January 10, 2008

Longer budgets = better budgets?
Manchester’s mayor wants a two year budget cycle
By Brian Early bearly@hippopress.com

As Manchester Mayor Frank Guinta begins his second term, one of his first major policy plans is already starting: moving the city from an annual budget to a biennial one.

He argues that such a move will produce better budgets and better planning, allowing department directors to focus on their jobs instead of creating budgets, which can take months out of each year to prepare.

It’s not a new idea. The state itself uses the biennial model, as do many other states. Sen. Judd Gregg introduced legislation in 2006 to move the federal budget from annual to biennial, but that was never passed. Currently, no municipalities in New Hampshire budget biennially; that’s partly because the state only recently allowed cities and towns to do so. New Hampshire is a Dillon Rule state — municipal governments have only the powers granted to them by the state.

In Manchester, talk of two-year budgets dates back a few years. In 2001, then-Mayor Bob Baines tried to push the city into biennial budgets, but he ultimately failed, and the law wasn’t changed to allow for two-year budgets until 2006, when Guinta’s campaign manager and Manchester Rep. Michael Biundo introduced HB 1436, which ultimately passed to allow municipalities to craft two-year budgets.

Although Guinta could have introduced a two-year budget last year, it would have saddled a new board of aldermen, and possibly a new mayor, with a budget they didn’t vote for. The challenge now will be to win over the board of aldermen to create a two-year budget. Currently, department heads are preparing for both a two-year and a one-year budget.

“It will create a greater number of efficiencies,” Guinta said. “There will be a benefit to the taxpayer. When you establish a two-year budget, you have to stick to it.”

Not all aldermen are on board with the plan to create a two-year budget. Alderman and state senator and Guinta’s fellow Republican Ted Gatsas has been the most vocal critic of the two-year budget, though he’s not against them. He voted for the bill to allow the city to have the option for biennial budgets.

“We are [in] very fragile times right now,” he said. “You need to make sure you have your house in order.”

One issue is that the state’s contribution to 2009’s education funding is not known, and that represents a large chunk of the city’s budget. The state itself is on a biennial budget, but Manchester would not be on the same cycle, making it more difficult to predict how much the state will allocate for education.

Another issue that worries Gatsas is the housing market. Housing prices in the area are slowly decreasing; new homeowners could request a reassessment for the lower value of the home, meaning less money coming in to the city’s coffers. Further, he’s concerned that rising foreclosures will put even more pressure on the incoming property taxes.

Twice a year the city collects property taxes, the last time being this past December. Gatsas worried that there would a greater number of uncollected taxes than in previous years.

“If it’s bad this year, how bad will it be in June?” he said.

So far, there is about a 95-percent collection rate in the city, on par from last year and down a point from two years ago, with an outstanding balance of nearly $8.4 million of taxes. Property taxes make up the largest part of city revenue, about $159 million a year. City officials do not see the small drop as a concern yet.

David Fehr, an associate professor of finance at Southern New Hampshire University, wrote in an e-mail that it is “quite common and appropriate to prepare financial forecasts of all sorts for more than one year. Obviously, many actions that an executive or manager might take could have effects beyond one year, and it can be useful to project the longer-term ramifications.”

Bill Saunders, the city’s finance officer, is “skeptical” of the efficiency of producing a long-term budget, as some costs, like health care, fluctuate greatly and are difficult to project two years in advance.

A long-term study by the National Conference of State Legislatures found no significant difference between states that had annual budgets and those with biennial budgets.

“There is little evidence that either annual or biennial state budgets hold clear advantages over the other,” wrote Robert Snell for NCSL.

“That means there [are] no clear disadvantages either,” Guinta responded. “We certainly tried the annual budget since the existence of the city.”

The city’s budget does not have to be ratified until the end of June, and Guinta will need approval from the board of aldermen to allow a two-year budget.