CITY FINANCES

Budget and Appropriation Process

In a city, within 170 days after the annual organization of the city government (which is ordinarily in early January), the Mayor is required to submit a budget of proposed expenditures for the fiscal year beginning on the next July 1. The city council may make appropriations for the recommended purposes and may reduce or reject any item. Without a recommendation of the Mayor, the council may not make any appropriation for a purpose not included in the proposed budget. The council may not increase any item without the recommendation of the Mayor (except as provided by legislation, subject to local acceptance, under which the school budget or regional school district assessment can be increased upon recommendation of the school committee or regional district school committee and by two-thirds vote of the council, provided that such increase does not cause the total annual budget to exceed property tax limitations). If the council fails to act on any item of the proposed budget within 45 days, that item takes effect.

If the Mayor does not make a timely budget submission, provision is made for preparation of a budget by the council. Provision is also made for supplementary appropriations upon recommendation of the Mayor. Water and Sewer department expenditures are included in the budget adopted by the city council. Under certain legislation any city or town which accepts the legislation may provide that the appropriations for the operating costs of any department may be offset, in whole or in part, by estimated receipts from fees charged for services provided by the department. It is assumed that this general provision does not alter the pre-existing power of an electric department to appropriate its own receipts. As a result of an initiative law adopted in November 1980, school committees are no longer autonomous with respect to school expenditures for current purposes. The school budget is limited to the total amount appropriated by the city council, but the school committee retains full power to allocate the funds appropriated.

City department heads are generally required to submit their budget requests to the Mayor between December 1 and January 15. This does not apply to the school department, which must submit its requests in time for the Mayor to include them in his submission to the council.

State and county assessments, abatements in excess of overlays, principal and interest not otherwise provided for, and final judgments are included in the tax levy whether or not included in the budget. Revenues are not required to be set forth in the budget but estimated non-tax revenues are taken into account by the assessors in fixing the tax levy.

Budget Trends

The following table sets forth the trend in general fund budgets for the shown fiscal years. The budgets summarized below exclude expenditures for "non-operating" or extraordinary items.

(1) Community Development included in General Management and Support in Fiscal 1996 and Fiscal 1997.

(2) Conservation Health included in Human Services in Fiscal 1996 and Fiscal 1997..

Accounting Policies

See attached audited statements of the City.

Education Reform

State legislation known as the Education Reform Act of 1993, as amended, imposes certain minimum expenditure requirements on municipalities with respect to funding for education and related programs, and may affect the level of state aid to be received for education. The requirements are determined on the basis of formulas affected by various measures of wealth and income, enrollments, prior levels of local spending and state aid, and other factors.

At this time the City of Revere is in full compliance for fiscal year 1997 with mandates of the Education Reform Act of 1993. The City's net school spending is slightly in excess of the requirement.

Investment of City Funds

All funds of the City, except for trust funds, are invested in accordance with Section 55 of Chapter 44 of the Massachusetts General Laws (MGL). This section specifies that cities can invest in bank accounts and CDs. They can also invest in U.S. Government and agency securities with a maturity of one year or less, in repurchase agreements secured by such securities, with a maturity of 90 days or less, and the Massachusetts Municipal Depository Trust (MMDT). MMDT is an investment pool created by the Commonwealth under the supervision of the state Treasurer's office.

According to the State Treasurer the Trust's investment policy is designed to maintain an average weighted maturity of 90 days or less and is limited to high-quality, readily marketable fixed income instruments, including U.S. government obligations and highly-rated corporate securities with maturities of one year or less.

As of January 31, 1997, City operating funds were invested as follows:

Trust funds are invested in accordance with Section 54 of Chapter 44 of the MGL. This allows for a wider variety of investments as provided for by the State Banking Commission. Breakdown of such investments may be obtained from the City Treasurer.

Annual Audits

The City's accounts for the years ending June 30, 1986 through 1996 were audited by KMPG Peat Marwick, Boston, MA. The audit for the year ended June 30, 1996 is attached hereto as Appendix A. Copies of previous years' audits are available upon request.

Financial Statements

Set forth on the following pages are a Combined Balance Sheet - All Fund Types and Account Group for the fiscal year ended June 30, 1996 and June 30, 1995, a Comparative General Fund Statement of Revenues, Expenditures and Changes in Fund Equity for the fiscal years ended June 30, 1992 through June 30, 1996.

Extracted from Audited Financial Statements

CITY OF REVERE, MASSACHUSETTS
COMBINED BALANCE SHEET -
ALL FUND TYPES AND ACCOUNT GROUP
JUNE 30, 1996

Extracted from Audited Financial Statements

CITY OF REVERE, MASSACHUSETTS
COMBINED BALANCE SHEET -
ALL FUND TYPES AND ACCOUNT GROUP
JUNE 30, 1995

CITY OF REVERE, MASSACHUSETTS
GENERAL FUND - STATEMENT OF REVENUES,
EXPENDITURES AND CHANGES IN FUND EQUITY

(Excerpts from audited financial statements)

(1) Reflects $1,002,486 in school teacher's summer payroll that was deferred in fiscal 1992 for tax rate and tax levy computation purposes and carried forward as a reduction to fund balance. See "PROPERTY TAXATION- Tax Levy Computation, footnote (1)".

(2) Reflects accounting treatment for $1 million bond anticipation notes issued by the City to temporarily fund its RESCO liability prior to their permanent funding from proceeds of bonds issued in 1994. See "INDEBTEDNESS- Contractual Obligations".

Surplus Revenue and Free Cash

Under the modified accrual system of accounting ("UMAS") followed by the City of Revere and other Massachusetts municipalities, Free Cash is roughly comparable to Unreserved Fund Balance. However, there are material differences in the revenue recognition of property taxes and the manner in which various deficits are accounted for between the City's system and GAAP. See notes 2 and 9 in the attached audit..

The following table sets forth the trend in Surplus Revenue under the UMAS System, Unreserved general fund balance under GAAP and free cash ("UMAS") as certified by the Bureau of Accounts for the shown fiscal years.

(1) Does not account for deferral of teachers summer pay. See "PROPERTY TAXATION- Tax Levy Computation, footnote (1)".

Fiscal 1997 Projected Year End Operating Results

As of May 15, 1997, the City’s budgeted revenues are in balance with expenditures and actual revenue receipts are in line with projections. The City does not anticipate any operating deficits other than legally authorized expenditures such as court judgments.