effective within 60 days. Revenues and aid from the state will not be known until after the Legislature has completed its work. The amount of taxes due to the county must be paid by December of each year, even though the county budget may not have been prepared and approved using the same timeline as all of the municipalities in the county. These important relationships and the information that flows from them are not under the control of local officials.
Unexpected events will occur which challenge the plan. As we sit here today, how many of us could have accurately predicted the rise in costs of fuel a year ago when the estimated costs were prepared, and even if we had, how many of us could have persuaded the legislative body to appropriate based upon that prediction? How many times will it snow between now and December 31, 2009? Will the town suffer from a summer or winter weather event that requires an emergency response and repair of infrastructure? Will a major taxpayer suffer a reverse, and not make a property tax payment?
Given all of this uncertainty and the impacts of events that local officials cannot control, the governing body will naturally want to build into the budget cushions against those negative events. As a taxpayer, it is natural to want to pay the least amount possible in property taxes, but also to receive services promptly when needed. Municipal employees want to receive a competitive wage, and to have available the tools necessary to actually perform the work to a high level of quality. The budgetary system is designed to array all of these opposing forces against one another, each serving to check and balance the other.
At the Local Government Center, the Legal Services and Government Affairs staff fielded numerous questions about this process during the past budget season, and expect that the coming season will provide more of the same. Here are some observations that may help governing bodies and official budget committees take a fresh look at their task and their relationship during the process.
Tip 1: Know the Municipal Budget Law
At the outset, review the Municipal Budget Law, and understand the role of the participants. The governing bodies of municipalities and school districts perform the “executive" function by creating the financial plan for the ensuing year. The official budget committee, if one has been established, acts pursuant to RSA 32:1 to “…assist its voters in the prudent appropriation of public funds … [with] … authority analogous to that of a legislative appropriations committee." That is, the official budget committee performs a detailed review of the governing body’s plan, and reports to the legislative body (town or city council or town meeting) with a recommendation as to which proposed appropriations should be approved. The official budget committee has no executive authority, and is not charged with implementing the budget.
Tip 2: Understand Your Role
At the outset, understand that it is not the role of the governing body to “pad" the budget, nor the role of the official budget committee to “cut" the budget. It is the role of both to propose the “prudent appropriation of public funds," and to make information available to the voters. The decision of the legislative body to appropriate is the actual decision which makes funds available. Thus, it is not only possible but highly likely that neither the governing body’s request, nor the budget committee’s recommendation, will be approved unchanged. If that happens, it does not represent any “failure" by either the governing body or the budget committee, but instead shows the will of the majority of those who participate in the legislative function of municipal governance.
Tip 3: Exercise Diplomacy
Recognize that it is normal to have differences of opinion as to proposed appropriations. It is easy to focus on these differences, and have those differences create hard feelings that extend beyond the budget season. Instead, recognize that the participants usually agree on well over 90 percent of the purposes and amounts of proposed expenditures. If the legislative body receives its report with an emphasis on which proposed appropriations have the support of all, it is easier to put the debates on the relatively few items that remain in dispute into context, and have a productive debate and discussion on those policies and amounts.
Tip 4: Inspire Others to Serve in the Future
The formation and review of budgets, whether through public hearings, an advisory budget committee, or the official budget committee serves to increase the involvement of citizens in local governance, and train future municipal officials. The work of local officials is not simple, and is not a task which can be mastered without making a real effort to understand the services to be delivered, the cost of the services, and the revenues which make service delivery possible. To the extent that officials can conduct their reviews and debate without rancor, it may inspire others to serve in the future.
Tip 5: Engage the Public
If possible, conduct the process of setting the tax rate at a public meeting at the town. If the schedule of the Department of Revenue Administration staff permits such a meeting, it allows citizens and budget committee members to see and hear the discretionary decisions made by their governing body on this important task. They can see how much money is allocated to the overlay, the amount of unreserved fund balance which may be available for later appropriation at town meeting. They will learn whether the valuations of property are at or near market value, and whether or not a commercial or residential property revaluation must be conducted in the ensuing year.
