Multi-Year Contracts

Stephen C. Buckley

Towns and cities are organized so that annual appropriations cover anticipated expenditures for one fiscal year. For towns, this concept is a mandate under RSA 32:7. For cities, this budget limitation is embodied in most, if not all, City Charters. Nevertheless, many equipment and service vendors will offer discounts if the municipality enters into a multi-year agreement. This article will address how and under what circumstances multi-year agreements are permitted. The most common examples are extended equipment leases and multi-year collective bargaining agreements (CBAs).

Q: What are the necessary legal requirements to make binding a multi-year Collective Bargaining Agreement (CBA)?

A: For a CBA to create a binding, multi-year obligation on the municipality, there must be adequate disclosure of all the financial terms of the agreement, the so-called “cost items,” under RSA Chapter 273-A. The term for such disclosure is “Sanbornizing” the agreement, which comes from the leading case, Appeal of the Sanborn Regional School Board, 133 N.H. 513 (1990).

In the Sanborn case, the Supreme Court upheld the validity of multi-year collective bargaining agreements under RSA Chapter 273-A, which comprehensively governs the public employee collective bargaining process. The statute provides that once an agreement is reached between the employer board and the union, the “cost items” of the agreement, defined as “any benefit acquired through collective bargaining whose implementation requires an appropriation by the legislative body of the public employer with whom negotiations are being conducted,” must be submitted to the legislative body for approval. Although multi-year agreements are authorized by RSA Chapter 273-A, the Court in Sanborn held that the school district was not bound to fund the second and third years of the CBA because the voters at the district meeting who were supposed to ratify the cost items had not been adequately informed of the financial terms by the language of the warrant article or by other means. In other words, at the time of the vote on the first year of the contract, the voters must be made fully aware of the financial obligations of all future years. See also Foote v. Bedford School District, 152 N.H. 599 (2005); Appeal of Franklin Education Association, 136 N.H. 332 (1992); Blood v. Manchester Electric Light Co., 68 N.H. 340 (1895).

Q: Is there specific statutory authority permitting municipalities to enter into multi-year contracts?

A: Yes. Under the provisions of RSA 149-M:17, IV, the legislative body can approve a contract with a term of up to 40 years with the owners or operators of solid waste disposal facilities for the disposal of solid waste.  The legislative body may also transfer any land interest to the owner or operator of solid waste disposal facilities by deed or by lease with a term of not more than 40 years. RSA 149-M:17, V.

Q: What about multi-year lease-purchase agreements?

A: Multi-year lease-purchase agreements for equipment are regarded as long-term debt (like a bond, they require a stream of payments to pay principal and interest over time) and thus also require a two-thirds (or three-fifths) ballot vote approval by the legislative body unless it contained a fiscal funding clause. As provided in RSA 33:7-e, lease-purchase agreements with so-called “escape” or “nonappropriation” clauses, which terminate the agreement automatically without penalty to the municipality if the requisite annual appropriation is not made, are not long-term debt and thus may be approved by a simple majority vote of the legislative body.

Q: The select board has been offered a great deal to provide the town internet and IT services by a vendor, but the agreement must be for a three-year term. What can the select board do?

A: The governing body board could agree to the three-year term with an escape clause. Modify the proposal by the vendor to provide that funding for years two and three of the agreement are dependent upon further legislative body approval. In the alternative, the agreement could provide that the subsequent years of the agreement will be submitted to legislative body to approve the appropriation for the balance of the contract price.

Q: The municipality has received a proposal from an energy company to enter into a purchase power agreement at a fixed kWh cost for a five (5) year period. Can such an agreement be Sanbornized for approval by the legislative body?

A: The duty to adequately inform the legislative body of all of the financial terms of such a purchase power agreement would likely require that the yearly cost of energy be disclosed for each year of the agreement. The per kilowatt hour cost of electricity would be stated and fixed for the term of the contract so that component is certain. The remainder of the energy cost equation would require some reasonable estimate of the municipality’s annual electrical energy consumption. So long as the estimated energy consumption was a reasonable approximation of the municipality’s energy consumption on an annual basis, combined with the fixed cost per kilowatt hour, this would permit the presentation of the probable actual cost of the purchase power agreement for the full term of the agreement. Such information would likely constitute an adequate disclosure of the financial terms of the agreement and satisfy the requirement that the agreement be sanbornized.

Stephen C. Buckley is Legal Services Counsel with the New Hampshire Municipal Association. He may be contacted at 800.852.3358 ext. 3408 or at legalinquiries@nhmunicipal.org.