By MICHAEL KITCH, LACONIA DAILY SUN
LACONIA — While the reduction of state aid and the shifting of state costs to cities and towns puts upward pressure on local property taxes throughout the state, it poses particular challenges for municipalities like Laconia, where the budget process is subject to the strictures of the tax cap.
This year, a cut of $455,250 in state aid for education contributed to requiring significant reductions in the School District budget to fit it within the tax cap. This week, the New Hampshire Municipal Association released a report suggesting that the city could find itself under similar pressures.
The property tax cap limits the annual increase in total amount raised by property taxes to the rate of inflation, measured by the Consumer Price Index — Urban, for the prior calendar year, plus an additional amount representing the value of new construction.The total amount raised by property taxes represents the difference between budgeted appropriations and revenue from sources other than property taxes, which includes charges and fees collected by the city and transfers of funds from the state.
Therefore, decreases in other revenues other than property taxes can only be offset by reducing expenditures or raising property taxes. Of course, any increase in property taxes is bound by the limits of the tax cap, which can be overridden by the two-thirds majority of the City Council.
The report finds that since 2009 state aid to municipalities, measured in nominal dollars, has fallen from $160 million to less than $120 million, a decrease of 25 percent.The suspension of revenue sharing, a distribution to municipalities begun in 1970 with the introduction of the Business Profits Tax to compensate cities and towns for the repeal of local taxes on commercial activity, represents the largest share of the reduction.
At the same time, the report indicates the Legislature has taken other measures that have stalled the growth of revenues intended for distribution to cities and towns, chiefly the sharing of proceeds from the Meals and Rooms Tax, but including highway block grants, bridge aid and grants for wastewater and drinking water facilities as well as landfill closures. The suspension of revenue sharing and reduction in the Meals and Rooms Tax distribution have had the greatest impact on the city operating budget.
During the same period, the state reduced and then eliminated its contribution to the New Hampshire Retirement System to fund the retirement costs for teachers, police officers and firefighters, leaving municipalities to bear first a rising share and finally the total cost of the employer contribution, approaching $90 million.
In the 2008-2009 city budget, state aid of $1.7 million represented 24.5 percent of the $6.9 million in revenue from sources other than property taxes. The next year, the Legislature suspended revenue sharing. In the 2009-2010 city budget state aid decreased to $1.1 million, or 18 percent of the revenue from sources other than property taxes of $6 million which reflected the loss of revenue sharing.
As a portion of city revenue from sources other than property taxes, state aid has remained virtually flat since the suspension of revenue sharing in 2010. The 2016-2017 city budget adopted earlier this month includes $1.2 million in state aid, 17 percent of the $6.7 million of all revenues from sources other than property taxes.
When the Meals and Rooms Tax was introduced in 1967, the intent was for the state to retain 60 percent of the receipts and distribute the remaining 40 percent to the municipalities. But, the Legislature reduced the municipal share, effectively freezing it at the level of 1976. In 1993, Legislature enacted a formula designed to reach the original split. It provided that 75 percent of the annual increase in revenue from the tax, but not more than $5 million, would be distributed to cities and towns based on their population.
However, the formula was suspended from 2010 to 2014, leaving municipalities with the $53.8 million they received in 2009 while revenues from the tax rose by $50 million. The suspension was lifted in 2015 but reimposed in 2016. Altogether, suspending the formula cost cities and towns some $58 million in foregone revenue between 2010 and 2016.
In fiscal year 2008-2009, the city received $766,258 in proceeds from the Meals and Rooms Tax and last year, when the suspension was lifted, it received some $780,000.
City Manager Scott Myers has distributed the New Hampshire Municipal Association's report to the Mayor and City Councilors, noting its implications for the tax cap.
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