Fiscal Year 2018 Recommended Budget

Beginning July 1, 2017 and ending June 30, 2018


Financial Management

Strong financial management is the underpinning of City operations. Clear financial policies and practices provide a framework within which the City is able to safeguard the present, meet its obligations, and position itself for the future.

The proven success of the City’s ability to keep itself on sound financial footing is the strength of its ... AAA bond rating. - Standard & Poor's.

The Mayor directs the City’s financial operations. As the City’s Chief Executive Officer, the Mayor has general supervision and control over the City’s cabinet officers, departments, boards, and commissions.

The City’s cabinet form of government facilitates the execution of mayoral priorities and the day-to-day executive and administrative business of the City.

The Administration & Finance Cabinet includes the following departments, each with a major role in providing a climate of fiscal discipline: Treasury Department, Auditing Department, Assessing Department, Office of Budget Management, and Purchasing Department.

The Cabinet also includes the Office of Human Resources and the Office of Labor Relations. With employee compensation and health benefits comprising over three quarters of the City’s total appropriation, the management of these policy areas within a broader context promotes coordination and accountability across City government.


Strategic financial management

Financial operations are managed to accommodate revenue fluctuations during economic downturns or uncertainties in the global economy. Strategic financial management aligns investments with City operations and allows departments to perform at an optimum level. The following reflects some of the work it takes:

Balanced budgets

Maintaining a balanced budget that supports City services according to mayoral priorities requires careful planning and constant scrutiny. The Massachusetts Department of Revenue approves property tax rates during the tax certification process governed under Massachusetts General Laws (MGL) Ch.59, S.23, ensuring a balanced budget and a tax levy within the limits set by Proposition 2 ½ ( see Property Tax featured analysis card ). Managing discretionary spending and controlling employee headcount are some of the tools used to

address unexpected revenue or expense challenges.

Stable revenue base

Over eighty percent of recurring general fund revenue comes from the property tax and state aid. The continued net decline in state aid, the City’s second largest single source of revenue, highlights the risk of relying on any one source of revenue. The City protects and grows its revenue base through the expansion of current revenue sources and the pursuit of diversified revenue sources that fit well with its economic strengths.

The City’s tax base has experienced significant growth. Based on assessed values as of January 1, 2016, Fiscal 2017 assessments totaled $143.9 billion, a 44% increase over Fiscal 2014 assessments.
Multi-Year Planning

The City develops a financial forecast as part of its yearly budget process. Preparing a multi-year planning horizon provides insight into policy decisions that may be necessary to maintain structural balance and time to make such adjustments.

Pension Management

City employees participate in a contributory defined benefit retirement system managed by the Boston Retirement System (BRS), of which the City is the largest member. The BRS provides pension benefits to retired employees under a state contributory retirement statute administered by a Retirement Board comprised of five members: the City Auditor, who serves ex-officio; two individuals elected by members of the system; an individual chosen by the Mayor; and an individual chosen by the other four members or appointed by the Mayor if a selection is not agreed upon within 30 days of a vacancy.

A full valuation is done every two years to determine the system’s unfunded liability and the annual funding requirement. The BRS hires an investment manager to oversee the fund managers of all (non-teacher) pension assets.

The City’s pension liability is currently 74.96% funded and is on track to reduce the unfunded liability to zero by 2025, fifteen years before the legally required funding date of 2040.
Other Post-Employment Benefits (OPEB) Management

Employees earn post-employment health care and life insurance benefits over their years of active service which are received during retirement. The City, including the Boston Public Health Commission (BPHC), has an unfunded liability for these benefits of $2.3 billion as of the most recent independent actuarial valuation on June 30, 2015. Changes to retiree health benefits, the amount of the City’s annual contribution, and the discount rate used are all factors that can affect the liability.

While the City is legally required to make an annual contribution toward reducing its unfunded pension liability, there is no such requirement for retiree health and life insurance benefits. In FY08, the City followed new Governmental Accounting Standards Board (GASB) requirements to identify and disclose this estimated unfunded liability and also began to include an annual appropriation in the budget. These funds are held in an irrevocable Trust Fund authorized through the City’s acceptance of MGL Ch.32B s.20. As of December 31, 2016 the Fund had a balance of $437 million.


Financial policies, procedures, and controls

Along with certain statutes and ordinances ( see PDF of Statutes and Ordinances Chapter ), well-established policies and internal controls govern the financial operations of the City. Designed to maximize revenue collection, safeguard assets, track operating and capital spending, and evaluate infrastructure needs, some of these are governance tools are discussed below.

