Fiscal Year 2019 Budget

Beginning July 1, 2018 and ending June 30, 2019

Last updated: 7/1/18

Debt Management Policies and Debt Implications of the Plan

Effective debt management ensures that the City can meet its capital infrastructure and facility needs. Debt management requires a series of decisions about the amount, timing, purposes and structure of debt issuance.

Long-term debt related to capital investment has two main purposes:
  1. It finances acquisition, construction, repair, and renovation of City-owned buildings and equipment that are necessary to provide public services; and
  2. It finances infrastructure improvements to ensure the City’s continued growth and safe roadway conditions.

Debt management policies

The Treasury Department manages all borrowings according to the City’s debt management policies. These policies address issues such as debt affordability and limitations on the level of variable rate debt the City will use. The City’s goals are to rapidly repay debt, maintain a conservative level of outstanding debt, and ensure the City’s continued positive financial standing with the bond market.

Key components of the debt management policies ensure that:

  • combined net direct debt does not exceed 3% of taxable assessed value;
  • at least 40% of the overall debt is repaid within five years and 70% within ten years;
  • annual gross debt service costs do not exceed 7% of general fund expenditures; and
  • variable rate debt does not exceed 20% of the City’s total currently outstanding bonded debt (the City has no variable debt).

For further discussion of the City’s financial policies and management controls, refer to the pdf chapter (Volume I) on Financial Management.

The City’s debt service forecast assumes general obligation borrowing of $177 million in FY19, $203 million in FY20, $220 million in FY21, $215 million in FY22, and $200 million in FY23.

The debt tables at the end of the pdf chapter (Volume I) on Capital Planning detail the City’s outstanding debt service obligations.

Debt Service as a Percent of Total General Fund Expenditures FY16-FY23

The City’s gross debt service requirement will remain under 7% of total General Fund expenditures through FY23.

Debt Service as a Percent of the Net Property Tax Levy FY16-FY23

The ratio of debt service to the City’s primary revenue source, the property tax levy, is projected to increase through FY23. Even with the increase, the ratio is not expected to exceed the City’s policy ceiling.

City debt burden

The City’s current overall debt burden (net direct debt to assessed property value of $143.58 billion) is approximately 0.84% as of March 1, 2018. The City’s net direct debt per capita currently stands at approximately $1,804 as of March 1, 2018.

Boston has been conservative about assuming long-term debt and aggressive about retiring debt expeditiously.

Over 40% of the City’s outstanding debt will be retired within the next five years.

Credit rating

In February of 2017, Moody’s Investors Service and Standard and Poor’s reaffirmed Boston’s credit rating at Aaa, and AAA, respectively. A bond rating is a statement of credit quality and is analyzed when determining the interest rate that should be paid for a municipality’s bonds. A higher bond rating translates into lower interest rates and real dollar savings for the City.