The Commonwealth is responsible for maintaining a large inventory of capital assets, including transportation infrastructure, courts, correctional facilities, state hospitals, office buildings, parks and more. In addition, the Commonwealth makes targeted capital investments to support economic growth, strengthen communities and improve the quality of life in the Commonwealth. These investments include funding for public infrastructure to support private development and job growth, local infrastructure improvements and protection of our natural resources.
These capital investments are planned and funded through the Commonwealth’s capital budget, which is separate and distinct from the annual operating budget. The capital budget is primarily funded by borrowing through the issuance of bonds. There are certain other sources of funding for the capital budget, the largest of which is federal funds, primarily to reimburse transportation infrastructure improvements. From fiscal year 2009 through 2012, the American Recovery and Reinvestment Act of 2009 (“ARRA”) provided additional federal funds which targeted to specific capital purposes.
The issuance of bonds to fund the capital budget must be authorized by the Legislature. Pursuant to these legislative authorizations to borrow, the Governor determines the amount and timing of any authorized borrowing to fund capital investments. At the request of the Governor, the State Treasurer issues the bonds to borrow the funds. The Governor approves the use of the borrowed funds by agencies to pay for authorized and budgeted capital projects.
The primary factor constraining the amount of the Commonwealth’s capital budget is affordability. The Commonwealth must pay principal and interest costs each year on the bonds it issues to fund its capital investment program. These annual debt service expenses on outstanding Commonwealth bonds are funded each year in the Commonwealth’s annual operating budget. The Patrick-Murray Administration is the first to develop and publish an analysis of the amount of debt the state can afford in terms of its impact on debt service and the operating budget, and it is the first to develop a policy for determining the annual borrowing amount to fund the capital budget. This debt affordability analysis and policy, as updated to reflect current market and economic conditions, is included as Appendix A.
There are certain capital investments that are not funded by the Commonwealth through its capital budget and consequently are not reflected in this capital investment plan. There are a number of independent state authorities responsible for maintaining certain public infrastructure from revenues generated from those infrastructure assets or from dedicated state tax or other revenues that are not available to the Commonwealth for general budgeting purposes. Examples of these entities include the Massachusetts Bay Transit Authority, the Massachusetts Housing Finance Authority and the Massachusetts School Building Authority. Because these entities carry out their own capital projects and are solely responsible for financing them from their own funding sources, the capital investments made by these entities are not included in the state’s capital investment plan. In addition, certain equipment purchases and information technology projects funded by state agencies through their operating budgets are not reflected in the capital investment plan.