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<p>The Executive Office for Administration and Finance (A&F) develops
and manages a multi-year capital investment plan. This plan allows
the Commonwealth to establish capital investment priorities throughout
its state agencies and to plan for the sourcing of funds required
to support these investments. The Commonwealth is projected to expend
$2.579 billion for capital investments in FY04, a $62 million decrease
from FY03. The following summarizes the Commonwealth's total capital
investments since FY99:</p>
<p align="center"><b>Commonwealth of Massachusetts<br>
Total Capital Investments FY99 - FY04E</b></p>
<p align="center"> <img src="/bb/fy2005h1/images05/capital_1.gif" width="472" height="181"></p>
<p align="left">The investments are segregated into three separate
capital budgets: </p>
<ul>
<li> <b>Central Artery/Third Harbor Tunnel Project</b>, which is managed by the Massachusetts
Turnpike Authority;</li>
<li><b>Boston Convention and Exhibition Center and the Springfield
Arena and Convention Center</b>, which are managed by the Massachusetts
Convention Center Authority; and</li>
<li> <b>"Balance-of-State"</b>, which are capital investments in
state agencies managed by the Executive Office for Administration
and Finance through state agencies. </li>
</ul>
<p align="left">The graph below provides a historical trend analysis
of the Commonwealth's investments in the capital budgets: </p>
<p align="center"><b>Commonwealth of Massachusetts<br>
Capital Expenditures FY99 - FY04E</b></p>
<p align="center"> <img src="/bb/fy2005h1/images05/capital_2.gif" width="513" height="204"></p>
<h5 align="left"><b>Funding</b> </h5>
<p align="left">The budgets are funded by Commonwealth debt (both
general obligation and special obligation), operating revenues,
third-party payments, and federal reimbursements. The following
provides an analysis of the amount and percentage of the annual
total that each funding source contributed to the Commonwealth's
total capital investment plan: </p>
<p align="center"><img src="/bb/fy2005h1/images05/capital_3.gif" width="518" height="112"></p>
<p align="left">Funds from debt issuance averaged 66% during the six
fiscal years outlined above. The reliance on debt proceeds contributed
to the Commonwealth's increased debt load. The Commonwealth had
approximately $11.8 billion in direct debt outstanding on June 30,
1999 and is projected to have approximately $16.7 billion as of
June 30, 2004, for a 7.2% compound annual growth rate. </p>
<h5 align="left">Administrative Bond Cap</h5>
<p align="left">In the early 1990's, A&F instituted an administrative
bond "cap", which established an annual level of bond issuance in
support of the "balance-of-state" capital budget. The FY04 administrative
bond cap is $1.178 billion in support of the $1.425 billion "balance-of-state"
capital investment plan. The Administration announced in the fall
of 2003 that the bond cap would be $1.150 billion in FY05 and $1.250
billion annually in FY06 through FY08. The following details the
administrative bond cap and total "balance-of-state" capital expenditures
since FY99:</p>
<p align="center"><img src="/bb/fy2005h1/images05/capital_4.gif" width="465" height="105"></p>
<h5 align="left">FY04 Balance-Of-State Capital Budget</h5>
<p align="left">The Administration revamped the planning process for
the "balance-of-state" capital plan in FY04. Capital planning now
requires that state agencies develop budget proposals based on a
"modified zero-based budget" paradigm. This paradigm recognizes
that many capital investments take multiple years to design and
construct. As such, these projects are allocated funds over the
life of the project, which sets the baseline capital budgets for
the state agencies. All other proposed investments are subject to
review by A&F and compete for unallocated funds.</p>
<p align="left">In addition to the new budgeting approach, the FY04
capital planning process required state agencies to segment their
capital budget proposals by category of spending. These categories
are called "Major Investment Programs." To augment the budget proposals,
state agencies submitted memorandums describing these Major Investment
Programs, including historical spending, project concentration and
program outcomes. A&F conducted due diligence on each budget proposal
by meeting with each state agency and analyzing the submitted plans.</p>
<p align="left">Upon completion of the due diligence process, A&F
set the FY04 capital budget. The capital budget was developed based
on the following tenets:</p>
<ul>
<li>"Fix-It-First": An Administration priority to repair the Commonwealth's
productive asset base.</li>
<li>Finishing projects on time and within budget.</li>
<li>Reimbursing grant recipients on a timely basis.</li>
<li>Limiting expansion to only core needs.</li>
<li>Limiting non-capital costs on the capital budget.</li>
</ul>
<p>A&F approved a $1.278 billion "balance-of-state" capital budget
(excluding federal reimbursements) for FY04.</p>
<p align="center"><img src="/bb/fy2005h1/images05/capital_5.gif" width="495" height="130"></p>
<h5 align="left">FY05 and Beyond</h5>
<p align="left">A&F recently commenced the FY05 capital planning process
with state agencies. The planning process will retain the FY04 focus
on "bottoms-up" budgeting. The Administration is committed to multi-year
capital budgeting, and this year's capital budget will provide state
agencies with guidance on future budget allocations. However, state
agencies will still be required to justify program/project recommendations
on an on-going basis. </p>
<h5 align="left">Central Artery/Tunnel (CA/T<b>)</b></h5>
<p align="left">The CA/T Project entails replacing Boston's deteriorating
six-lane elevated Central Artery (Interstate 93) with an eight-to-ten
lane state-of-the-art underground highway, building two new bridges
over the Charles River (the Leverett Circle Connector Bridge and
the Leonard P. Zakim Bunker Hill Bridge), and constructing a third
tunnel (the Ted Williams Tunnel) under Boston harbor that extends
Interstate 90 (the Massachusetts Turnpike) to Logan International
Airport and Route 1A. The depression of the Central Artery creates
more than 260 acres of open land and reconnects downtown Boston
to the city's waterfront. </p>
<p align="left">As of November 30, 2003, project construction was
91.6% complete. As of that date, approximately $13.635 billion of
the total budget of $14.625 billion was under contract or agreement.