Fund Balance Policy

The City maintains adequate levels of fund balance to mitigate current and future risk – a generally accepted accounting principles (GAAP) unassigned fund balance in the general fund that is 15% or higher than the current fiscal year’s GAAP general fund operating expenditures, and a budgetary unassigned fund balance at 10% or higher than budgetary operating expenses.

Budgetary fund balance is the amount of reserves, generated to a considerable degree by annual operating surpluses, which are available for the City to appropriate. The Massachusetts Department of Revenue certifies the amount of budgetary fund balance available and the City only considers an appropriation of fund balance to offset certain fixed costs (pensions, OPEB), or to fund extraordinary and non-recurring events as determined by the City Auditor.

Investment Policy

Defined in Ch.643 of the Acts of 1983 (“The City of Boston Bond and Minibond Procedure Act”), Ch.107 of the Acts of 1991, and MGL Ch.44 of the General Laws, are investment policies that prioritize security, liquidity, and yield. Limitations are also placed on the City’s investment activities and operational protocols to ensure sound, timely, and safe investment decisions. The City limits its investments to repurchase agreements, money markets, and certificates of deposit as a matter of practice, collateralized by U.S. Government obligations and held with a third party.

Debt Management

Debt issuance is evaluated for its effect on statutory debt capacity and cash flow. Conservative debt policies include the rapid repayment of debt, where at least 40% of debt is repaid within 5 years and 70% in 10 years, as well as a 7% ceiling on debt service as a percentage of general fund expenditures.


The City imposes a 20% ceiling on variable debt and has no variable debt outstanding. Lease purchase financing of equipment with a three-to-seven year useful life is used to replace front-line equipment and upgrade technology.

Capital Planning

A capital planning process aligned with the annual operating budget cycle allows for the regular reassessment of capital needs, the refinement of projections, and the update of the City’s rolling five-year capital plan. The City prioritizes capital requests and takes into account the financial requirements and timing of these requests in order to recommend the responsible allocation of resources.

The City primarily funds its capital plan through the issuance of general obligation bonds. The size of the City’s bond issue is consistent with the City’s financial management policies debt level and debt service.

Contracting Procedures

The Uniform Procurement Act (the UPA), or MGL Ch.30B, creates uniform procedures for contracting services and supplies. The City’s contracting procedures conform to UPA requirements and an eProcurement system supports these efforts.

Expenditure Controls

Tight central expenditure controls allow for critical review of all non-personnel spending and the flexibility to adjust to fiscal changes or trends. Spending is monitored on a monthly basis and the City’s projected year-end position is updated using actual information. Combined with conservative revenue estimates, the City maintains a solid financial position.

Position Review Committee (PRC)

The PRC, comprised of the City’s Chief Financial Officer, the Human Resources Director, and the City’s Budget Director, is instrumental in maximizing resources in a budget where people and the benefits they carry account for over three quarters of the City’s total appropriation.

Risk Management

Through internal claims management, departmental accountability, and a structured self-insurance program, the City’s risk management strategy focuses on reducing the cost of third party liabilities, worker injuries, employee healthcare costs, and property damages. MGL Ch.258 caps legal liabilities and Corporation Counsel defends the City in lawsuits that arise from the normal course of operations.

A self-insurance program budgets for predictable levels of risk-related costs through the general fund, except for self-insured health care costs financed through trust funds established under MGL Ch.32b S.3A. The City also carries a catastrophic property insurance policy and maintains a catastrophic risk reserve for unexpected large losses.

Reserve

Per law, the City maintains a reserve fund equal to 2 1/2% of the preceding year’s appropriations for all City departments except the School Department. The reserve may be used for extraordinary and unforeseen expenditures after June 1 in any fiscal year with the approval of the Mayor and the City Council. This reserve has not been utilized to date.

External Audit/Management Letters

The City consistently receives unqualified opinions on the audit of its Basic Financial Statements and the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for its Comprehensive Annual Financial Report. The City’s independent auditors also deliver a yearly management letter containing comments and recommendations on internal financial controls.

Financial Accounting Systems

The Boston Administrative Information System (BAIS), an integrated financial and human resources management system, supports financial management and improves operational efficiency. These systems support the rigorous monitoring and reporting requirements enforced by the City.


Financial Management Programs

Performance Management and Program Evaluation

Boston About Results (BAR) is the City’s performance management and evaluation program that helps drive operational improvement throughout the City. The BAR program provides city leaders and departmental managers with the tools and analysis needed to track service delivery, evaluate performance, and identify areas of improvement.

