The ABCs of Borrowing for Municipalities
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.
Financing the cost of municipal projects by long term debt requires strict compliance with the Municipal Finance Act, RSA Chapter 33, and related procedures found in RSA Chapter 40 and RSA Chapter 32. This article is a summary overview of a subject that this is very technical and where the statutory requirements must be followed exactly. When dealing with matters involving municipal financing through long term debt, the concept of “substantial compliance” does not exist. Accordingly, a municipality that is contemplating issuing a bond should consult with recognized bond counsel very early on in the process. In general this article addresses borrowing through long term debt and does not apply to tax anticipation notes or lease-purchasing arrangements.
In addition, RSA Chapter 33 provides specific requirements regarding the manner in which bonds may be structured (e.g., how quickly principal must be paid, limits on deferral of principal, maximum term, etc.). Those requirements are not addressed in this article.
Q: For what purposes may NH municipalities borrow?
A: RSA 33:3 authorizes the issuance of bonds or notes for the following purposes:
1. Acquisition of land.
2. Planning relative to public facilities.
3. Construction, reconstruction, alteration, and enlargement or purchase of public buildings.
4. Public works or improvements of a permanent nature including broadband infrastructure as defined in RSA 38:38, I(e), to be purchased or constructed in areas not served by an existing broadband carrier or provider.
5. Purchase of departmental equipment of a lasting character.
6. Payment of judgments.
7. Economic development, including public-private partnerships involving capital improvements, loans, and guarantees.
In addition, borrowing for certain other purposes is authorized by other statutes.
8. Reappraisal by professional appraisers for tax assessment purposed. (RSA 33:3-b.)
9. Preliminary expenses for construction, alteration, enlargement of
(a) A public building.
(b) A water works.
(c) A sewerage system or sewage or waste treatment facility.
(d) A solid waste disposal or resource recovery facility.
(e) Broadband infrastructure as defined in RSA 38:38 to be purchased or constructed in areas not served by an existing broadband carrier or provider. (RSA 33:3-c.)
10. Superfund clean-up costs (RSA 33:3-e.)
11. Tax increment financing bonds. (RSA 162-K:8.)
12. Expenses related to change of fiscal year. (RSA 31:94-d.)
In general, pursuant to NH RSA 33:3, long term debt may not be issued “for the payment of expenses for current maintenance and operation except as otherwise specifically provided by law.”
Q: What are the maximum limits of municipal borrowing?
A: All municipalities have a limit on the total amount of debt that may be outstanding at any one time. This limit is calculated as a percentage of the total market value (equalized assessed value) of all taxable property in town. The percentage is 3 percent for cities, 3 percent for towns, 1 percent for village districts and 7 percent for school districts. However, it is possible that the limit for any town, village district or school district may actually be less at any particular time, because the total debt limit for any municipality that contains an overlapping municipality (such as a school district and town that cover the same geographic area) can be limited to 9.75 percent. RSA 33:4-a and 33:4-b.
There are debt limit exceptions for sewer treatment plants ordered by NHDES (RSA 33:5) or water treatment facilities ordered by NHDES (RSA 33:5-a) or voluntary sewer projects (RSA 33:5-b). Tax anticipation notes do not count as part of the municipality’s total debt limit.
Under RSA 33:1 certain types of debt repaid from sewer rents, etc. are not included in the definition of “net indebtedness.” Some municipalities have special debt limits established by special legislation. Special debt limits are provided for cooperative school districts under RSA 195. Tax increment finance bonds issued under RSA 162-K are exempt from debt limit requirements.
Q: What are the statutory procedures for approving a bond or note? (Note: These procedures, set forth in RSA 33:8, apply regardless of the amount of the borrowing. Additional requirements for a bond or note in excess of $100,000 are listed below.)
A: Only votes in the affirmative or negative shall be included in the calculation of any majority.
Must be a ballot vote.
Bond article included in warrant posted at place of meeting and one other public place in municipality at least 14 “clear” days prior to meeting; or as set forth in RSA 40:13 for official ballot communities.
Requirements for hearing on budget/appropriation articles by governing body or budget committee under RSA 32:5.
No action to approve a bond or note can be undertaken at a special meeting unless a majority of all the legal voters are present and vote at such special meeting, or unless the governing body shall petition the superior court for permission to hold an emergency special meeting, which, if approved by the Superior Court, shall give any such special meeting the same authority as an annual meeting.
In addition to posting requirements, the warrant for a special meeting shall be published once in a newspaper having a general circulation in the municipality within one week after the posting of such special meeting.
All bonds or notes shall be signed by the governing board, or a majority of the governing board, and countersigned by the treasurer of the municipality, and shall have the corporate seal, if any, affixed to it.
Q: When borrowing an amount greater than $100,000, additional procedures, set forth in RSA 33:8-a, must be followed:
A: At least one public hearing must be held at least 15 days, but not more than 60 days, before the meeting where the bond will be considered.
