Article 19 Is Worded Correctly, Despite Selectmen’s Incoherent Statement

The selectmen are alleging that the petition article to establish a capital reserve fund for vehicles is worded incorrectly. Here is the wording of the article:

Article 19 (by Petition): To see if the Town Meeting will vote to establish a Capital Reserve Fund for the purpose of purchasing or leasing vehicles and equipment for use in the Fire Department, Police Department, Code Enforcement Department, Transfer Station Department, and Highway Department, and further to appropriate the sum of $50,000 to be deposited into said fund. The full amount ($50,000) will come from the previously raised unused funds in the Unassigned Fund Balance and not from addition taxation in 2018. No purchase or lease utilizing these funds will be made without express approval by Warrant Article submitted by the Select Board or by Petition.

(Majority vote required)
(Not recommended by the Board of Selectmen 0-3 and the Budget Committee 0-7)

And here are the minutes from the selectmen’s February 12 meeting:

The Selectmen agreed that the idea of the warrant article is good but they have been advised not to recommend the article. The Department of Revenue Administration (DRA) informed the Town that a Capital Reserve Fund can’t include lease payments. The only time that Capital Reserve Funds can be used for a lease payment is for the final payment of the lease. Therefore the Selectmen have been advised that they should not recommend the warrant article as written. This can’t be amended before Town Meeting as the deadline to submit a petition warrant article has passed. However, it can be modified on the floor at Town Meeting. It was agreed to notify the petitioner of the required amendment. It was also suggested that the words “and equipment” be changed to “and equip” so there is clarification to the purpose of the funds.

As you can see from the obvious contradiction (bolded), the selectmen are confused and have no idea what they’re talking about.

These statements are incompatible with each other:

  1. A Capital Reserve Fund can’t include lease payments
  2. Capital Reserve Funds can be used for a lease payment .. for the final payment of the lease

If a Capital Reserve Fund (CRF) cannot be used for lease payments then it can not be used for the final payment of a lease.

If a CRF can be used for the final payment of a lease, then it can be used for lease payments.

RSA 35 states:

35:15 Expenditures. –
I. Persons holding said capital reserve funds in trust, as provided in this chapter, shall hold the same until such time as the town, district or county shall have voted to withdraw funds from such capital reserve fund or shall have named agents of the town, district or county to carry out the objects designated by the town, district or county, in the manner prescribed by RSA 35:3.
II. Expenditures from any fund established for the acquisition of land pursuant to RSA 35:1 shall be made only as authorized:
(a) By a majority vote of the legal voters present and voting at an annual or special meeting, in the case of a town, school district or village district, or by majority vote of the county delegation, in the case of a county, or
(b) By the selectmen, appointed as agents pursuant to RSA 41:14-a, provided that the selectmen shall not have authority to expend any sum in excess of the amount contained in any capital reserve account created for the purchase of land other than any grant moneys which may be received.
III. (a) Notwithstanding the prohibition of debt retirement fund establishment in RSA 33:2, capital reserve funds may be used for multiple payments under a financing agreement for the purpose for which the capital reserve was established. If the financing agreement is a lease/purchase agreement the following shall apply:
(1) The lease/purchase agreement does not contain an “escape clause” or “non-appropriation clause”; and
(2) The lease/purchase agreement has been ratified by the legislative body by a vote by ballot of 2/3 of all the voters present and voting at an annual or special meeting.
(b) If agents have been named according to RSA 35:15, then no further vote is required to disburse funds following the initial vote which ratified the financing agreement.
IV. In the case of a water works or sewer department, as provided in RSA 35:7, the governing body, water board, or the water or sewer commissioners if any, shall determine when expenditures from said reserve shall be made.
V. In all cases, expenditures from a capital reserve fund shall be made only for or in connection with the purposes for which said fund was established or as amended as provided in RSA 35:16.

Source. 1943, 160:9. RSA 35:15. 1985, 285:3. 1991, 167:2. 1994, 95:2, eff. July 8, 1994. 1998, 43:1, eff. July 4, 1998. 2001, 187:1, eff. Sept. 3, 2001. 2007, 178:3, eff. Aug. 17, 2007.

Michelle Clark of the New Hampshire Department of Revenue has given the selectmen bad advice. As plainly stated by the statute, CRFs can be used for lease payments under certain circumstances:

  1. The lease/purchase agreement does not contain an “escape clause” or “non-appropriation clause”; and
  2. The lease/purchase agreement has been ratified by the legislative body by a vote by ballot of 2/3 of all the voters present and voting at an annual or special meeting.

Tuftonboro generally enters into lease agreements that have escape clauses, so the CRF could not be used for all but the final lease payment on those agreements. But the CRF could be used on the final payment. Therefore it is inaccurate to say that CRFs cannot be used for lease payments.

 

Published in Town Government
Max Ledoux

Author: Max Ledoux

I've lived in Tuftonboro since 2014. I grew up in Lisbon Falls, Maine (the Moxie capital of the world). I run tuftonboro.net.

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