Financial Management

Strong financial management is the foundation of City operations. Our practices provide a structure we use to protect the present, meet commitments, and plan for the future.

The Mayor directs the City’s financial operations and serves as the City's Chief Executive Officer. The Mayor supervises and controls the City’s cabinet officers, departments, boards, and commissions. Boston's cabinet form of government moves mayoral priorities and daily business practices forward.

The following departments are part of the Finance Cabinet and have a major role in the financial management of the City.

• Auditing Department
• Assessing Department
• Office of Budget Management (OBM)
• Procurement Department
• Treasury Department

Our budget supports City Services as guided by mayoral priorities. Maintaining this goal within a balanced budget requires careful planning and constant scrutiny. A balanced budget is one where revenues equal expenditures, and is a requirement for all Massachusetts cities and towns. To meet this requirement, we use internal controls to prepare for unexpected revenue or expense challenges. These controls include managing discretionary spending and employee headcount, among other things.

The Massachusetts Department of Revenue approves property tax rates during the tax certification process. The process, governed under Massachusetts General Laws (MGL) Ch.59, S.23, ensures a balanced budget and a tax levy within the limits set by Proposition 2 ½.

In FY25, 82% of recurring general fund revenue comes from property tax and state aid. This is expected to be the same for FY26. The multi-decade trend of decreased net state aid, our second-largest source of revenue, highlights the risk of relying on any one source. To protect and grow our revenue base, we expand current revenue sources and pursue diversified revenue sources.

The City develops a financial forecast as part of its yearly budget process. Preparing a multi-year planning horizon provides time for the administration to make any necessary adjustments and policy decisions

City employees take part in a contributory defined benefit retirement system. The system is 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. A five-member Retirement Board administers the statue. The five members are:

• 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.

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

Employees earn post-employment healthcare and life insurance benefits over their years of active service. They can use the benefits during retirement. The City, including the Boston Public Health Commission (BPHC), has an unfunded liability for these benefits of $2.68 billion as of the most recent independent actuarial valuation on June 30, 2023. 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.

The City maintains adequate levels of fund balance to reduce current and future risk. Budgetary fund balance, also called "Free Cash", is the amount of reserves available for the City to appropriate. The Massachusetts Department of Revenue certifies the budgetary fund balance each year. This budgetary fund balance is only consider spent to cover certain fixed costs and extraordinary and one-time events. Some fixed costs that may be covered by a fund balance include pensions, OPEB. Extraordinary and one-time events that may use fund balances are determined by the City Auditor.

Investment policies* that govern how we can invest. Limits are placed on the City’s investments and operational practices to make sure decisions are sound, timely, and safe. As a matter of practice, the City tends to limit its investments to U.S. Treasuries, repurchase agreements, money markets and certificates of deposit, all of which are collateralized by U.S. Government obligations and are held with a third party..

*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 Law

Debt issuance is evaluated for its effect on both statutory debt capacity and cash flow. Conservative debt policies are used, which include:

• rapid repayment of debt, where at least 35% of debt is repaid within 5 years and 65% in 10 years, and
• a 7% ceiling on debt service as a percentage of our general fund expenditures.

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

A capital planning process is aligned with our annual operating budget cycle. This pairing allows the City to regularly reassess capital needs, clarify projects, and update our rolling five-year plan. The City prioritizes capital requests and takes into account project budgets and timing to spend funds responsibly.

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

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. They City's eProcurement system also supports these efforts.

Tight central spending controls give us the flexibility we need to adjust to fiscal changes and trends as needed. The City monitors spending on a monthly basis and project our year-end position using actual information. Combined with conservative revenue estimates, this maintains a solid financial position.

The City's Chief Financial Officer, Human Resources Director, and Budget Director sit on the Position Review Committee. The committee is instrumental in maximizing resources. In a city where employees and employee benefits make up about two-thirds of the total appropriation, position management is necessary.

The City's risk management strategy focuses on mitigating risks and reducing potential liabilities. This includes internal processes to reduce the costs third party liabilities, worker injuries, healthcare, and property damage. MGL Ch. 258 caps legal liabilities and Corporation Counsel defends the City in lawsuits that happen in the normal course of operations.

A self-insurance program budgets for predictable levels of risk-related costs through the general fund. This does not include self-insured healthcare costs financed through trust funds established under MGL Ch.32b S.3A. The City also carries a catastrophic property insurance polity and maintains a reserve for large unexpected losses.

Per law, we maintain a reserve fund equal to 2 ½%  of the preceding year’s appropriations for all City departments (excluding the School Department). The reserve may be used for extraordinary and unexpected costs after June 1 in any fiscal year if the Mayor and the City Council approve. To date, we have not used this reserve.

The City receives unqualified opinions on the audit of our Basic Financial Statements and the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for our Comprehensive Annual Financial Report. Additionally, independent auditors give the City an annual management letter with comments and recommendations for our internal financial controls.

The Boston Administrative Information System or BAIS, is used to manage the City's financial and human resources. The system supports our monitoring and reporting requirements while improving operational efficiency.