A Citywide Analytics Team works across cabinets to help identify pain points and develop immediate and potential long-term performance and process improvements ( see featured analysis on performance management ), complementing performance reports.
Operational Reviews

The City systematically engages in independent operational reviews and other planning efforts aimed at making government more efficient in order to address areas needing renewed attention.

Energy Management

An Energy Management Unit develops design standards and implements measures that enhance the energy efficiency of the City’s new construction and capital improvement projects.

The conversion of street lights to newer fixtures using Light Emitting Diode (“LED”) technology has achieved significant operational savings.

In FY18, an Energy Service Company (“ESCO”) will conduct an Investment Grade Audit (“IGA”) of the City’s facilities portfolio to identify projects with significant utility savings potential. This “Renew Boston Trust” initiative will result in savings for City facilities by bundling municipal utility cost savings projects.


Fund structure and uses

The accounts of the City are organized on a fund basis. Each fund is considered a separate accounting entity and complies with finance-related legal requirements. The City’s funds are divided into three categories.

Governmental Funds
  • General Fund: accounts for all revenues, expenditures, and other financial resources, except those required to be accounted for in other funds. The only fund for which a budget is adopted.
  • Special Revenue Fund: accounts for proceeds legally restricted for specific purposes.
  • Capital Projects Fund: accounts for financial resources mainly from the issuance of bonds and used for acquisition or construction of major capital facilities.
  • All non-major governmental funds in an “Other” category.
Proprietary Funds

Proprietary Funds are used to show activities that operate more like those of commercial enterprises.

  • Internal Service Fund: accounts for the City’s self-insurance for health benefits.
Fiduciary Funds

Fiduciary funds account for resources held for the benefit of third parties and are not available to support the City’s own programs, including:

  • Pension Trust Fund
  • Other Post-Employment Benefits (OPEB) Liability Trust Fund
  • Private Purpose Trust Funds.

The City’s operating and capital budgets are also supported by certain appropriations from other available funds. The City may appropriate parking meter revenues (Special Revenue Fund) to support the Transportation Department and capital projects related to traffic and parking. Cemetery trust monies (Other Governmental Funds) support the City’s maintenance of its public cemeteries.

The below tables provide a history of the available funds used to support the City’s operating budget. View a summary of the budget's appropriated funds .

Parking Meter Fund

(dollars in millions)

Fiscal Year Beginning Year Balance Funds Out Funds In Ending Year Balance
FY11 59.362 (15.000) 14.729 59.091
FY12 59.091 0.0 16.56 75.651
FY13 75.651 0.0 15.514 91.165
FY14 91.165 0.0 15.547 106.712
FY15 106.712 (19.000) 14.685 102.397
FY16 102.397 (6.500)** 14.397 110.294
FY17* 110.294 (37.500)*** 22.139 94.932
FY18* 94.932 (67.885)**** 17.5 44.547

*Projected
**Includes $6.5 milllion capital expenditure
***Includes $15 million capital expenditure
****Includes $45.4 million capital expenditure

Cemetery Trust Fund

(dollars in millions)

Fiscal Year Beginning Year Balance Funds Out Funds In** Ending Year Balance
FY10 7.711 (2.507) 2.264 7.468
FY11 7.468 (2.651) 2.477 7.293
FY12 7.293 0.0 (1.152) 6.141
FY13 6.141 0.0 2.26 8.401
FY14 8.401 0.0 1.088 9.489
FY15 9.489 0.0 1.077 10.566
FY16 10.566 0.0 0.433 10.999
FY17* 10.999 (0.950) 1.0 11.049
FY18* 11.049 (0.950) 1.0 11.099

*Projected
**Includes investment return

Surplus Property Disposition Fund

(dollars in millions)

Fiscal Year Beginning Year Balance Funds Out Funds In Ending Year Balance
FY10 30.087 (5.979) 0.0 24.108
FY11 24.108 0.0 0.972 25.08
FY12 25.08 0.0 1.291 26.371
FY13 26.371 (22.120) 5.057 9.307
FY14 9.307 0.0 0.55 9.857
FY15 9.857 (5.250) 10.678 15.285
FY16 15.285 0.0 1.742 17.027
FY17* 17.027 (4.000)** 1.145 14.172
FY18* 14.172 0.0 1.145 15.317

*Projected
**Includes a $4 million supplemental for the Boston Housing Authority