CONCORD — Towns and cities may find themselves facing cash flow crunches before the end of the year because of a change in the state funding of public schools.
Yesterday the New Hampshire Department of Revenue Administration (DRA) announced that it would not begin setting municipal tax rates before November 7. Typically DRA begins setting tax rates in the middle of October.
The agency explained that the delay is the result of legislation enacted in 2012 that requires the New Hampshire Department of Education (DOE) to calculate the amount of state aid distributed to school districts on the basis of their enrollment in the immediately prior school year, not the enrollment of two years prior. In other words, the state aid distributed in the 2013-2014 school year will be calculated from the enrollment in 2012-2013 school year, not the 2011-2012 school year. .
The DOE has informed the DRA that it will not complete the calculations to measure school enrollment and apportion state aid until November 7, almost three months later than in the past.
Since the law assures school districts that state aid will not be less than 95 percent of their allocation in the prior year, the DRA considered using that figure to begin setting municipal tax rates at the usual time. The agency rejected this alternative, concluding that it would lead to unnecessary increases to local tax rates.
But, the delay in setting tax rates poses challenges.
"The real pinch is on cities and towns," said Geoff Ruggles, finance director in Gilford. He explained that normally in October town officials begin meeting with DRA staff in the first half of October, when an "unofficial" tax rate is set. He estimated DRA dealt with between 20 and 30 municipalities a day. DRA confirmed the rate within two or three days. Then the warrant is prepared and signed by the selectmen, after which it is reviewed by the tax collector, who manages the printing and mailing of the tax bills. Ruggles said that the process generally takes about two weeks.
Ruggles said that if the process begins in October, there is sufficient time for cities and towns to parade to DRA set their rates, mail their bills and collect the taxes required to replenish their diminished coffers and fund operations for the coming six months. But, with the delay he feared that there will be a queue of municipalities at the door of DRA on November 7, causing one bottleneck, which could be followed by another at the mail houses as cities and towns scramble to begin the collection process as their cash flow shrinks.
Meanwhile, municipalities must pay their county apportionment, which in Belknap County is as little as $405,419 in New Hampton and as much as $2,655,238 in Laconia, no later than by December 17. Ruggles said that if the process is slowed significantly some towns could be faced with having to borrow to make the payment and fund other obligations.
Although Ruggles sadi he could not recall a municipality defaulting on its payment to the county, Glen Waring, the finance director of Belknap County, said, "I'm concerned."