Notice of the hearing must be posted and published in a newspaper at least seven days before the hearing. For SB2 Towns the date for that required bond hearing is prescribed by RSA 40:13 as follows: for March Town Meeting, on or before the second Tuesday in January; for April Town Meeting, on or before the second Tuesday in February; and for May Town Meeting, on or before the second Tuesday in March.
The item must be acted on prior to any other business except the election of officers and zoning questions or as otherwise determined by voters at the meeting.
Secret ballot voting must be open for at least an hour after discussion. The meeting may not vote to shorten this time period. The one-hour balloting period may overlap with other business of the meeting so long as voters remain free to vote for one hour. If there is more than one bond issue, the one-hour periods can overlap. Most moderators wait until the majority of the voters have voted, then move on to discuss other articles while the polls remain open for voting on the bond issues. All bond issues shall appear in consecutive numerical order. A separate ballot box is required for each bond issue.
A bond article vote cannot be reconsidered until at least seven days later, at a meeting noticed by publication in a newspaper at least two days prior to the meeting. If reconsideration is scheduled for a date that is significantly later, it may be necessary to conduct a new properly noticed bond hearing to comply with the requirement that the hearing may not be held more than 60 days prior to the vote.
Q: What is the necessary majority vote to approve the issuance of bonds or notes when a municipality borrows?
A: 1. Traditional Town Meeting: authorized by a vote by ballot of 2/3; issuance of tax anticipation notes is by a simple majority.
2. SB2 Town Meeting: The issue of notes or bonds by a school district or municipality which has adopted official ballot voting procedures pursuant to RSA 40:13 shall be authorized by a vote of 3/5.
3. Charter Towns with budgetary town meetings: The issue of notes or bonds by a municipality that has adopted an optional form of legislative body under RSA 49-D:3, I-a or RSA 49-D:3, II-a shall be authorized by either a 2/3 or 3/5 vote as adopted and provided for in the charter. If such charter does not specify which majority vote is required, then the required majority vote shall be 2/3.
4. Charter towns without budgetary town meeting: The town council has the authority to issue bonds or notes after at least one public hearing 15 days, but not more than 60 days, prior to the vote on the bond issue or note. Notice of the time, place and subject matter of such hearings before the town council shall be published in a newspaper of general circulation in the municipality at least 7 days before the hearing is held and posted in at least 2 public places in the municipality. The vote by town council must be by 2/3 majority by a recorded roll call vote. The authority of the town council to issue bonds or notes is limited to an amount not in excess of 10 percent of the town’s operating budget for the most recently concluded fiscal year. If the bond exceeds that amount, a referendum must be held. RSA 33:8-d.
5. City Bonds: Approved by 2/3 of the members of the City Council. RSA 33:9.
Q: What happens if the Budget Committee does not recommend a bond in its entirety?
A: RSA 32:18-a establishes a procedure for a budget committee town or district to vote to override the 10 percent rule on specific bond issue questions. If a warrant article for a bond is not recommended in its entirety by the budget committee, the governing body may vote to place the article on the warrant with the phrase “Passage of this article shall override the 10 percent limitation imposed on this appropriation due to the non-recommendation of the budget committee.” The bond article still must pass by the statutorily required 2/3 majority vote (3/5 in SB 2 towns and districts).
Q: How should a long term debt warrant article be worded?
Here is a sample warrant article for the approval of long term debt that includes a 10% override:
[Passage of this article shall override the 10 percent limitation imposed on this appropriation due to the non-recommendation of the budget committee]. To see if the municipality will vote to raise and appropriate the sum of $4,000,000 (gross budget) for the construction and original equipping of a new Police/Fire/Rescue building, and to authorize the issuance of not more than $4,000,000 of bonds or notes in accordance with the provisions of the Municipal Finance Act (RSA 33) and to authorize the municipal officials to issue and negotiate such bonds or notes and to determine the rate of interest thereon; The selectmen recommend this appropriation. The budget committee does not recommend this appropriation. (2/3 ballot vote required, 3/5 ballot vote required if SB2 or applicable per charter).
Money appropriated must reflect the total dollar value required for the purpose (the gross budget). When posting this example on the DRA budget form, it will be listed in the appropriate “recommended” or “not recommended” columns, under special warrant articles, with a gross appropriation of $4,000,000. Another thing to keep in mind is whether the first year’s payment should be included in the warrant article. This phrase can be inserted before the recommendations, “..and further to raise and appropriate an additional sum of $xxx for the first year’s interest payment on the bond.” That additional appropriation must be included on the budget form.
Q: When does a bond lapse or become rescinded?
A: Under RSA 32:7, III, an amount raised through bonds or notes does not lapse until the purpose it was intended for is completed or unless bond authorization is rescinded by a vote of the legislative body (either at a time specified in the original vote to issue the bond or by later vote to rescind under RSA 33:8-f ). If there is an amount remaining after the completion of the project, or for some reason no expenditure has been made, RSA 33:3-a, II permits the legislative body to authorize expenditure of the remaining funds for any purpose for which it is lawful to issue bonds or notes.
Stephen Buckley is Legal Services Counsel for the New Hampshire Municipal Association. He may be contacted at 800.852.3358 ext.3408 or at legalinquiries@nhmunicipal.org.