Municipal CFO Series: Meredith Weenick, Boston

Meredith Weenick is the Chief Financial Officer and Treasurer for the City of Boston. Previous to this role, Ms. Weenick worked for over ten years in nonprofit management and earned her MBA from Harvard Business School. In addition to her responsibilities as CFO and Treasurer, Ms. Weenick works directly with Boston Mayor Thomas Menino on internal management issues and policy development.

How is infrastructure financed in the City of Boston, and what area of infrastructure investment is the city predominantly responsible for?

First and foremost, the City of Boston does not own most of its infrastructure. The city’s water and sewer assets are managed and financed by an independent authority, Boston Water and Sewer Commission. The authority is completely rate sufficient and has not had to artificially raise water rates in order to support its debt service. There is no subsidy for the authority. Utilities are all privately run in Massachusetts, and there is a fair amount of market competition, which is helpful to the city as Northeast energy prices are quite high.

In the last six years the city has financed infrastructure needs with a single fixed rate annual bond issue. The city borrows approximately $120 million a year to support its capital investment plan. About 15 to 20 percent of that borrowing is invested in the maintenance and construction of basic infrastructure such as roads, bridges, and sidewalks. Additional state and federal matching programs and grants exist for some basic infrastructure investments that the city engages in. The remaining 80 to 85 percent bond balance is utilized to support a full range of capital investment projects for the city such as park, school, library, and community center improvements.

With interest rates at record lows, is the City of Boston considering accelerating capital investment plans to take advantage of low costs of debt?

Boston, unique to many US cities, has a long standing history of conservative financial management practices. The city essentially does not have a debt policy. The city is bound by a self-imposed rule that debt service shall not exceed 7 percent of the city’s operating budget, a metric that the city is having no difficulty achieving. Boston has refinanced its debt portfolio over the last ten years to take advantage of low interest rates, which has resulted in net present value savings of $50 million. Boston holds a AAA credit rating, and, as a result, borrowing costs are extremely favorable, with Fiscal 2012 calculating at 2.49 percent. Through disciplined financial management, the city has been able to efficiently budget for debt service costs.

What is your opinion surrounding the recent national dialogue regarding public-private partnerships as a tool for cities to fund infrastructure investment shortfalls? What is Boston’s stance on the issue?

Infrastructure banks speak to two gaps in the market. The first gap deals with public confidence issues in project selection and the second deals with debt capacity issues. If cities have debt capacity issues, either resulting from state statutes or distressed balance sheets, then it makes sense to look into these options. Boston has a city council whose primary role is to vote on the annual budget, which includes all capital expenditure plans for the year, so capital projects are vetted thoroughly by council members and their constituencies.

Public-private partnerships do also pose risks. The fine print in many previous engagements has outlined this stark reality. The City of Chicago parking meter privatization deal is a great example of the risks associated in selling off revenue streams, especially in non-compete contracts. These agreements tend to be long term, with many ranging from twenty to thirty year terms. Should the partnership prove to not be optimal for the taxpayers, it would be unfortunate to be locked in an agreement over that long a duration. At this time, Boston would find it difficult to see the additional benefit that a public-private partnership could provide, given the upfront costs to establish the partnership and the risks that could be associated with it, versus utilizing the city’s very low cost of capital to fund infrastructure.

Can you share some innovative ways that the City of Boston is coordinating efforts with the private sector in capital improvement and construction plans?

The City of Boston is currently supporting one of the largest private sector construction projects in the country through a legislation agreement with Massachusetts known as the I-Cubed Program. The City of Boston does not collect an income tax. All income tax is collected by the state, and tax benefits that result from new job creation within the city are not distributed back through any direct distribution formula. Through the I-Cubed Program, Massachusetts issues bonds to pay for infrastructure supporting a major private development within the city. The city guarantees on a revenue amount associated with projected income taxes. The projected income taxes are estimated by the amount of anticipated new permanent jobs resulting from the development. This tax benefit then finances the cost of the infrastructure bond issue back to the state. The city assumes the financial risk should revenue fall below agreed expectations.

Massachusetts is supporting a private developer, The Fallon Company, to construct a new development that will be the future site of Vertex Pharmaceuticals. Typically, the developer pays for the development’s infrastructure costs. However, in this case, the state is issuing a $50 million bond to finance the costs for the roads, sewer, and electricity systems that will support the development.  This has provided the private developer with the financial support to build and complete the project. The Fallon Company is so confident that the state will be reimbursed for its cost through new income taxes that it has guaranteed the revenue with the city, essentially making the project risk free for Boston. This project has been a win-win-win.

Feature photo: cc/David Paul Ohmer