NASHUA, NH – After a nearly four-hour long public hearing – with mostly opposition – the Board of Aldermen (BOA) voted Monday to table resolution R-25-121.
The resolution proposes an amendment to the city charter by deleting certain sections and adding another to establish a limitation on annual budgets.
If approved by the full board, the question of whether to approve the charter amendment will be added to the ballot during the next municipal election.
As summarized in the resolution, the amendment would “limit the annual budget and other appropriations such that the amount to be raised for municipal property taxes will increase by no more than a specific inflation factor plus property taxes imposed on new construction unless ten aldermen vote to override.”
This would delete the current spending cap and replace it with an annual limitation on the budget.
At the start of the public hearing, Mayor Jim Donchess explained the reason for the proposed change.
Why the change?
According to Donchess, the language in section 56 of the city charter is vague and minimal, as it says that expenditures are subject to the cap, but does not define what is included in the cap.
Years back, aldermen had proposed ordinances to interpret the spending cap and what was included.
Later on, Donchess and the BOA passed an amendment to those ordinances, which was challenged in court by a former alderman.
The superior court judge invalidated Nashua’s spending cap, as they found it did not comply with state law because it did not include the proper method of exclusion.
Two to three years later, the state legislature passed a law which grandfathered only the spending cap city charter language that Donchess described as minimal. These changes, he said, make the cap unworkable.
“As we thought about it, and we got some input form some of the aldermen, we thought well, rather than have this unworkable situation, this kind of ridiculous approach which we’re left with at this point, lets just propose something new, let’s propose an entirely new start,” Donchess said. “Let’s propose a tax cap because that’s what people are most concerned about, the tax rate.”
The change
According to Donchess, the budget limit will work to control the tax rate, something the current system is unable to do. Here’s how it would work.
Corporation counsel Steve Bolton explained that while the city is unable to control what the tax rate is – as the tax rate is set by the Department of Revenue (DRA) – they can control the amount of revenue that they are going to raise through property taxes.
Under section 56-c. of the current charter, the annual municipal budget is established by taking the budget of the previous fiscal year, increasing it by an inflation factor, and considering total expenditures not to exceed this amount.
(Inflation factor: “a factor equal to the average of the changes in the Gross Domestic Product Implicit Price Deflator (IPD) for State and Local Government Consumption Expenditures and Gross Investment of the three (3) calendar years immediately preceding budget adoption as published by the Bureau of Economic Analysis.”)
With the change, it is suggested that the budget limit be set as follows…
Prior year’s amount of property taxes raised (Prior Year’s Property Tax Levy) + inflation factor + new construction revenue + estimate of what the city expects to get in revenue other than property taxes.
Under the current charter, the inflation factor applies to the entire amount of appropriations in that fiscal year.
With this proposal, the inflation factor would only apply to the amount raised through property taxes, which is a lower number than the entirety of appropriations. Because the inflation factor will be applied to a lower number, the annual budget limit will be less.
Replacing the current spending cap with a budget limit – or “budget cap” – eliminates the current problem of having to define expenditures.
It also would not cap – or set a limit on – grants and other revenues the city can receive. If such grants, gifts, or other revenues were to be offered to the city after the budget and limit were set, the aldermen would be able to authorize going over the limitation with a supermajority vote to accept these funds, as they don’t come from property taxes, and therefore don’t change the tax rate.