New London will vote on changing fiscal year

From the desk of New London Town Administrator Jessie Levine

As we approach the end of the calendar year, I thought it would be fitting to dedicate another column to the proposed change of fiscal year from the traditional January 1-December 31 fiscal year to the July 1-June 30 fiscal year.  I have written on this subject before, but since it is a major change that requires voter understanding and approval, it is worth refocusing on it from time-to-time.

On March 9, 2011, voters at the New London Town Meeting will be asked to approve an unusual budget.  Because the Board of Selectmen and Budget Committee voted in 2009 to change the fiscal year in 2011, Town Meeting will be asked to approve an 18-month budget that will cover operations from January 1, 2011 to June 30, 2012, allowing us to make the transition to the July fiscal year.
The two boards recommend changing the fiscal year for a number of reasons.  It may not be as noticeable from an outside vantage point, but there are many disadvantages to the traditional January-December fiscal year.  The fiscal year starts in January, before the budget is finalized and approved by Town Meeting.  Surely you would not allow your business or household to operate for two-and-a-half months before setting a budget, yet that is how the Town must operate under the current system.  This means that we lose almost three months of productivity because new projects cannot start until they have been approved by voters.

In addition, the January-December fiscal year creates cash flow problems, requiring the Town to spend down fund balance remaining at the end of the year to avoid borrowing money between tax collections. Our first influx of tax payments comes in halfway through the year and our second collection is at the end of the year, so we are always receiving funds well after incurring expenses. We often must delay projects and payment of bills – including to our own School District — until we receive tax payments in June and December.

There are other problems with the traditional fiscal year as well that affect our internal operations: budget development overlaps with the holiday season and requires critical decisions to be made in December and early January when scheduling is difficult due to the holidays and personal travel. Budget development also coincides with the closing of the fiscal year, requiring finance staff to focus on end-of-the-year reporting and audit preparation at the same time that they are preparing a new budget.

The change to a July fiscal year would allow Town Meeting to be held in May (if voters desire), two months before the start of the fiscal year rather than two months after. This not only gives our seasonal residents a better opportunity to participate in Town Meeting, but it allows budget development to occur between January and April so the budget can be approved before the fiscal year starts.  This not only makes sense sequentially, but it will also result in improved efficiency as departments will be able to hit the ground running on July 1, with both funds and voter approval granted.

There is another benefit to the change: the State of NH operates on a July fiscal year. In its attempts to address the State’s current budget crisis, the Legislature has made decisions in late spring that affect the Town’s revenues, after the Town has already approved its operating budget. Aligning with the State’s fiscal year should allow the Town time to better respond to any cost-shifting or loss of State revenue.

The challenge of the 18-month transition is that we must collect 18-months of operating expenses within the 12-month tax billing framework.  Some towns that have recently made the transition – such as Peterborough and Holderness – added the extra six months to the December tax bill, creating a one-time increase in property taxes to fund the additional six months.  However, this method creates some instability, which, though short-lived, is avoidable.

The City of Concord used a different approach to pay for the 18-month transition, one that the Board of Selectmen and Budget Committee recommend for New London: change to a quarterly tax billing cycle, spreading the annual property tax payments over four bills instead of two and funding the six-months of operations without increasing annual property tax payments.

It sounds too good to be true, but I’ve done the math and it works.  Quarterly billing is a win-win for the Town and for taxpayers: it allows the Town to pay for the fiscal year transition without increasing property taxes, and allows taxpayers to spread out the cost of the property tax bill. While individual taxpayers may lose some bank interest (assuming favorable interest rates) by paying on a quarterly basis, the Town would receive more interest income, which it counts as revenue and uses to lower the tax rate.

While paying quarterly will ask taxpayers to pay a portion of their property tax bill sooner (one-half of the July bill will be due in April), the total annual payments will not increase – even in the short-term — as a result of the fiscal year change.

Although the Board of Selectmen and Budget Committee have already voted to change the fiscal year, the rest of the process is in the voters’ hands. Town Meeting in March 2011 will be asked to adopt a one-time 18-month budget to transition from a January 1 to a July 1 fiscal year; change from March to the optional May Town Meeting; and change from semi-annual to quarterly property tax billing.

The Budget Committee’s next meeting on the budget is on Monday, January 10, 2011 at 7:00 PM, when it will meet with representatives from New London Hospital and the area lake associations, as well as continue its deliberations on the overall budget.  The first public hearing on the proposed budget is scheduled for January 31 at 7:00 PM, and the second will be on February 14 at 7:00 PM.

Happy Holidays to all, and happy closing of the traditional fiscal year.

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