Boston wants to use nearly $70 million in reserve funds to plug city, BPS budget deficits

After months of warning about looming financial challenges, Mayor Michelle Wu wants to pull $70 million from Boston’s reserve funds to plug deficits in the city’s and Boston Public Schools’ budgets.

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Of the $69.9 million, most of it — about $47 million — would cover a deficit in the city’s operating budget city officials said was caused by higher than expected spending on snow removal this year.

The remaining $22.8 million would bridge a gap in the BPS budget created by surging health insurance and utility costs, according to a letter Wu sent to the City Council on Monday.

The city had about $1.2 billion in reserve funds as of the end of June last year, according to city officials.

The move to dip into the city’s so-called rainy day fund is the starkest indication yet of Boston’s strained financial situation, as inflation and spiking health insurance costs continue to put pressure on municipal budgets across the state.

To try and cut costs, Wu ordered city staff to delay and slow hiring in December, and limited or froze spending on food, travel, and other expenses in March. That same month, city officials projected that they were facing a $48.4 million deficit in the current budget, which they also attributed to health insurance and police overtime costs.

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Separately, BPS in February implemented a partial hiring freeze in a bid to close what was then a projected $53 million deficit in the district’s budget. The School Committee in March approved a $1.7 billion budget for the next fiscal year, that included eliminating 300 to 400 positions in the face of declining enrollment.

Officials said they cut the district’s projected deficit by about $20 million.

In letters to the City Council on Monday, Wu requested the councilors’ approval to dip into the city’s emergency fund balance to cover the budget gaps, and touted the city’s top AAA bond rating as evidence of her administration’s responsible and disciplined management of the city’s finances.

“That standing gives us the flexibility to deploy reserves as intended — to address extraordinary, one-time costs without disrupting the core services our residents rely on,“ Wu wrote, adding that the emergency appropriation would leave the city on ”solid financial footing.”

Ashley Groffenberger, the city’s chief financial officer, said Monday that the city plans to keepcertain spending restrictions and delayed hiring in place for the remainder of the fiscal year that ends in June, and is evaluating the degree to which the city will continue those controls in the next fiscal year.

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This is a developing story and will be updated.