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Municipal Spending Caps

How to structure a municipal spending cap.

What are tax and expenditure caps?

Tax and expenditure limits (TELs) restrict the level or growth of government revenues or spending to a fixed numerical target or to increases in an index such as population, inflation, personal income, or some combination of these measures.

These limits are common on state governments. They are less common in city government.
Here are two examples:

Nashua, NH

  • 56-c. Limitation on budget increases

Recognizing that final tax rates for the City of Nashua are set by the New Hampshire Department of Revenue Administration pursuant to RSA 21-J:35(1), the mayor, the board of aldermen, and all departments in the City of Nashua including the mayor’s office, aldermanic office, legal department, administrative services division, community services division, community development division, school department, public works division, fire department, police department, public libraries, parking garages and cemeteries shall prepare their annual budget proposals and the Board of Aldermen shall act upon such proposals in accordance with the mandates in this paragraph.

In establishing a combined annual municipal budget for the next fiscal year, the mayor and the board of aldermen shall consider total expenditures not to exceed an amount equal to the combined annual budget of the current fiscal year, increased by a factor equal to the average of the changes in the Consumer Price Index-Urban (CPI-U) of the three (3) calendar years immediately preceding budget adoption as published by the U.S. Bureau of Labor Statistics.

This provision shall not prevent the mayor and the board of aldermen from establishing a combined annual municipal budget below this limit.

This provision shall not prevent the mayor and the board of aldermen from appropriately funding any programs or accounts mandated to be paid from municipal funds by state and federal law.

 

  • 56-d. Exception to budget limitation

The total or any part of principal and interest payments of any municipal bond, whether established for school or municipal purposes, may be exempted from the limitation defined in paragraph 56-c upon an affirmative vote of at least ten (10) aldermen. This decision shall be made annually.

In addition, capital expenditures deemed necessary by the mayor and the board of aldermen, subject to recommendation by the capital improvements committee (ref. Paragraph 77-a of the City Charter) may similarly be exempted from this limitation upon an affirmative vote of at least ten (10) aldermen.

 

  • 56-e. Reserve fund

In the event actual property tax collections and/or revenues exceed the budget allocation prescribed in paragraph 56-c, plus additional expenditure authorized pursuant to paragraph 56-d, such excess funds shall be deposited in a reserve account specifically established for the purpose.

These funds shall be drawn upon as a contingent revenue source n succeeding fiscal years, to offset a part of the budget estimated otherwise having to be funded by property taxes, or for any other municipal budget purposes, or to meet federal and state mandates, or for unanticipated emergency expenses, or as a property tax credit, upon an affirmative vote of two-thirds of the members of the board of aldermen.

 

  • 56-f. Deficit budget control

The actual annual municipal budget shall not incur a deficit, wherein total spending excess total income during the fiscal year. If the total actual and projected income from all sources, including property taxes, municipal, county, state, and federal revenues, and funds transferred from the reserve fund established pursuant to paragraph 56-e during a fiscal year fails to meet actual and projected expenditures for the remaining part of that fiscal year, an automatic, equal and immediate across-the-board percentile cut shall be instituted in the annual budget of every city department cited in paragraph 56-c. The city comptroller (ref. Paragraph 50-b of the City Charter) shall determine the status of actual and projected income vs. expenditures for this purpose, in coordination with the city treasurer (ref. Paragraph 42 of the City Charter) and determine the requisite numeric percentile cut. The board of aldermen, upon notification by the city comptroller and the city treasurer, shall then order the cut.

This cut may be exempted or adjusted upon an affirmative vote of three-fourths of the members of the Board of Aldermen.

This provision shall not prevent the mayor and the board of aldermen from appropriately funding any programs or accounts mandated to be paid from municipal funds by state and federal law.

Marco Island, FL

Section 1.04. – Expenditure Limitations.

Notwithstanding Section 1.03 above, operating expenditures shall be limited to an increase from the prior year’s expenditures of three percent (3%) plus the then-current Federal C.O.L.A. (Department of Labor, Bureau of Statistics, Consumer Price Index) per annum; except that this shall not apply to: emergencies; capital expenditures as provided in Section 6.01; expenditures relating to projects or programs funded by grants, gifts, or impact fees; and expenditures, including debt service payments, relating to utility or other enterprise funds which are intended to be self-supporting for governmental accounting purposes; expenditures related to extension of the City’s wastewater utility system to serve unsewered areas provided such expenditures are funded by general obligation bonds or other obligations, including loans, approved by referendum of the electors of the City; and debt service payments related to such obligations.

(Ord. No. 09-15, § 2, 11-9-2009, referendum 1-26-2010)

Section 6.01. – Initiative and Referendum.

(1)        Ten percent (10%) of the qualified electors of the City shall have the power to petition the Council to propose an ordinance or to require reconsideration of an adopted ordinance, provided that such power shall not extend to the budget or capital program or to any ordinances relating to appropriations of money, levy of taxes, or salaries of City officers or employees, but shall extend to an ordinance providing any single capital expenditure in excess of $250,000. If the Council fails to adopt such ordinance so proposed, or to repeal such adopted ordinance, without any change in substance, the Council shall place the proposed ordinance, or the repeal of the adopted ordinance, on the ballot at the next general election, or, in Council’s discretion, at a special election.

(2)        A minimum of five (5) electors may commence initiative or referendum proceedings by filing with the City Manager or other designated official, an affidavit stating they will constitute the petitioners’ committee and be responsible for circulating the petition and filing it in proper form, stating their names and addresses and specifying the address to which all notices to the committee are to be sent, and setting out in full the proposed initiative ordinance or citing the ordinance sought to be reconsidered. Promptly after the affidavit of the petitioner’s committee is filed, the City Manager or other official designated by the Council shall, at the committee’s request, issue appropriate blank petitions to the petitioner’s committee at the committee’s expense.

(Ord. No. 09-15, § 2, 11-9-2009, referendum 1-26-2010)

 

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