17Who pays for the city

The short version: A city runs on two budgets. The operating budget pays for this year's services - salaries, fuel, health insurance - and in US cities it leans heavily on the property tax. The capital budget pays for things that last decades, such as schools, roads and pipes, and is mostly borrowed through municipal bonds. On top of that sit fees for water and sewer, aid from the state, and US federal grants such as the 2021 infrastructure law, whose program authority reached its expiry date on September 30, 2026.

What's the difference between an operating and a capital budget?

The operating budget is the yearly spending plan for running services: the people who staff schools, plow streets and inspect buildings, plus their health insurance, fuel and supplies. It has to balance each year, and it is paid mostly from taxes, fees and aid.

The capital budget (or capital plan) is a multi-year plan for building or repairing long-lived assets: school buildings, bridges, fire stations, roads. Because those assets last decades, cities usually borrow to pay for them and repay the loans over time, so that the people who use a school over 30 years help pay for it.

Boston's numbers for the current year show the scale. On April 8, 2026, Mayor Michelle Wu filed a $4.9 billion operating budget for FY2027 and a $4.4 billion five-year capital plan for FY2027-2031.³⁵⁸ The council passed both in June 2026; the capital plan funds 321 projects.³⁵⁴ Boston Public Schools receive $1.7 billion of the operating budget.³⁵⁸ The capital plan includes $135 million for White Stadium.³⁵⁹ In the previous year's plan, nearly $1.2 billion of the capital budget (about 27%) was for school buildings.³⁶⁰

The two numbers look similar, but they are not comparable. The $4.9 billion is spent in one year. The $4.4 billion is spread over five.

Where does a US city's money come from?

For most US cities, the biggest single source is the property tax: a yearly tax on the assessed value of land and buildings. In 2015, the property tax made up 67% of Boston's operating revenue.³⁶¹ For FY27, the city's budget office puts the net property tax levy at $3.61 billion, 73.1% of the city's revenue.³⁶²

The FY27 budget documents give partial figures. The city expects $538 million in state aid, 10.9% of its budget, or $119.6 million after state assessments are subtracted.³⁶³ Local revenue, which includes excise taxes, is budgeted at $753.0 million, 15.4% of the revenue budget; the largest excise is the hotel room occupancy tax, at $162.1 million.³⁶⁴ The city calls the property tax its primary revenue source.³⁶³

The other main sources are:

• State aid. Money the state sends to cities, often for schools. In Massachusetts, the state also takes money back through "assessments," such as charter school tuition. Boston's net state aid - aid minus assessments - fell 46.2% over the ten years to FY15.³⁶¹ Again, the figure is dated.
• Federal funds. In the FY26 budget, federal funds supported more than $300 million a year in Boston city services.³⁶⁰
• Fees and charges. Permit fees, parking fines and, in many cities, water and sewer bills (the system those bills pay for is in Where your tap water comes from).
• Borrowing. Used for capital projects, not for day-to-day services.

London's transport body is a useful non-US contrast, because it runs largely on fares rather than property. In TfL's 2019-20 budget of £10.3 billion, fares supplied 47%, grants 33%, congestion charging and other income 12%, and borrowing 8%.³³⁵

What is Proposition 2½?

In Massachusetts, the property tax has a hard legal cap. Proposition 2½ was approved by voters in 1980 and took effect in FY1982.³⁶⁵ It sets two limits on the total property tax a city or town can raise, called the levy:

• The levy limit can rise 2.5% a year, plus "new growth" from new construction. Rising market values on existing property do not count as new growth.³⁶⁵
• The levy ceiling is 2.5% of the total assessed value of all property in the town.³⁶⁵

Voters can loosen the cap in two ways. An override permanently raises the levy limit and needs a majority vote.³⁶⁵ A debt exclusion or capital exclusion raises the levy temporarily to pay for a specific capital project.³⁶⁵

Boston collects the maximum property tax Proposition 2½ allows.³⁴² Its FY27 budget "does not seek an override for additional revenue beyond what is allowed by Proposition 2 ½."³⁵⁸ In practice, that means Boston's property tax revenue can grow by about 2.5% a year plus whatever new buildings add, however fast its costs rise. In FY27, health insurance costs alone were projected to rise $97.3 million.³⁵⁸

The cap also shapes who pays. Falling downtown office values are shifting Boston's tax burden toward homeowners.³⁴² The mechanism is arithmetic: when the total the city may collect is capped and one kind of property loses value, the other kinds pick up a larger share.

Why are water bills separate from taxes?

