LEGAL Q&A: That Time of Year Again: Common Budgeting FAQs
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.
It is that time of year again when municipalities are getting started with the budgeting process for the upcoming town meeting. Whether you are an SB2 town, traditional town meeting town or have an Official Budget Committee, certain questions tend to pop up every year that need answering. In this issue’s Legal Q&A, we have complied some of the more common/interesting budget related questions the legal inquiries team here at NHMA have received over the past few weeks with the hopes that if other municipalities are dealing with similar issues, these responses may help solve them.
Q: If a special warrant article is approved as “non-lapsing” and consequently the funds may be encumbered for up to 5 years, does the select board still need to agree to encumber the funds annually in order to have those funds remain available into the next year?
A: There are two separate paragraphs in RSA 32:7 that address how special warrant articles will lapse and when. First, RSA 32:7, V addresses what can be called a “naked” special warrant article. That is a special warrant article where the article was not warned to provide a designated time (no later than 5 years) after which the appropriation would lapse. In that instance, the select board can only encumber the funds for one additional fiscal year and no more, and this must be done prior to the end of the fiscal year.
Second, RSA 32:7, VI addresses where the select board explicitly states in the approved warrant article that the appropriation will not lapse for up to a maximum of 5 years. If the warrant article was approved as non-lapsing for 5 years (or such other number of years between 1 and 5) that appropriation does not have to be encumbered before the end of each successive fiscal year, it is encumbered for the entire time period as approved in the warrant article. No further action is needed by the select board to reserve those funds from year to year.
Q: It appears that our town may have to resort to a default budget. The select board is wondering what discretion they have over preparing the default budget when it comes to accounting for increases in the cost of energy, employee raises or overtime payments, and budgeting for employees that are needed but have not yet been hired. The statute is clear that the select board can only increase the default budget for contractual obligations, do these increases count?
A: RSA 40:13, IX (b) says the default budget is “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 and by salaries and benefits of positions that have been eliminated in the proposed budget.”
Based upon this language, if the approved budget for 2022 for Energy and Fuel was $100,000, that is the amount entered into the corresponding line item(s) for Energy and Fuel for the 2023 default budget. In that instance, even if the Energy and Fuel items will actually cost $125,000 in 2023, the default budget for those items would be fixed based on the amounts appropriated for those items in 2022.
If employee raises were approved as part of the 2022 budget, then those raises will remain in effect. However, no additional money can be appropriated for additional raises in 2023. If you wish to give additional raises in 2023, the money would need to be found elsewhere in the default budget. The same applies to overtime payments. For example, if the amount that was appropriated for overtime pay for firemen in the 2022 approved budget was $100,000, the same amount would be allocated for overtime pay for firemen in the default budget for 2023, $100,000. Even if it is expected that overtime pay for firemen will increase in 2023, the default budget for that line item would be fixed at the same amount appropriated for that purpose in the approved 2022 budget.
So long as the employee positions that were approved in the 2022 budget have not been eliminated in the 2023 proposed budget, the cost of those positions would be included in the default budget. Unfilled positions, and the cost thereof, are carried over from an approved budget to a default budget. The open positions would be deemed vacant positions under recruitment.
Q: Traditionally, the library budget in my town has been included in the select board’s operating budget recommendation to our budget committee. However, this year the library does not wish to be included in the select board’s recommendation, and instead wants to present their budget to the budget committee independently. Does the library budget have to be included in the operating budget?\
A: First, let's address where or how the proposed budget for the library would appear in the town’s proposed operating budget for the 2023 town meeting. There are two recognized ways for the town meeting to approve budgets for different town departments. Most towns include the proposed expenses for all town departments in one sweep article called the operating budget, and the library budget would appear in that warrant article in DRA Budget Form MS-737 as account code 4550-4559. Some towns, however, do break out different town department appropriations as separate warrant articles. Rather, the library trustees would seem to be relying upon language found in RSA 202-A:11, II which states that the trustees “[p]repare an annual budget indicating what support and maintenance of the free public library will be required out of public funds for submission to the appropriate agency of the municipality.”
In towns with an Official Budget Committee, RSA 32:17 contemplates that the select board would submit its annual budget recommendations to the budget committee, and then the budget committee would prepare the annual budget for presentation to the annual town meeting. RSA 32:16. RSA 202-A:11, II permits the library trustees to directly propose their annual budget to the budget committee. This action does not mean the library budget is being requested to be separated from the balance of the proposed town operating budget. Instead, the trustees merely wish to have their proposed budget accepted for consideration by the budget committee without any intervening modification by the select board.
Q: Which town agencies/boards/committees are allowed to provide their recommendations on warrant articles and are recommendations ever required?
A: The statutes require, in most cases, the recommendations of the select board and budget committee to be published with the warrant article. RSA 32:5, V states that when any purpose of appropriation, submitted by a governing body or by petition, appears in the warrant as part of a special warrant article, the article shall contain a notation of whether or not that appropriation is recommended by the governing body, and if there is a budget committee, a notation of whether or not it is recommended by the budget committee. Separately, the select board has the authority to state recommendations on all warrant articles, including those without appropriations. This is stated in the case of Olson v. Town of Grafton, 168 N.H. 563 (216).
In addition, under RSA 675:4, any petitioned warrant article seeking to amend a zoning ordinance, historic district ordinance, or a building code shall have a notation on the ballot stating the planning board’s approval or disapproval immediately following the question’s description. Therefore, it is statutorily required in many instances for the appropriate board’s recommendation to appear on the warrant and it is legally appropriate for the select board’s recommendations to appear on most other articles.
Q: We have a citizen petitioned warrant article seeking to raise and appropriate some amount of money to build a new park, or purchase a new piece of equipment for the town. Must the town include this amount in the budget and are we bound to this article should it be approved at town meeting?
A: As you are likely aware, all petitioned warrant articles must be placed on the warrant. They cannot be removed or left out just because the budget committee or select board does not want to fund them. The budget committee and/or select board may however choose not to recommend the proposed special warrant article. If the article is approved by the town, the select board cannot be compelled to spend those funds, they are only authorized to do so if they wish. The money will still be raised and appropriated, however at that point it becomes a political decision whether or not the select board wants to abide by the will of the voters or allow the money to lapse.
Jonathan Cowal is the Municipal Services Counsel with the New Hampshire Municipal Association. He may be contacted at 603.224.7447 or at legalinquiries@nhmunicipal.org.