The Default Budget in SB2 Towns
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.
Since its introduction by the Legislature in 1995, 70 New Hampshire municipalities have adopted SB 2, the official ballot form of town meeting. Since 1995, the principal SB 2 statute, RSA 40:13, has been amended thirteen times. Among these amendments, the rules governing the creation and implementation of the default budget were crystallized by the Legislature in 2004 with the adoption of SB 219. That amendment brought more clarity and definition to default budget calculation. This FAQ will seek to simplify your understanding of the default budget: how it is created, presented, adopted, and implemented.
We are an SB 2 Official Ballot Town Meeting and the voters just rejected the operating budget warrant article. Now what?
If the operating budget warrant article fails in an official ballot referendum (SB 2) municipality, the governing body has two options. One is to do nothing and allow the default budget to take effect as the new operating budget. The other is for the governing body to call a special meeting to consider a revised operating budget. RSA 40:13, X. This meeting does not require superior court permission but may not be used to address any issue other than a failed operating budget.
What is the statutory definition of “default budget”?
"Default budget'' means the amount of the same appropriations as contained in the operating budget authorized for the previous year, reduced and increased, as the case may be, by debt service, contracts, and other obligations previously incurred or mandated by law, and reduced by one-time expenditures contained in the operating budget. “One-time expenditures” are appropriations not likely to recur in the succeeding budget.
How does this statutory definition for “default budget” work as applied to our municipal budget?
The default budget freezes the budget at the previous year’s level except for amounts which the town is legally obligated to pay or which were one-time expenses. This means that employee raises should not be included unless they are required by a legally binding and previously ratified contract obligating the municipality to fill particular positions or employ particular people at certain wages.
What about the increased costs the town must pay for such things as electricity or bituminous concrete for fixing town roads?
While the per-unit cost for certain commodities may increase from one year to the next (such as the cost per kilowatt-hour of electricity or the cost per ton of asphalt), the default budget includes the “amount” of the money appropriated for that purpose the previous year, not the amount that will be required for the same number of units in the coming year.
What would be an example of a “one-time expenditure” that would not be included in the default budget calculation?
If the town had to buy a piece of equipment that was not likely to be needing replacement on a regular basis, that would be a “one-time expenditure” not likely to reoccur in a succeeding budget. For instance, police cruisers must be replaced on a regular basis and the scheduled purchase of new police cruiser in any municipal budget would not be a one-time expenditure. On the other hand, the purchase of a new backup electrical power generator for town hall would not likely be a reoccurring capital expense and would be categorized as a one-time expenditure. The same would be true about a one-time exterior improvement to town hall, such as installing handicap access ramps.
What are “contracts, and other obligations previously incurred or mandated by law” that are included in the default budget?
The annual cost of any multi-year contracts that had been approved by a prior town meeting would be included in the default budget, such as a collective bargaining agreement. The same would be true of any other multi-year contracts where the full, multi-year cost of the agreement was discussed and disclosed at the town meeting where the agreement was approved. Other obligations mandated by law that would be included in the default budget would be such things as workers’ compensation insurance which is mandated by RSA Chapter 281-A, or payments to the New Hampshire Retirement System for town employees.
Are there any appropriations that must be included in the default budget?
If an SB 2 town approves a multi-year appropriation for a capital project under RSA 32:7-a, for each year after the first year, the amount designated for that year as provided in the original warrant article is included in the default budget and deemed appropriated without further vote by the legislative body. In other words, once town meeting has authorized a capital project multi-year appropriation, no warrant article is needed in any other year of the term. Each year’s amount will be treated as appropriated automatically in future years of the term whether the proposed operating budget is passed.
What town body or official determines what goes into the default budget?
The determination of the default budget, including one-time expenditures, capital project appropriations, rests with exclusively with the governing body and cannot be altered by the town meeting, unless it has been delegated to the budget committee.
How is determination of the default budget delegated to the budget committee?
The town or district meeting voters may vote to delegate determination of the default budget to the budget committee, if one exists, instead of the governing body. RSA 40:14- b. This delegation of authority can be voted on at the time the official ballot referendum system is adopted, or, if the town or district already operates under the official ballot referendum system, the delegation of default budget authority can occur by an article in the warrant: “Shall we adopt the provisions of RSA 40:14-b to delegate the determination of the default budget to the municipal budget committee which has been adopted under RSA 32:14?”
When and how is the default budget presented to the town meeting?
The default budget must be disclosed at the first public hearing on the budget held under RSA 32:5 (towns) or RSA 197:6 (school districts). Unless determination of the default budget has been delegated to the budget committee, the governing body must complete the default budget form created by DRA. The purpose of the default budget form is to demonstrate how the default budget amount was calculated. The calculations must include appropriations contained in the previous year’s operating budget; reductions and increases to the previous year’s operating budget due to changes in debt service, contracts or other obligations; one-time expenditures as defined in RSA 40:13, IX(b); and capital project default amounts. The governing body must post certified copies of the default budget form or any amended default budget form with the proposed operating budget and warrant. RSA 32:5, VII(b).
When does the default budget go into effect?
If the proposed operating budget does not pass, and if the governing body does not choose to call a special meeting to consider a revised operating budget (or if such a vote fails), then the default budget is deemed to have been adopted.
What line item transfer authority does the governing body have over a default budget?
As clarified by the New Hampshire Supreme Court, the governing body may exercise the same discretionary transfer authority under RSA 32:10, I with respect to a default budget as it may exercise with respect to an ordinary operating budget. Sullivan v. Hampton Board of Selectmen, 153 N.H. 690 (2006). The Court noted that RSA 40:13, IX(b) defines the default budget simply as an amount and prescribes how to calculate that amount. The Court also noted that the default budget appears in a warrant article only as a dollar amount and, as such, creates a bottom line figure within which the select board must stay. The failure to pass the operating budget is a sufficient change in circumstances within the requirements of RSA 32:10, I to justify the governing body’s use of the transfer authority.
Stephen C. Buckley is Legal Services Counsel with the New Hampshire Municipal Association. He may be reached at 800.852.3358 ext. 3408 or firstname.lastname@example.org.