The Commonwealth’s capital budget supports construction and maintenance of a variety of important public assets that contribute to the economic well-being and quality of life in Massachusetts. Fiscally responsible management of our long-term assets is essential.

In order to maximize the effectiveness of capital investments, the Executive Office for Administration and Finance is undertaking a comprehensive strategic review of the Commonwealth’s capital planning practices to ensure that the capital spending program fits within a sustainable growth framework.

This review entails an examination of how capital spending priorities are established and financed as well as whether additional or alternative planning tools might be useful for determining the prioritization of capital investments and the resulting allocation of capital resources. We are also looking at whether the current annual capital spending cap of $1.2 billion is set at the appropriate level, given such factors as historical patterns of capital spending and finance, the growth in the depth and breadth of the Massachusetts economy over the past decade, the need to invest in the infrastructure to assure a base for continued future growth and preservation of the long-term viability of existing assets.

About $3 billion will be spent on capital projects in 2003. Subject to the strategic review now underway, the table below summarizes planned capital spending.

USES 2003 2004 2005 2006 2007 Total
Transportation  $ 2,028 $ 1,632 $ 1,290 $ 923 $ 710 $ 6,583
Infrastructure 282 279 252 252 252 1,317
Economic Development 350 222 47 44 54 717
Environment 129 125 125 125 125 629
Housing 114 113 101 101 101 529
Information Technology 86 115 105 105 105 516
Public Safety 41 29 21 21 21 132
Reserve           1         26       114       117       107        365
TOTAL USES $3,030 $2,540 $2,055 $1,688 $1,475 $10,788
SOURCES 2003 2004 2005 2006 2007 Total
Long-Term Debt            
Statutory Limit $1,225 $1,200 $1,200 $1,200 $1,200 $6,025
Not Subject to Statutory Limit 576 103 100 -- -- 778
Special Obligation Debt 259 148 -- -- -- 406
Grant Anticipation Notes -- -- -- -- -- --
Operating revenues 27 480 283 22 -- 812
Third-Party payments 245 117 134 185 -- 682
Federal payments 698 492 338 281 275 2,084
TOTAL SOURCES $3,030 $2,540 $2,055 $1,688 $1,475 $10,788

Estimates include funds on deposit and certain dedicated fees and earnings.

Debt issuance

The primary source of funding for capital spending is proceeds from the sale of long-term debt. The state issues two types of bonds. The first is general obligation bonds that are backed by the full faith and credit of the Commonwealth. These bonds are subject to the annual capital spending limitation and debt service is paid through the operating budget. In 2003, an additional $25 million in general obligation bond authorization was carried forward from the previous year. For Fiscal Year 2004 and beyond, the appropriate level will be determined based upon the results of the comprehensive review referenced above.

The second type of long-term debt is special obligation bonds, which are not subject to the cap. These bonds are backed by and financed through a dedicated revenue stream, such as registration and license fees. The current plan calls for expending $835 million of such debt in 2003 and $251 million in 2004.

Other sources

Massachusetts receives federal reimbursements for transportation-related improvements: $689 million in 2003 and $492 million in 2004 is anticipated, primarily as shared funding of the Central Artery/Tunnel project. The Commonwealth also receives various fees and payments, including contributions from the Massachusetts Water Resources Authority to offset watershed land protection costs and from the Massachusetts Port Authority for the Central Artery/Tunnel project. In 2003, $245 million in capital investments will come from third-party sources; $117 million is anticipated for 2004.

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