State Budget Discussions Highlight Municipal Fiscal Challenges

By Barbara T. Reid

The State of New Hampshire currently faces significant budget challenges. Municipalities are also facing significant budget challenges of their own, with losses in local sources of revenues, cuts in state aid and property taxpayers saying "enough!"

In early 2011, the New Hampshire Municipal Association (NHMA) published State Aid to Municipalities: History and Trends, an informational booklet designed to help local officials and legislators understand better the impact that state budget decisions have on municipalities. The booklet explains the history and recent trends in numerous state aid programs and also differentiates between state aid to municipalities and state aid to school districts. See a pie chart breakdown of state aid.

State Budget Decisions Effect Local Property Taxes
Understanding the various types of financial assistance provided by the state to local governments is critical to understanding the effect that state-level budgetary decisions have on local property taxes. With the property tax as the primary source of local revenue, reductions in any state aid program, or the shifting of state costs to municipalities, will most likely result in increased property taxes.

The State faces many fiscal challenges as it prepares to adopt the 2012-2013 operating budget. As deliberations begin on that biennial budget, much speculation has already occurred regarding the size of the budget hole that will need to be filled. These projections have ranged from $200 million to $800 million-in any case, a significant amount on a biennial general fund operating budget of approximately $3 billion. Many campaign promises were made to address this budget challenge without tax increases. Understanding the impact of state budget decisions on local property taxes will help alleviate unintended consequences on property taxpayers statewide as the Governor and Legislature work to produce a balanced budget for the next biennium and beyond. (See summary of Governor Lynch's February 15 Budget Address.)

State Aid to Municipalities
The NHMA's State Aid to Municipalities municipal budget briefing booklet explains the state aid programs relied upon by local governments. The booklet outlines the history, purpose and unique characteristics of the following state aid programs:

  1. General Funds
    Meals and Rooms Distribution
    State Revenue Sharing
    State Retirement Normal Contribution
    Railroad Tax Distribution
  2. Environmental
    Flood Control
    Landfill Closure Grants
    Public Water System Grants
    Pollution Control Grants
    Water Supply Land Protection Grants
  3. Highway Block Grants

These revenues are summarized in the New Hampshire Legislative Budget Assistant's Office Schedule of Aid to Cities, Towns and School Districts for FY 2001 to FY 2011 spreadsheet, which may be found on the inside back cover of the State Aid to Municipalities booklet.

Educating Legislators and the Public on Local Government Fiscal Realities
This year, state budget decisions will be made by an unusually high number of new House and Senate members, many of whom may not be familiar with the connection between state and local budgets. The NHMA has provided a copy of State Aid to Municipalities: History and Trends to all House and Senate members so that they will have this background information.

Copies of State Aid to Municipalities: History and Trends were mailed in early February to municipal officials and legislators. A limited number of copies remain available; please contact our Government Affairs staff to request additional copies.

A printer-friendly version of the booklet is available on our website under State Budget/State Aid to Cities and Towns. Direct your citizens to this document as a resource to help them understand the fiscal realities your city or town faces.

Contact Your Legislators-Today!
It is imperative that legislators hear from local officials about the effect that state-level budgetary decisions will have on their communities. Use the aforementioned booklet when you talk with your legislators so everyone will have the same information regarding critical sources of local revenues. Discuss with your legislative delegation more specific details about the impact-in terms of services, municipal operations and property taxes-that these revenues have in your municipality.

Contact NHMA Government Affairs staff at 800.852.3358, ext. 384, or, with any questions and to share updates on communications you have had with legislators.

Barbara Reid is government finance advisor for the New Hampshire Local Government Center and New Hampshire Municipal Association.