Fees for Municipal Services
Municipalities are entitled to charge a wide variety of fees for governmental expenses. As budgets tighten it is more important than ever to understand what fees can be assessed for permits, programs and services and how to properly charge them.
Q. I know that our municipality charges fees for many of the services that we provide, but I don’t understand who sets these fees or how they may be changed over time. Where can I find that information?
A. The answer depends upon the type of fee involved, but the answer for each one can be determined from the state statute which authorizes the municipality to charge for the service. As we so often repeat, “Towns only have such powers as are expressly granted to them by the legislature and such as are necessarily implied or incidental thereto.” Girard v. Allenstown, 121 N.H. 268 (1981). The state statutes are found in the bound set of the N.H. Revised Statutes Annotated (RSA) or online at the state website.
Q. We are challenged for additional revenue. Is there some limit that controls how much we can charge as a fee for services rendered?
A. Yes. As Peter Loughlin notes in his Local Government Law treatise, Vol. 14, Section 951, a “fee” is part of a regulatory process, rather than a revenue raising process. In order to be valid, a fee must bear a relation to and approximate the expense of performing the function. If the amount collected is clearly in excess of the approximate cost involved, it is a revenue measure in the nature of a tax. A “tax” cannot be assessed under the guise of a “fee.” Therefore, whenever a new or modified fee is contemplated, the municipality must find authority to charge for the service under an enabling state statute, and then must set the fee in an amount which bears a reasonable relationship to the cost of providing the service. The fee will not be invalidated by the courts simply because there is some surplus revenue in individual cases, but the fee must bear a reasonable relationship to the actual costs of regulating the issue at hand.
Q. Can you give us some examples of fees that are authorized by statute?
A. Very broadly speaking, land use boards are authorized by RSA 673:16 to collect application fees, fees to provide notice to abutters and others, and to be reimbursed for the costs of consultant services, investigative studies or the implementation of conditions imposed by these boards. Those municipalities which operate electric, gas, water or sewer utilities are authorized to adopt bylaws and charge for their services by RSA Chapter 38. If the municipality offers recreational opportunities, it may charge for participation pursuant to RSA Chapter 35-B. There are many different types of licensing or regulatory ordinances authorized by RSA 31:39 for which a fee could be charged. This list is far from complete, but it shows that fees are authorized for many common services, and that the amount of the fee may be set by action of an elected or appointed board, action by a group of commissioners in a utility district or action by a town meeting acting as the legislative body.
Q. Are there instances where the board of selectmen is authorized to adopt fees?
A. Yes. There is a very handy authorization found at RSA 41:9-a. A town may adopt at an annual or special meeting a warrant article that gives the board of selectmen the authority to establish or amend fees at any time without further vote of the town. Before establishing or amending a fee, there is a requirement for public notice and a public hearing. Once in place, the authorization remains until rescinded at a future town meeting. It allows the selectmen to react quickly to costs beyond their control, such as increases in the cost of postage. The authority applies to any licensing, regulatory or permitting program, as well as to any “revenue producing facility” as defined in RSA 33-B:1, VI, meaning that fees for use of water works, sewer facilities and other major projects financed by revenue bonds can be adjusted in the face of increased operating costs.
Q. Once these fees are set, is there any assurance that the amounts received will actually be used to support the delivery of the service?
A. It depends on the fee, and how the underlying service or program was created. For example, if the fee is for copies of public records at the town hall, or for printed copies of the zoning ordinance, the revenue would likely be placed in the general fund and could be used for any public purpose. However, if the copies are provided at the local public library, RSA 202-A:11-a permits a town to vote to have the revenue retained at the library and used for library purposes.
Q. Are there other situations where a town may choose to specify how its revenue from fees is accounted for, and ultimately used?
A. Yes. Several different statutes permit the creation of “revolving funds,” which accomplish the goal of taking specific revenues and assuring they are used only for predetermined purposes. For example, RSA 35-B:2, III authorizes the creation of the “recreation revolving fund,” which receives fee income from recreation services or the use of recreation facilities, and then restricts the use of the funds to the support of those services or facilities. Other revolving funds may be created pursuant to RSA 31:95-h to facilitate recycling, provide ambulance services, account for special details worked by local police or firefighters, create affordable housing, or provide funding for cable television public access channels. An important attribute of the “revolving fund” is that either the selectmen or a different body is granted the authority to order the treasurer to make use of the funds without further approval of the town meeting. This means that funds may be used when needed to accomplish the underlying purpose, without any need to submit a warrant article to town meeting. It is a very flexible tool, which permits withdrawals based on actual experience as the program is delivered to the public.
A slightly different financial tool, called the “special revenue fund,” is authorized by RSA 31:95-c, and may be created to support any activity which is funded primarily by user fees, including, but not limited to, municipal airports and solid waste facilities. With this type of fund, withdrawals may only be made following an appropriation for the purpose approved by a warrant article at the town meeting. This tool assures that the people have an ongoing voice in the use of the restricted fund, and that funds will not be withdrawn until there is an approved appropriation.
The fees which are charged for municipal services are a very important part of the revenues of a municipality, and deserve an annual review to assure that the amounts are both adequate to cover the costs of delivering the service, and fair to the citizens who use the services. We often refer to RSA 41:9-a as a primary tool for the governing body to acquire in order to promptly react to new costs which arise during the year. The governing body can also work with municipal departments and the budget committee to assure that departments which generate revenue also receive the appropriate allocation of funds to accomplish their purposes.
For example, a recreation revolving fund allows the recreation commission to offer a program and also be assured that they have the resources to acquire equipment, uniforms and services from umpires and referees. A revolving fund for special details in the public safety departments assures that police officers and firefighters will be paid for the work that they perform on these details without risk to the underlying mission and work of the department. It allows the governing body to present a budget based upon the core mission of each department, without having to worry that it has provided too many resources to a program in decline, or failed to allocate enough resources to a program that is unexpectedly popular.
Paul Sanderson is a Staff Attorney with the New Hampshire Local Government Center’s Legal Services and Government Affairs Department. For more information on this and other topics of interest to local officials, LGC’s legal services attorneys can be reached Monday through Friday from 8:30 a.m. to 4:30 p.m. by calling 800.852.3358, ext. 384.