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State budget impasse looms over deadline to set local tax rates

Monitor staff
Published: 9/10/2019 10:08:18 AM

Even as Concord politicians remain divided about the direction of New Hampshire’s budget, one proposal has found common ground: sending money to cities and towns.

Republican Gov. Chris Sununu and state Democrats both appear to support revenue sharing with cities and towns – as much as $40 million over two years – to help offset rising property taxes.

But persisting disagreement over a range of other issues is raising the possibility of prolonged negotiations into autumn and municipal shortages.

If a budget agreement is not reached by Oct. 1, the Department of Revenue Administration will have to start setting rates without that $40 million, despite the common ground.

That, says Margaret Byrnes, executive director of the New Hampshire Municipal Association, could put some towns in a tough spot.

“Yes we really want that $40 million in aid, but then when you put that aside, what about everything else that municipalities were already anticipating getting?” she said.

Top lawmakers in the state House and Senate have been meeting regularly with Sununu to hammer out a compromise budget, convening as recently as Monday to chase a final deal. Sununu vetoed the budget on June 28, citing unacceptable business tax rates and spending levels; the Legislature approved a three-month stopgap “continuing resolution” to keep state agencies functioning through the end of September.

But whether House and Senate leadership agree to a budget and pass it onto their members by then – or extend the arrangement another few months – is an open question.

Amid that uncertainty, the Department of Revenue Administration is stuck in a holding pattern.

Voters at town meeting in March vote on a slate of spending items, but it’s the state collections agency that determines the actual tax rate for each town.

State officials factor in state aid levels, county obligations, meals and rooms tax rates, available highway funds and other inputs to set a number for towns and cities to rely on and send out to property-tax payers, usually in December. That process is supposed to kick off Oct. 1.

Now, facing the prospect of a budget not getting finalized in time for that rate-setting process, DRA Commissioner Lindsey Stepp says the department is prepared to stay the course.

“It’s a little bit of a gray area,” she said in an interview Monday. “We’ll be setting tax rates starting on Oct. 1 as of current law, because we will have them ready to be set pretty soon after that date.”

“A lack of a budget does not mean we can’t set rates,” she added. “We have everything in current law that we need to set the tax rates.”

That means relying on the existing funding mechanisms already set out in the last budget: the education adequacy formula, school stabilization funds, the state meals and rooms tax haul, and others.

For Byrnes, it means that for some struggling towns, aid that has general bipartisan support may not get there, and the situations could get worse.

“Their obligations to pay things don’t go away,” Byrnes said. “So municipalities still have to pay the schools, they still have to pay the county taxes, they still have various expenses to pay on.”

If the budget impasse continues, it could mean short-term borrowing for some towns, which would carry interest and other headaches – what Byrnes called “a vicious cycle of increasing costs on a municipal level.”

“When we started this legislative session, there was a lot of talk and there was a mantra and a sense that property tax relief was really high priority for most state leaders, the Legislature and the governor,” Byrnes said. “This situation will not lead to that.”

The impasse over the state budget has already affected all towns in one major way: school funding. Sept. 1 was the earliest scheduled date for schools to receive state assistance; with no budget in place, schools around the state received less than they were expecting.

Towns like Berlin, Claremont and Franklin have said they have already felt that squeeze.

But Stepp argued that for many towns, the effect of next month’s revenue-setting freeze may be minimal.

“My guess is that because that money wasn’t final, the towns didn’t set their spending assuming it would be coming,” she said. ”

Rather, the commissioner said, towns would be temporarily missing out on something that could have helped, instead of something they had budgeted around.

That’s the case in Pembroke, which didn’t structure its budget around any assumptions of additional state aid, according to David Jodoin, the town administrator.

“We’re already getting what we’ve already been pretty much promised as far as the calculations go,” he said.

Still, the town is hoping for increased state assistance, Jodoin said, and would like to see the state budget settled before beginning to calculate expenses and revenues for town meeting in March.

That process starts in October.

“Next year, if the budget’s passed, with the money for the cities and towns, of course that’s going to help out the tax rate,” he said. “If it doesn’t, we’ll be in the same situation we’re in now.”

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