NHLGC :: State Budget / State Aid to Cities and Towns

During the first-year session of the legislature’s biennium, the state budget is proposed, amended, debated and adopted. The process during the 2009 session was particularly protracted, and resulted in significant negative impacts upon municipalities, with words like “downshifting,” “impact on municipalities” and “higher property taxes” used by both sides to make their case for and against the budget.

Here are some of the provisions of municipal interest in the 2010-2011 budget:

Meals and Rooms Tax Revenues: The budget includes the meals and rooms tax distribution to municipalities in each year of the biennial budget at the FY 2009 level of $58.8 million. The “catch-up” formula, which provides for additional distributions should the meals and rooms tax revenues increase, was “suspended,” so even though the tax rate was increased from 8% to 9% and camp site rentals were included, none of that additional revenue will be shared with cities and towns.
Revenue Sharing: Revenue sharing to municipalities is suspended, representing a loss of $50.4 million over the biennium. A revenue sharing line item remains in the budget with one dollar appropriated for each year.
State Retirement Contribution: The budget reduces the state share of the employer contribution for teachers, police and fire from 35% to 30% in fiscal year 2010 and to 25% in fiscal year 2011, without an offsetting increase in employee rates. This will result in additional costs to cities, towns, school districts and counties of approximately $27 million over the biennium and will be reflected in increased employer contribution rates for teachers, police and fire. NHMA considers this downshift to be an unfunded mandate in violation of Part I, Article 28-a, of the New Hampshire Constitution.
State Liability to Political Subdivisions: The budget eliminates a $17 million state liability to political subdivisions in the NHRS medical subsidy account. Recent changes to the GASB accounting standards required NHRS to separate the State and political subdivision medical accounts. This accounting procedure brought to light the fact that political subdivisions have been subsidizing the state’s contribution to the account. Based on the NHRS audited financial statements, the State owes political subdivisions $17 million. There will be an increase, albeit small, in the employer contribution rate due to the elimination of this state liability.
Highway Funding: The budget provides for highway funding based largely on increased vehicle registration fees, dedicating a portion of those increases to the highway and bridge betterment account. Starting in 2011, municipalities are expected to see an increase in block grant funds estimated at $4.9 million.
Environmental Grants: Money for current grant obligations for municipal public water and wastewater treatment projects is included in the budget. Grant payments will continue for those municipalities that have been receiving one. However, no funding is provided for projects pending contract approval, even though those projects were initiated, and in some cases already completed, with the expectation that the Department of Environmental Services would partially reimburse municipalities for the cost. Instead, the funding is suspended, and the additional cost to municipalities is approximately $10 million in the biennium.
Court Closures: The budget immediately closes only one court – New London. The other closures recommended by the Governor are delayed and will be studied further.
LCHIP: The budget fully funds the Land and Community Heritage Investment Program (LCHIP) for the first year of the biennium, but reduces the funding by half in the second year.
School Funding: Adequacy is fully funded pursuant to the definition and formula adopted last year. Grant payments will be made with the assistance of $160 million of federal stimulus money. The budget fully funds school building aid at $91 million for the biennium, but it does so by bonding the cost rather than including it in the general fund appropriation. A study committee has been established to review the eligibility criteria for awarding school building aid with an eye toward restricting the program. Catastrophic aid is funded at $62 million for the biennium, representing approximately 72% of actual need.

For a complete review of the budget-related laws from the 2009 legislative session, see the NHMA Final Legislative Bulletin, which includes a schedule of state aid to cities and towns from 2006-2011.

State Budget/State Aid to Cities and Towns