Capital Outlay
During the late 1980s, the Commonwealth experienced a rapid growth in capital expenditures. These expenditures grew from roughly $600 million in Fiscal Year 1987 to approximately $971 million in Fiscal Year 1989. The annual debt service associated with these capital expenditures also increased significantly. Increasingly larger shares of the Commonwealth’s operating budget were being diverted to pay off the outstanding debt on capital bonds and were, therefore, unavailable for essential program and policy initiatives. This situation was further exacerbated with the issuance of approximately $1.4 billion in Fiscal Recovery Bonds authorized under the Commonwealth Fiscal Recovery Loan Act of 1990 in an effort to address the Commonwealth’s sizable operating deficit. The overall result of these Fiscal Recovery Bonds, which were retired in December, 1997, was an increase in annual debt service expenditures of approximately $275 million, an average of 2% of budgeted expenditures from Fiscal Year 1991 to Fiscal Year 1998.
As part of the Weld/Cellucci overall strategy to return fiscal stability to the Commonwealth, the Administration took aggressive measures to manage capital spending. The most important of which was the implementation in 1991 of a rolling, five-year capital spending plan. These measures resulted in the decrease of the annual rate of growth in outstanding debt from 30% in Fiscal Year 1991 to 2% in Fiscal Year 1997. The improved management of capital expenditures has been cited as one of the important factors in the numerous upgrades the Commonwealth’s bond rating has received from the investment community since 1991.
Since 1991, the Administration has established annual, statewide limits on capital expenditures funded with Commonwealth general and special obligation bonds. The establishment of limits on capital spending created better management and a reduction of the Commonwealth’s existing debt burden, and brought the growth of new capital authorizations under control. Although approximately $16 billion in bond-funded capital spending is authorized but unissued under current law, the five-year capital plan limits spending of general and special obligation bond funds to $1.05 billion in Fiscal Year 1998 and $1 billion in fiscal years 1999 through 2002. Limiting capital spending to an average of $1.01 billion per year over five years restrains growth in the Commonwealth’s outstanding debt to an average of 3.3% annually.
The Cellucci Administration has also, with support from the Legislature, made a commitment to fund certain non-recurring capital expenses from the operating budget. Chapter 88 of the Acts of 1997 created the Capital Investment Trust Fund, a mechanism designed to relieve the future debt burden of taxpayers by using a percentage of surplus operating revenues to fund capital investments, instead of long-term borrowing. In Fiscal Years 1998 and 1999, approximately $230 million will be expended from the Capital Investment Trust Fund, supplementing the $2.05 billion in bond-funded spending for the same period.
In addition, the fiscal impact of new capital projects is carefully considered when the Administration determines which new projects to initiate. The Administration is committed to long-term investments that will improve and sustain the Commonwealth’s infrastructure well into the next century. The primary areas of bond-funded capital spending are: transportation, infrastructure, environment, information technology, housing, economic development, public safety, and water treatment. As early as 1998, the Commonwealth will also begin using debt financing to fund significant investments to expand available convention center space.
Transportation
The Commonwealth pursues an aggressive capital spending campaign for transportation-related projects throughout the state. These projects include: construction and reconstruction of state highways and bridges; local aid funds for capital improvements to local roads and bridges; improvements to municipal airports; aid to regional transit authorities; and the maintenance and construction of railways and bikepaths. The largest, most notable state transportation project is the Central Artery and Ted Williams Tunnel project.
The Central Artery/Tunnel (CA/T) project will be completed in 2004, improving the mobility of the estimated 190,000 vehicles which use the Central Artery every day. The Project is forecasted to cost approximately $10.8 billion, of which about 60% will be paid by the Federal Government and 40% by the Commonwealth.
The Executive Office of Transportation and Construction’s five-year capital plan reflects an increase in capital spending from Fiscal Year 1999 to Fiscal Year 2002, as the majority of the construction costs for CA/T will occur during this period. As the project enters its most challenging and costly phase of construction, the Commonwealth must bridge the gap between the availability of federal revenue and third party contributions by financing short-term borrowing against receipt of these funding sources.
Until now, the Commonwealth’s commitment to finance the CA/T project has been met through annual spending allocations from the Executive Office of Transportation and Construction’s capital spending cap under the five-year capital plan. However, during the peak of the CA/T project cash flow needs over the next several years additional funding will be required to provide sufficient cash to meet project costs. The Commonwealth anticipates the additional funding to be available in the form of cash contributions from the Port Authority and the Turnpike Authority pursuant to a signed Memorandum of Understanding executed with each Authority, as well as the debt proceeds of interim financing vehicles in the form of Bond Anticipation Notes (BANs) and Grant Anticipation Notes (GANs). BANs and GANs are forms of bridge financing which enable borrowing funds prior to receipt of a future stream of payments in amounts sufficient to repay the borrowing.
BANs will be issued to fund project costs and will be repaid as proceeds from the two Authorities are received. GANs will be issued to fund federally eligible project costs and will be repaid as future federal grants are received from the Federal Highway Administration. The use of BANs and GANs will enable the project to proceed on schedule without costly delays. The Fiscal Year 1999 interest costs associated with projected BANs and GANs borrowings are included in the Commonwealth’s short-term debt service line-item.
