February 06. 2013 11:42PM

City's finance director says tax cap is 'problematic'

New Hampshire Union Leader

MANCHESTER - The city's chief financial officer told the Charter Commission on Wednesday that the tax cap in its current form poses a "serious challenge."

Finance Director Bill Sanders said the problem with the voter-approved cap is that it restricts not only spending, but revenue - in particular the degree to which tax rates may be raised.

"This dual cap and revenue equation, which is so hard and arcane, will be a challenge in the future, a very serious challenge," Sanders told the nine-member panel.

Sanders, who is typically measured in his public comments, said the restriction on revenue increases is especially problematic for the school district, since primary funding sources, such as state aid and grant money, rarely keep pace with the rise in inflation.

"As long as state funding stays flat and expenses keep going up, if we can't raise property taxes - if the aldermen don't have the option to do that, or don't have the political will - there will have to be a cost reduction in other areas," he said.

Sanders said the restriction on revenue distinguishes Manchester's tax cap from the one in place in Nashua, which has been pointed to as a city that has managed to fund its schools under a tax cap.

Manchester's tax cap, enacted in 2011 after being passed by voters two years earlier, limits increases in budgets and revenues - tax and fee rates - to the three-year average rise in the Consumer Price Index.

The commission also heard from the city's chief lawyer, Solicitor Tom Clark, regarding the tax cap.

Reiterating an opinion he issued last year, Clark said that the tax cap applies to the budgets proposed by both the school board and the aldermen.

"In my opinion, the way the charter is written, that is what it says," he said.

At the same time, Clark said he was not the final authority on the meaning of the charter. Different interpretations could only definitively be resolved through the courts, he said.

The legal counsel for the school district has argued that the school board is not required to submit a tax cap budget.

The attorney retained by the commission, Richard Lehmann, told the panel last month that "it's not clear" whether the school and city budgets are to be taken "individually or in the aggregate."

The discussion has been followed closely by members of the school board, as they prepare to submit a budget to the Board of Mayor and Aldermen in the coming weeks.

The ultimate authority to reject and establish the district's budget is held by the mayor and aldermen.

Addressing another possible charter change discussed by the commission, Clark said that under state law, the requirement that a super-majority of the aldermen override the tax cap could not be altered.

"Anything over eight would qualify," Clark said, referring to the 15-member aldermanic board. Currently, 10 votes are necessary for an override.

The commission also narrowed down a list of topics for discussion at next week's meeting. They are: making the school district a city department; moving up the time-line for establishing a school budget; reducing the mayor's role on the school board; and lowering the number of votes needed to override the tax cap.