For NH's Cities and Towns, Budget 'Downshift' is Business as Usual

Jun 19, 2015

Amherst Public Works Director Bruce Berry was a happy man last spring when Gov. Maggie Hassan signed the first increase to the state’s gas tax in more than 20 years.

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The legislation promised to double the money the state doles out to repair municipally owned bridges, from $6.8 million a year to $13.6 million. At the time, Amherst had three bridges “red-listed” as structurally deficient, including one on Manchester Road that had been closed for 18 months.

“There’s nothing worse than having a bridge closed and people detoured,” Berry says. “It never makes for happy people or happy taxpayers.”

The prospect of state bridge aid was especially good news since town officials had earlier been told not to expect any funding until at least 2018. But an injection of new gas-tax revenue put the Manchester Road bridge on a fast track, and work is now underway to replace its decrepit culvert pipes.

Berry hoped state aid for the town’s other red-listed bridges would be available much sooner as well.

But as quickly as the new revenue appeared in 2015, it was effectively eliminated from the 2016-2017 budget now under debate in Concord - first by Hassan, then by budget writers in both the House and the Senate.

With more than 350 municipally owned bridges on the state’s red list, Bruce Berry isn’t the only public works official worried about closures and detours. And it’s not just the shortage of state bridge aid that makes them nervous.

Since the Great Recession, local governments across New Hampshire have had to rely less and less on one of their main sources of revenue: state aid. To balance the budget, state lawmakers have suspended, eliminated or reneged on agreements that for decades have helped cities and towns pay for the services they provide residents.

Interactive map: How Much Will 'Downshifting' Cost Your Town?

The cuts in aid have affected a range of services, revenue-sharing agreements and state grant programs, covering schools, roads, bridges, wastewater facilities and more. Examples include: 

  • In 2009, the state suspended a statutory requirement dating back to 1970 to share business-tax revenues with cities and towns. The program sent more than $25 million a year to local governments. While it has yet to be repealed entirely, there is little expectation among municipal officials that the funding will ever return.
  • In 2011, reforms to the public pension system eliminated the state’s share of retirement contributions for teachers, police and firefighters. That increased the amount that has to be paid by municipalities and school boards by about $125 million.
  • Meanwhile, for decades, local governments have been shortchanged on the meals & room tax. Under state law, towns are supposed to share 40 percent of the money collected from the tax. But, since the levy was enacted in 1967, lawmakers have never come close to meeting that obligation. The legislature approved a “catch-up formula” in 1993, but it was suspended in 2009, costing local governments more than $40 million in additional revenue. 

State budget writers initially justified this so-called downshifting as a temporary response to the economic downturn. Now, according to local officials, it appears to be business as usual, causing delays in everything from road and bridge repairs to sewer-plant upgrades to new-school construction.

“We all know we’ll probably never see an income tax or a sales tax,” says David Bernier, director of the North Conway Water Precinct, which operates a 1.5 million-gallon wastewater treatment plant. “But where is the money going to come from to fund all these obligations? You can’t get blood from a rock.”

"Broken promises"

Tim Fortier of the New Hampshire Municipal Association, a group that lobbies on behalf of the state’s 234 political subdivisions, says downshifting has put a significant strain on the traditional partnership between local and state governments.

“When the economy turned sour, there was an acceptance by local governments that we had to take it on the chin,” he says. “But as the economy has rebounded, local governments have anticipated that the state would make us whole again. But they continue to make promises and break them.”

That’s left local officials with few good options. They’ve balanced the books by tapping reserves, cutting services, raising user fees and property taxes, and deferring maintenance.

Overall, spending by local governments has remained flat since 2007, says Dennis Delay, an economist at the New Hampshire Center for Public Policy Studies. One way municipalities have held the line is by putting off infrastructure repairs, especially wastewater treatment and sewer projects.

“If you know you have to replace something, but it’s still working, you try to get by for another year or another couple of years with what you have,” he says.

But that isn’t always possible. The average age of a wastewater treatment plant in New Hampshire is 30 years, according to the Department of Environmental Services. A commission created by former Gov. John Lynch to study the state’s water infrastructure estimated in 2012 that the need for repairs and upgrades to the system would cost more than $1.7 billion over a decade.

Local governments used to be able to count on state aid grants to cover 20 percent of the costs for their wastewater projects. A moratorium in 2008 halted funding for new projects, although pressure from local officials convinced lawmakers to include $9.5 million in the 2014-2015 budget to pay for 127 “delayed and deferred” projects.

“I testified and a number of people testified on the need to pay these grants,” says Bernier, who was waiting on a state aid grant to upgrade the North Conway wastewater plant. “Because the state’s obligation and the RSA say they ‘shall’ pay it. It doesn’t say it will give you an IOU or defer it forever and ever.”

Budget writers in the House and Senate agreed to make almost $15 million in state aid grants available in the 2016-2017 budget. But that still leaves some 25 cities and towns left to pay the full cost for dozens of water and sewer projects that are underway or already finished.

Four of them are in Lebanon. According to Public Works Director Mike LaValla, a $13 million upgrade to its wastewater treatment plant is almost finished. The project is eligible for $153,000 in annual state aid grants in 2017, but the town has been told not to expect any funding in the upcoming biennium.

LaValla says that, depending on the town’s future needs, the moratorium could have an impact on his department’s future borrowing capacity. “I’d say 19-20 percent of our tax rate is due to debt service, and a lot of it is due to CIP projects,” he says, “and the vast majority are public works.”

A new approach on the horizon?

In Hanover, voters approved a $4.8 million bond in 2008 to refurbish their wastewater facility, with the expectation that the town would receive nearly $1 million in grants from the state. That money is on the "don't hold your breath list," says Peter Kulbacki, the public works director, who says he’s also thinking about how the moratorium is going to affect future projects.

The town is in process of renewing its discharge permit, and Kulbacki is expecting to receive a mandate to address pollution issues from the Environmental Protection Agency.

“We know that EPA is going to require something else down the road to deal with nitrogen and phosphorus,” he says. “That’s probably a $3 million project, and on top of the money we don’t get, it’s more we’ll have to spend on the EPA requirements.”

Local government officials all across the state are facing similar dilemmas as they struggle to maintain their aging infrastructure, says Barbara Reid, a government finance advisor for the New Hampshire Municipal Association.

But, she says, there are signs that legislators may be ready to address the problem.

In March, some Republican House members, including Finance Committee Chair Neal Kurk of Weare, came out in support of a proposal to raise the gas tax by 7 or 8 cents. The bill died quickly, but Reid says it was an acknowledgement that maintaining the state’s roads and bridges is a bipartisan priority.

“Last year, those involved in the gas tax issue knew that it needed to be more than 4 cents,” she says. “I’m hearing from some very conservative legislators saying, 'We should have done 8 or 12 cents last year.' ”

Another ray of hope for municipal leaders is a bill, signed by Hassan in May, that creates a committee to study the funding of state aid grants for infrastructure projects. Reid says she expects the committee to revisit the relationship between the state and local governments, as well where future funding will come from.

Finally, local governments are putting some hope on the fact that lawmakers have so far resisted the urge to make the suspension of revenue-sharing permanent. Reid says it's often referred to as A Brighter Day Provision.

“But," she added, "we’re not looking at a very bright future unless something more happens."