A Challenging Budget Year Ahead
There is no question but that this year is one where resources will be reduced, and budget reviews will of necessity be more intense. There will be many newspaper articles describing proposed service reductions and the impacts upon citizens. Individuals and groups which benefit from each program or service will attempt to persuade both officials and voters that their service should be maintained or even expanded, and that reductions should come from some other purpose. How can officials take a reasoned approach to this process, and not lose their focus on the big picture? Here are some suggestions:
1. Start the process by setting a target for the tax rate.
Should the rate increase, decrease, or stay the same? While the actual rate will not be set until several months after the meeting which appropriates funds to meet public purposes, setting a target establishes a goal for the budgetary process. This is much more meaningful than adopting a target based on an external measure such as the consumer price index (CPI). The estimated tax rate target relates directly to local conditions, and to the one thing most citizens care passionately about, which is whether their actual property tax bill is likely to increase or decrease.
2. Analyze revenues for the municipality.
The property tax is important, but it is not the only source of funds for operations. Will motor vehicle registration income rise or fall? What is the fee structure adopted by the governing body for services and permits, and is it adequate to recover the costs of operations? Are there important grants from other governments pending? What information is available regarding state aid from the rooms and meals tax and state highway aid? Are buildings under construction which will increase the tax base of the community, or yield increases in one time payments such as the Land Use Change Tax? Is this the year that a past debt obligation, such as a bond, will be paid off, thus making revenue available for other purposes?
3. Assess all available sources of funds.
What amounts are available in reserve to fund public purposes? Is there an amount in unreserved fund balance that could be appropriated to a purpose? Will proposed capital purposes be funded in whole or in part from a capital reserve fund? Will certain functions, such as an ambulance service or police special details, be funded from a special revenue account, and are the fees charged and collected adequate to cover the cost of the service? Will other functions, such as the recreation department, be funded by a revolving fund, which allows user fees to be continually appropriated to the purpose? Are the user fees recovering an appropriate portion of the costs? Are there funds held in trust by the trustees of the trust funds which will be available to meet the restricted purpose envisioned by the original donor of the assets? Does the municipality have a working Capital Improvement Plan which calls for acquisition of one or more capital items in this fiscal year?
4. Estimate non-discretionary expenditures.
Once estimated revenues are known, the amount of expenditures that may be allowed in order to meet the tax rate target can be estimated. This is the amount that will be allocated between all of the competing requests for resources. Not all of these expenditures are subject to control, such as the amounts that must be transferred to schools and counties. Amounts required annually for long term debt obligations, payments for retirement plan obligations, and previously approved contractual obligations such as collective bargaining agreements must be paid. Adequate resources must be reserved to meet obligations under the local welfare program and to keep municipal highways passable and free from major defects throughout all seasons of the year.
5. Consider discretionary spending.
Once the expenses not subject to control and the expenses which are fully offset by a revenue source are noted, the budget review can focus on those “discretionary" programs and services which serve a public purpose, but which are not mandated by statute, regulation or contract. These programs are where investments in future capital projects and innovations in current service delivery are considered.
Maintain a Positive Focus
Since every municipal program should continually strive to improve its efficiency and effectiveness, seek suggestions for improvements from citizens. The first municipal Web sites in many of our communities were created by citizen volunteers, and improvements to existing sites continue today. Cultural activities, such as summer band concerts, are often created, staffed and funded by volunteers and local business leaders. Local elected and appointed officials bring experience and training from their private sector employment to the task, and implement efficiencies and improvements to municipal business processes such as purchasing and employee relations.
At the end of the review process, there will be some disagreement about the purposes and amounts of appropriations to be recommended to the legislative body. Again, this is perfectly normal, and to be expected, since reasonable people may disagree about the relative importance of programs and services. These disagreements should be highlighted and contrasted during the public hearings on the budget, and when the budget is considered by the legislative body. The governing body should not hesitate to advocate for the matters it considers important, because it is the group that must actually implement the budget during the year. The budget committee should not hesitate to advocate for its viewpoint, since its statutory function is to provide a check and balance to the governing body’s executive authority as a representative of the legislative body. The legislative body as a whole will resolve the matter, and determine the policy that is to be followed.
The budget review process is a difficult and time consuming task. It is a combined effort of municipal staff, the governing body, the budget reviewers, and ultimately the legislative body itself. Each year proposals to fund public purposes are created, tested during the review process, focused and finalized at public hearing, and ultimately put to a vote. Those that survive and become appropriations must be implemented, and those that are cut may rise again in the future as the needs of citizens change. If the participants can take the long view, and avoid rancorous disputes, the “interesting times" may prove to be less of a curse, and more of an opportunity for reflection and improvement.
Paul Sanderson is a Staff Attorney with the New Hampshire Local Government Center’s Legal Services and Government Affairs Department.