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.
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 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.
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.