Many US cities run water and sewer as an enterprise fund: a self-supporting account inside city government, where customers' bills pay the system's costs rather than the property tax. Boston takes the idea further. Its water and sewer system belongs to the Boston Water and Sewer Commission, a body created by state law in 1977, separate from the city, which sets its own water and sewer rates.⁴⁴ BWSC in turn buys water wholesale from the MWRA.⁴⁴

Because the commission is separate from the city, the water bill pays for the pipes, and as far as our sources show, those dollars sit outside the city's $4.9 billion operating budget. (More on how these bodies fit together in Who actually runs a city.)

How do municipal bonds work?

A municipal bond is a loan that investors make to a state, city or public authority, which repays it with interest over a set period. Cities sell bonds to pay for capital projects. The market is large: US municipal bonds outstanding totaled $4.5 trillion as of the second quarter of 2026, up 4.8% from a year earlier, and issuance from January through September 2026 came to $473.8 billion.³⁶⁶

A city's bond rating works like a credit score: the higher the rating, the lower the interest it pays. As of its FY26 budget, Boston had held a AAA rating, the top grade, for 10 years.³⁶⁰

In the US, interest on state and local government bonds has been free of federal income tax since the income tax began in 1913, and that exemption lowers the cost of borrowing for states and cities.³⁶⁷

In Boston

Boston's budget in 2026 is a story of slow growth under pressure.

• FY26. Wu filed a $4.8 billion operating budget and a $4.5 billion capital plan on April 10, 2025, growth of 4.4% over FY25.³⁶⁰ It was signed on June 9, 2025.³⁴²
• FY27. The $4.9 billion budget grew 2.1%, the lowest since FY10.³⁵⁸ The city had a $48.4 million FY26 gap to close, and reserves stand at about $1 billion.³⁵⁹ The city says it avoided "additional use of reserves" to balance FY27.³⁵⁸
• Looking ahead. The Boston Policy Institute projects a shortfall of $1.7 billion to $2.1 billion over five years.³⁵⁹

The council's power over these totals is small. Its FY27 amendments came to $11.8 million, about 0.2% of the budget, and the mayor rejected $1.4 million of them.³⁵⁴

How the federal infrastructure law works

The Infrastructure Investment and Jobs Act (IIJA), enacted in 2021, authorized $1.2 trillion, of which $550 billion was new funding.³⁶⁸ Our reading: the gap between the two figures is mostly spending that was already expected, so the $550 billion is the better measure of what the law added.

Trackers count IIJA dollars in different ways - allocated, announced, obligated and paid out - and the numbers differ a lot. Obligated means legally committed to a specific project, even if no money has been paid yet. Some examples, each measuring something different:

• By September 2024, about $480 billion (40%) had been allocated to projects.³⁶⁸
• For the Department of Transportation's portion only, as of April 30, 2026: enacted budget authority was $567.2 billion ($545.6 billion after adjustments), 70.5% had been obligated, about 89.8% had been announced, and $160.7 billion remained unobligated.³⁶⁹

IIJA program authorities expire on September 30, 2026.³⁷⁰ A bill passed by the Senate Appropriations Committee on August 8, 2026 would extend many of them to December 11, 2026.³⁷⁰ Our sources do not confirm whether that extension became law.

How it changed

• 1980: Massachusetts voters approve Proposition 2½, effective FY1982.³⁶⁵
• 1998: The American Society of Civil Engineers (ASCE) begins its Report Card for America's Infrastructure.³⁷¹
• 2018: Direct central government operating funding for Transport for London ends.³³⁵
• 2021: IIJA enacted.³⁶⁸
• 2025: ASCE gives US infrastructure an overall C.³⁷¹

What does the ASCE report card say?

The ASCE grades US infrastructure in a periodic report card. Its 2025 report card, released March 25, 2025, gave an overall grade of C, up from C- in 2021 and the highest since the report card began in 1998.³⁷¹ It estimates a $3.7 trillion investment gap: the difference between what is needed to reach a good state of repair and what is being spent.³⁷¹ The report covers 18 categories, with broadband added for the first time.³⁷¹

Source for all grades: ASCE.³⁷¹

The ASCE is an engineers' professional society, and its grades are its own assessment.

What's changing now (2026)

Three pressures meet in 2026. Boston's own budget is growing at its slowest rate since FY10 while costs such as health insurance climb.³⁵⁸ The federal infrastructure law's program authority hit its expiry date on September 30, with an extension pending in Congress.³⁷⁰ And the municipal bond market keeps growing, with $473.8 billion issued in the first nine months of the year.³⁶⁶

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