The Interstate 93 initial southbound opening occurred on December
19, 2003. The projected dates for the Interstate 93 complete southbound
opening and CA/T Project substantial completion are March 2005 to
July 2005 and May 2005 to November 2005, respectively. </p>
<h5 align="left">Convention Centers</h5>
<h6 align="left"><b>Boston Convention Center</b></h6>
<p align="left">The Boston Convention and Exhibition Center (the "BCEC
Project") is a 1.6 million square-foot convention and exhibition
facility currently under construction on a 60-acre site in South
Boston. When completed, the BCEC Project will be the largest convention
and exhibition facility in New England and one of the twenty largest
such facilities in the country, as well as the centerpiece of the
redevelopment of the City of Boston's Seaport District. </p>
<p align="left">Substantial completion of construction of the BCEC
Project is scheduled for March 24, 2004 with final completion on
June 30, 2004. The facility's first convention is scheduled for
July 2004. </p>
<h6 align="left"><b>Springfield Arena and Civic Center</b></h6>
<p align="left">The project includes the construction of a new two-story
convention center of 156,551 gross square feet and the renovation
of 213,449 gross square feet of the existing arena. The existing
Civic Center will be totally renovated for use as a multi-purpose
arena and the adjacent site redesigned. Substantial completion is
scheduled for July 2005 with the Grand Opening anticipated for September
2005.</p>
<h5 align="left">Financing of Convention Centers</h5>
<p align="left">The Convention Center Act, Chapter 152 of the Acts
of 1997, as amended, authorizes the Commonwealth to issue up to
$694.4 million of special obligation bonds for the Boston Convention
and Exhibition Center ($609.4 million), the Springfield Civic Center
($66.0 million), and the Worcester Convention Center ($19 million).
</p>
<p align="left">The special obligation debt issued for the convention
center projects will be paid from receipts of convention center
fees on hotel rooms in the cities of Boston, Cambridge, Springfield,
West Springfield, Chicopee, and Worcester, car rentals in the city
of Boston, parking at the convention center facilities, sightseeing
tours in the city of Boston, and sales and meals taxes within a
finance district near the Boston Convention and Exhibition Center.
</p>
<h5 align="left">Reauthorization and Deauthorization </h5>
<p align="left">For the past several years, the Commonwealth has maintained
a substantial level of authorized but unissued debt. The Administration's
capital management policies include the careful scrutiny of authorized
debt and the deauthorization of unnecessary commitments wherever
possible. Authorized but unissued debt on June 30, 2003 was an estimated
$8.7 billion.</p>
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<td><span class="sub_black">*Excluding refunding</span></td>
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<h5 align="left">Private Activity Volume Cap</h5>
<p align="left">Federal tax law allows the Commonwealth and its designees
to issue a limited amount of tax-exempt debt for the benefit of
certain private activities. This debt reduces borrowing rates at
no cost to state taxpayers and is used primarily for three purposes:
promoting college education through low-cost student loans, encouraging
the construction of affordable housing, and stimulating economic
development. Three quasi-public authorities use the majority of
the Commonwealth's private activity volume cap to pursue these goals:
the Massachusetts Educational Financing Authority (MEFA), the Massachusetts
Housing Finance Authority (MHFA), and the Massachusetts Development
Finance Agency (MDFA). In recent years, all three agencies have
received increased allocations with MDFA's growing slightly faster
than those of MEFA and MHFA. In calendar year 2004, the Commonwealth
has a total of $514 million in new volume cap to allocate. </p>
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