The Municipal Budget Law: Frequently Asked Questions

By C. Christine Fillmore, Esq.

As budget season arrives, municipal budget committees and governing bodies across the state are beginning to work through the process of creating budget proposals, holding hearings and ultimately presenting a budget to voters. The Municipal Budget Law, RSA Chapter 32, governs every town, village district and school district in New Hampshire with an annual meeting form of government, whether or not there is an official budget committee, including those with the official ballot referendum (“SB 2") form of meeting. This month we highlight some of the frequently asked questions from LGC’s September 2007 Budget and Finance Workshops, which may be helpful to all officials involved in the budget process.

Q. What is the difference between the governing body and the legislative body?
A.
In a municipality with an annual meeting form of government, the governing body is the board of selectmen in a town, the school board in a school district and the board of commissioners in a village district. RSA 21:48. The legislative body is the assembly of voters at the town meeting, school district meeting or village district meeting. RSA 21:47.

Q. Can the governing body spend more than the amount that was appropriated for a particular purpose?
A.
Yes, under the transfer authority of RSA 32:10. As a general rule, if the governing body needs more money in one account (“purpose of appropriation"), it can transfer money from some other account, as long as the expenditure does not result in overspending the bottom line of the total budget. Transfers must be approved in some manner by the governing body, but it is not always necessary for the governing body to designate the specific account from which the money was transferred. So long as an accurate record is kept of which accounts are over- and under-spent, and each expenditure is authorized through whatever manifest system the municipality uses, the transfers will be properly recorded. RSA 32:10, I(b) and (c). (Note that there are exceptions to the transfer authority, including special warrant articles and the “no means no" provision of RSA 32:10, I(e)).

Q. Can a town manager or a town administrator authorize transfers of funds between purposes?
A.
No. Only the governing body may do this. RSA 32:10.

Q. May the budget committee or the legislative body designate a separate warrant article as “nonlapsing," “non-transferrable" or “special"?
A.
No, only the governing body has that authority. RSA 32:3, VI.

Q. What is the difference between an “official" and an “advisory" budget committee?
A.
An official budget committee is one adopted by a vote of the legislative body under RSA 32:14. In a town or district with an official budget committee, the official budget committee (rather than the governing body) has the duty to prepare the budget proposed to the meetings and to hold the required public hearings. RSA 32:16. In addition, the total amount appropriated by the meeting, including amounts appropriated in separate and special warrant articles, cannot exceed the total recommended by the budget committee by more than 10 percent. RSA 32:18.

The law does not require any town or district to have an official budget committee. An official budget committee may be established by a majority vote of the meeting, and remains in existence until a future meeting votes to abolish it. RSA 32:14. Towns and districts may choose to have no budget committee, and may also choose to have an unofficial, advisory budget or finance committee. RSA 32:24. However, an unofficial committee is purely advisory and has none of the statutory duties or authority of an official budget committee. The governing body in those municipalities will prepare the budget, hold the hearings and present their proposal to voters, who will not be bound by the 10 percent limitation.

Q. Which appropriations articles must be disclosed and/or discussed at the public hearings on the proposed budget?
A.
All of them. At least one public hearing regarding proposed appropriations must be held before the annual meeting. RSA 32:5, II. After the hearing, no new purpose or amount can be added to the proposed budget before the warrant is posted unless that purpose or amount was “discussed or disclosed" at that hearing, or unless a further hearing is held. The hearing requirement applies to the proposed operating budget as well as any petitioned or governing body warrant articles that propose appropriations. This statute prevents the budget committee or governing body from adding new purposes to, or increasing amounts in, the proposed budget. Of course, the legislative body (the voters) may increase or decrease proposed amounts or delete purposes of appropriations at the meeting, subject to certain limitations.

Q. Whose budget is presented to voters, the budget committee’s or the governing body’s?
A.
In a town or district with an official budget committee, the budget committee’s recommended budget is presented to voters. In all other towns and districts, the governing body’s budget is presented.

Q. Can an official budget committee tell a governing body how to spend appropriated funds?
A.
No. The budget committee’s purpose is “to assist the voters in the prudent appropriation of public funds." RSA 32:1. While the budget committee has the duty to review current expenditures, it is primarily for the purpose of preparing future budgets, rather than to challenge or dispute what the governing body is doing. No one has legal authority to challenge the discretion of the governing body in making transfers among purposes of appropriation. RSA 32:10, I. However, if the bottom line is overspent, or expenditures are not properly entered and classified in municipal records, the budget committee has specific authority to petition the superior court for removal of the responsible official(s). RSA 32:23.

Q. If municipal officials are prohibited from spending money without an appropriation, what happens to FEMA grants and other unplanned money that is received during the year?
A.
The town or district meeting may vote to authorize the governing body to apply for, accept and expend unanticipated grants, gifts or other revenue without an appropriation. RSA 31:95-b. This vote remains in effect until a future meeting rescinds it. If the governing body has been given this authority, it may spend unanticipated money received from a federal, state or private source (such as a FEMA grant or a private donation), so long as the money is spent in a way that does not require other unappropriated municipal funds to be spent. If the unanticipated revenue is $5,000 or more, the governing body must hold a public hearing with seven days’ notice in the newspaper. If the amount is less than $5,000, the governing body must post notice of the funds in its meeting agenda and include notice in the minutes of the meeting at which the funds are discussed. Acceptance of the funds must occur in a public meeting.

However, if a grant requires matching funds from the town or district, the governing body should see if there are any funds in the current budget that may be spent properly for that purpose without overspending the bottom line. If not, it may be necessary to defer acceptance of the grant until the next town or district meeting so that the matching funds may be appropriated.

Q. Whose recommendations should appear on warrant articles and budget items?
A.
Recommendations should appear, if at all, only on appropriations articles. The law does not authorize the inclusion of recommendations on non-money articles. The proposed operating budget will be the one recommended by the official budget committee, if there is one, or the governing body in all other cases. Department of Revenue Administration forms to be posted with the warrant (MS6 and MS7) require a notation of the recommendations of the governing body and the official budget committee, if any, on proposed appropriations.

In addition to these implicit recommendations, all “special" warrant articles (including petitioned appropriations articles, those regarding bonds, notes, capital reserve funds and trust funds, and any other appropriations article labeled in the warrant as “special" by the governing body) require a notation on the warrant of whether or not they are recommended by the governing body and the official budget committee, if any. RSA 32:3, VI; RSA 32:5, V. Warrant articles regarding the cost items of collective bargaining agreements must also include the governing body’s and official budget committee’s recommendations. RSA 32:19.

Q. How should these recommendations be phrased?
A.
Until 2007, the only authorized format for governing body and official budget committee recommendations was a simple notation that an article either was, or was not, recommended by that body. New amendments to RSA 32:5 and RSA 40:13 allow any town to require, by a vote of town meeting, that the numeric tally of all votes of an advisory or official budget committee and all votes of the governing body be printed in the warrant next to that article. The “numeric tally" is the total result of the vote on the item, such as “Budget Committee recommends this article by vote of nine to two. Selectmen do not recommend this article by a vote of three to two." However, there is no authorization to include a roll call vote indicating the specific vote of each member. A vote to include the numeric tally under this new law also authorizes a town to include these recommendations in separate warrant articles, not just special warrant articles and those relating to cost items in a collective bargaining agreement.

Without such a vote by town meeting, recommendations should continue to appear without the numeric tally and only with special articles and cost items of collective bargaining agreements.