What Is New in Municipal Budgeting?

C. Christine Fillmore

Now that the legislature has completed its work on the bills presented in 2013, it is time for a roundup of the significant changes that were made to RSA Chapter 32 (the Municipal Budget Act) and other statutes affecting the budget process. There were some interesting additions this year.

Capital Projects

New Hampshire municipalities are organized under the law to handle business one fiscal year at a time. They are governed by annual budgets (with some exceptions for cities), so there are few situations in which a municipality may bind itself to a multi-year financial obligation. The most common examples are bond issues (with debt to be repaid over a series of years), collective bargaining agreements, and multi-year lease/purchase equipment agreements.

Until now, towns have not been able to authorize the appropriation of a specific amount of money for a certain purpose for more than one year at a time. For example, if a town wanted to appropriate $50,000 per year in each of the next five years to pay for a capital project such as the renovation of a town building, it would not be able to do so except by approving the appropriation one year at a time over each of those five years. In any of those years, the legislative body could change its mind and reject the proposed appropriation. The legislature addressed this issue and has authorized a solution.

As of August 23, 2013, towns may make multi-year appropriations for “capital projects” under a new section of the budget law, RSA 32:7-a. A “capital project” for this purpose is one for which a town may issue bonds under RSA 33:3 or RSA 33:3-c. These include:

the acquisition of land;

planning relative to public facilities;

the construction, reconstruction, alteration and enlargement or purchase of public buildings;

for other public works or improvements of a permanent nature including broadband infrastructure;

for the purchase of departmental equipment of a lasting character;

for the payment of judgments;

for economic development (including public-private partnerships involving capital improvements, loans and guarantees); and

preliminary expenses associated with proposed public work or improvement of a permanent nature (including public buildings, water works, sewer systems, solid waste facilities and broadband infrastructure).

The article authorizing the appropriation must (a) identify the specific project, (b) state the term of years of the appropriation (up to five years), (c) state the total amount of the appropriation, and (d) state the amount to be appropriated in each year of the term. The article must pass by a 2/3 vote (3/5 vote in official ballot referendum towns).

For each year after the first year, the amount designated for that year as provided in the original warrant article will be deemed “appropriated” without further vote by the legislative body. In other words, once town meeting has authorized a capital project multi-year appropriation, no warrant article is needed in any other year of the term; each year’s amount will be treated as appropriated automatically in the future years of the term. In official ballot referendum (SB 2) towns, that year’s amount is also automatically included in the default budget.

If the amount appropriated in any year is not spent in that year, it will not lapse. The money will remain available for use for the project during the term stated in the warrant article. However, a capital project appropriation does not create a capital reserve fund. It is simply tracked by the treasurer as a non-lapsing appropriation from year to year. At the end of the term stated in the original warrant article, any unspent amounts will lapse into the fund balance.

At any annual meeting before the end of the term of the project, the legislative body may rescind the appropriation by a simple majority vote. If the project is rescinded, any unexpended appropriations for the project will lapse immediately.

It is also important to note that capital projects appropriations are classified as “special warrant articles” under RSA 32:3, VI. This means that they do not lapse like ordinary warrant articles, they require recommendations from the governing body and official budget committee, and no amount from that appropriation may be transferred by the governing body into any other appropriation. RSA 32:7, VI; RSA 32:5; RSA 32:10, I(d).

Contingency Funds for Towns

Cities have long been able to establish contingency funds in their budgets to handle unexpected expenses during the year. RSA 44:10-a. It has been a source of frustration for many towns that no law authorized similar funds in a town budget. Since towns and cities get all of their authority to act from the legislature, Girard v. Allenstown, 121 N.H. 268 (1981), the lack of a statute authorizing contingency funds for towns has meant that they were not permitted. This has now changed.

Effective as of August 24, 3013, towns may establish a contingency fund by approving an article in the warrant at the annual meeting. The fund may be used by the governing body (selectmen/town council) during the fiscal year to meet the cost of unanticipated expenses that may arise during that year and are not otherwise provided for in the budget. The fund may not exceed one percent of the amount appropriated by the town during the preceding year, excluding capital expenditures and debt service. A detailed report of all expenditures from the contingency fund must be made each year by the governing body and published in the annual report. RSA 31:98-a; RSA 32:11, VI.

Default Budget for Sewer and Water Funds

In towns operating under the official ballot referendum system of town meeting (SB 2), a default budget must be prepared by the governing body along with the proposed operating budget developed by the official budget committee, or, if there isn’t one, the governing body. If the voters reject the operating budget, the governing body may, at its discretion, call one special meeting without court permission to consider a revised operating budget. RSA 40:13, X. Alternatively, and far more often, the default budget is deemed to have been adopted instead of the proposed operating budget.

A default budget is defined as “the amount of the same appropriations 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.” RSA 40:13, IX(b). However, the “operating budget” for this purpose does not include any appropriations from the previous year that were approved as individual warrant articles separate from the line-item budget. RSA 40:13, IX(a).

The legislature has added a separate default budget regarding water and sewer funds. As of August 31, 2013, if a town maintains a separate fund for revenues and expenditures related to operation, maintenance and improvement of a water and/or sewer system (a water fund under RSA 38:29 and/or sewer fund under RSA 149-I:10), and if any appropriation to go into that fund is proposed to be raised through user fees or charges which are included as a separate warrant article from the operating budget, the warrant article may include its own default amount. The article must state what the default amount is, and that if the article fails, the default amount will be deemed to have been appropriated. The default amount in this article is determined by the governing body and cannot be amended by the voters at the first (deliberative) session. RSA 40:13, XI-a; RSA 40:13, XI(b).

Adjustments to Tax/Spending Caps

Towns and cities may adopt limits on spending or tax increases. Cities and towns with a charter may amend their charter to include a limit on annual increases in the amount raised by the city or town budget. RSA 49-D:12, III; RSA 49-C:33, I(d); RSA 49-D:3, I(e). In towns with traditional town meeting or official ballot referendum town meeting (SB 2), the law was amended last year to permit voters to adopt a limit on annual increases in the estimated amount of local taxes in the governing body’s or budget committee’s proposed budget. RSA 32:5-b; RSA 32:5-c. The cap must be either a fixed dollar amount or a fixed percentage.

As of August 5, 2013, if the taxes raised for the prior year were reduced by the use of fund balance, the amount of that reduction is added back and included in the amount to which the tax cap is applied. RSA 32:5-b, I-a. This addresses the situation in which the governing body decides to apply a portion of the unexpended fund balance toward the amount of appropriations approved by the legislative body. That decision is made by the governing body when the Department of Revenue Administration sets the town’s tax rate, usually in September (many months after town meeting). If fund balance is applied, it changes the amount to be raised by taxes. This could artificially reduce the amount to which the cap will be applied at the next annual meeting. The new section of the law essentially ignores the reduction so that the cap will be applied to the amount that would have been raised by taxes if no fund balance had been applied.


Municipalities have been given some interesting new budgeting tools this year, and we hope you can put them to good use. For more information about these or other budget issues, NHMA members may consider attending our annual Budget and Finance Workshop on either September 10 or 17, 2013, and look for the 2013-2014 issue of NHMA’s publication The Basic Law of Budgeting, available for purchase after September 17.

C. Christine Fillmore is Staff Attorney for the New Hampshire Municipal Association. She may be contacted at 800.852.3358 ext. 3408 or at legalinquiries@nhmunicipal.org.