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.
For many SB2 towns, March is the time for annual meeting and official ballot voting day. One of the most important topics voted on every year is the adoption of the yearly operating budget. Unlike with a traditional town meeting, where the voters must stay and vote until an operating budget has been adopted, for those towns which have adopted the Official Ballot Referendum (commonly called SB2) form of town meeting, if the operating budget is voted down, the default budget comes into play. Every year, the select board, or budget committee, must prepare a default budget which will go into effect if the operating budget vote fails. The default budget is generally calculated by taking the last approved operating budget and removing any one-time expenditures. Given that costs generally increase year to year due to inflation, rising energy expenses, and the growing needs of the community, it is usually the case that the default budget will be somewhat, or perhaps significantly, less that what the town has proposed in their operating budget. Consequently, if the operating budget fails to pass a vote at town meeting, the municipality may be left trying to make do with much less than what they anticipated needing.
However, simply accepting the default budget and trying to make d0 until next year is not the only option. The legislature built into RSA 40:13 the ability for SB2 towns to hold a second, special town meeting specifically for the purpose of having a second chance at adopting a revised operating budget. This special meeting does not require court approval, like certain other special meetings do, and it does not count toward the yearly limit placed on the ability to hold certain special meetings. For all intents and purposes, it is a free second chance at adopting an operating budget, albeit one that does require some additional work to accomplish. Recently, it seems that more and more municipalities have shown interest in utilizing this option, instead of just accepting the default budget. This article will explore some of the reasons why municipalities may want to consider holding a special meeting on a revised operating budget, and what process must be followed to accomplish this goal.
Q. What statute allows municipalities to hold a special town meeting to adopt a revised operating budget?
A. RSA 40:13, XVI provides for the ability to hold a special meeting on the budget. RSA 39:4 also prescribes that the warrant for the special meeting shall be published in a newspaper of general circulation in the area. The statute makes it clear that this meeting is an option that all SB2 towns have, it doesn’t need to be approved or adopted by the town or the court, the decision rests with the governing body. It also does not count toward other statutory limits or restrictions on holding special town meetings later in the year if necessary.
Q. What is the process for holding a special town meeting to adopt a revised operating budget?
A. First, you need to establish a date and time for both a deliberative session and the official ballot voting day, just like the recently completed town meeting. The same rules will apply to the deliberative session in that voters may propose amendments or changes to the revised operating budget. As for timing, the statute says, “The second session shall be warned for a date not fewer than 28 days nor more than 60 days following the first session.” Since you must present a revised operating budget, the town must hold a hearing on the revised operating budget at least 25 days before the first session. Additionally, if your municipality has an official budget committee, the budget committee will be the entity required to provide a proposed, revised operating budget stating its recommendations thereon in the same fashion as the originally proposed operating budget.
The special meeting will be a duplicate of a regular SB 2 town meeting, only the sole issue will be a revised operating budget. Should it pass, the municipality will have an accepted operating budget, meaning that the default budget will no longer be needed for this year.
Q. Why might a municipality want to go through the process of holding another town meeting to adopt a revised operating budget over simply accepting the default budget?
A. There are a number of potential benefits and advantages of utilizing the ability to pass a revised operating budget over accepting the default budget. Depending on your unique and individual circumstances, these factors could make the extra work of holding a special town meeting worthwhile. SB2 is a relatively recent change to the law, and consequently, it has been around just long enough to really start to see some of the effects this type of town meeting can have over the long term. Some municipalities have unfortunately found themselves trapped in a default budget for several years in a row. As a result, we have started to see how being trapped in a default budget cycle can wreak havoc for municipalities year after year, and the longer you are stuck in a default budget the harder it can be to adopt an operating budget. If a municipality accepts the default budget this year, the municipality will be confined to last year's operating budget, minus any one-time expenditures. Considering the fact that most operating budgets fail because they are asking for an increase in appropriations from the year before, this means that the town will be operating with less than what they believed the needed for the coming year.
Where this becomes a major issue is when it comes time to propose a new operating budget the next year. As we all know, costs are not going to go down, and so not only will the municipality still need to account for the funds they didn’t approve the previous year, but it is very likely you will need to ask for even more to cover those rising costs and needs. This means that if the voters voted down an operating budget last year that proposed, say a 5% increase from the year before, your new operating budget may need to constitute a 10% increase over the current default budget that is now two years outdated. Since the default budget is always calculated using the last approved operating budget, every year that a municipality fails to approve a budget it becomes harder and harder to get a new operating budget passed.
While the special meeting can be a lot of work, it does give municipalities a chance to actually accept an operating budget, which in turn gives them a better starting point for next year's budget and a bigger number to work off of for next year’s default budget. Even if the revised operating budget is thousands of dollars less than what the municipality originally wanted, that could still be thousands of dollars more than the default budget allows, and once accepted, those funds could be used for calculating next year’s default budget. Furthermore, accepting a revised operating budget will mean that you may not need to call for such a large increase in next year’s proposed operating budget, making it more likely to pass a vote.