Capital Overview

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:

Commonwealth of Massachusetts
Total Capital Investments FY99 - FY04E

The investments are segregated into three separate capital budgets:

Central Artery/Third Harbor Tunnel Project, which is managed by the Massachusetts Turnpike Authority;
Boston Convention and Exhibition Center and the Springfield Arena and Convention Center, which are managed by the Massachusetts Convention Center Authority; and
"Balance-of-State", which are capital investments in state agencies managed by the Executive Office for Administration and Finance through state agencies.

The graph below provides a historical trend analysis of the Commonwealth's investments in the capital budgets:

Commonwealth of Massachusetts
Capital Expenditures FY99 - FY04E

Funding

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:

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.

Administrative Bond Cap

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:

FY04 Balance-Of-State Capital Budget

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.

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.

Upon completion of the due diligence process, A&F set the FY04 capital budget. The capital budget was developed based on the following tenets:

"Fix-It-First": An Administration priority to repair the Commonwealth's productive asset base.
Finishing projects on time and within budget.
Reimbursing grant recipients on a timely basis.
Limiting expansion to only core needs.
Limiting non-capital costs on the capital budget.

A&F approved a $1.278 billion "balance-of-state" capital budget (excluding federal reimbursements) for FY04.

FY05 and Beyond

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.

Central Artery/Tunnel (CA/T)

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.

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.

Convention Centers

Boston Convention Center

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.

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.

Springfield Arena and Civic Center

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.

Financing of Convention Centers

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).

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.

Reauthorization and Deauthorization

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.

*Excluding refunding

Private Activity Volume Cap

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.