Infrastructure
The Division of Capital Planning and Operations (DCPO) is responsible for the construction and management of virtually all buildings owned by the Commonwealth. As the department responsible for vertical construction and infrastructure, DCPO oversees important Administration capital initiatives relating to health and human services, public safety, higher education, the judiciary, environmental agencies, and state office buildings. Each of these initiatives and various other repair and construction projects under DCPO’s purview are reflected in the Commonwealth’s current five-year capital plan. These include ongoing projects with existing funding authorizations, as well as planned projects that are already authorized as part of recently enacted bond bills, and projects authorized in legislation filed by the Administration, but not yet enacted.
Specifically, the current five-year capital spending plan for infrastructure includes construction of new classroom, research, and student facilities at the University of Massachusetts; approximately $137 million to upgrade state and community colleges statewide; more than $200 million to expand and modernize the Commonwealth’s state and county prisons, including the new Shirley maximum security facility; and approximately $132 million to improve state-owned health and human services facilities.
The Cellucci Administration remains committed to enhancing the Commonwealth’s civil and criminal justice system through the acquisition, construction, renovation, and repair of courthouse facilities throughout the Commonwealth. While construction of a new trial court in Boston nears completion in Fiscal Year 1998, construction of a new courthouse in Worcester and numerous other courthouse construction projects await enactment of legislation filed by the Administration in 1997.
Environment
The Executive Office of Environmental Affairs manages a combination of programs to preserve and protect the environmental assets of the Commonwealth. The five-year capital plan for environmental agencies includes land acquisitions, authorized primarily as part of the 1996 Open Space Bond Bill and the 1996 Rivers Protection Act; financing for projects to revitalize the Commonwealth’s seaports; and financing to maintain state parks, dams, and watershed land.
Information Technology
The Information Technology Division (ITD) is responsible for information technology standards and shared mainframe, telecommunications, and applications development services for Commonwealth agencies. ITD coordinates and manages enhancements and additions to the Commonwealth's growing information technology infrastructure. Among the current priorities in the area of information technology is implementation of the $314 million 1996 Information Technology Bond Bill which includes capital authorizations for investments in public safety technology, improved information systems at a wide variety of state agencies, and education technology initiatives. ITD is also working with the Commonwealth's Trial Courts to implement a $75 million bond authorization for the purpose of creating a comprehensive information system for the Commonwealth's Trial Courts.
Housing
The Department of Housing and Community Development (DHCD) coordinates capital spending for the construction, modernization, and repair of affordable housing through payments to local housing authorities. The Commonwealth’s affordable housing stock benefits the elderly, low-income individuals and families, and individuals who are disabled or have specialized residential needs. DHCD also administers the Community Development Action Grant program to provide grants to cities and towns for infrastructure improvements, the Abandoned Building Demolition program, the Housing Innovations Fund, and the Housing Stabilization Fund.
Economic Development
The Executive Office for Administration and Finance coordinates an array of capital projects which are implemented and managed through a combination of state agencies and executive offices. These projects share a significant potential for job creation and retention, and contribute to the economic stability of a community or region. Funding for these projects frequently involves a combination of federal, state, municipal, quasi-public, or private investment. Economic development projects currently included in the five-year capital spending plan include: dredging of Boston Harbor, renovation and expansion of the Basketball Hall of Fame in Springfield, an ongoing grant program to construct, renovate, and expand public libraries, and the preservation of historic properties in cities and towns.
Public Safety
The Executive Office of Public Safety manages capital spending in support of the Commonwealth’s law enforcement, fire fighting, and emergency response systems. Among the public safety capital investments included in the five-year plan are the purchase of bullet proof vests for law enforcement personnel and an improved telecommunications system for the State Police.
Water Treatment
The Massachusetts Water Pollution Abatement Trust (MWPAT) currently manages the state and federally funded state revolving fund (SRF) program for clean water, a revolving loan fund that helps finance wastewater treatment projects in cities, towns, and other public entities. The capital spending plan includes continued capitalization of the loan fund. The MWPAT plans to administer a state revolving fund to help finance projects to maintain safe drinking water in the Commonwealth pursuant to legislation filed by the Administration last summer.
Convention Centers
The enactment in 1997 of "An Act Relative to the Construction and Financing of Convention and Exhibition Centers in the Commonwealth" authorized the Commonwealth to spend approximately $609 million for the design and construction of a new, state-of-the-art convention and exhibition facility in South Boston. The law also authorized $49.5 million in spending for expansion, renovation, and construction on the site of the Springfield Civic Center, and $19 million to reimburse the City of Worcester for construction of a new convention center. Revenue bonds to permanently finance the Boston, Springfield, and Worcester convention centers will be payable from a 2.75% additional hotel tax in Boston, Cambridge, Springfield, and Worcester; sales tax receipts from businesses near the new Boston facility that first opened on or after July 1, 1997; a surcharge on car rentals in Boston; a parking surcharge at all three facilities; the entire hotel tax collected at hotels near the new Boston facility; and all sales tax and hotel tax receipts at new hotels in Boston and Cambridge first opened on or after July 1, 1997.
The convention center legislation also authorizes $85 million of Commonwealth general obligation bonds for other civic, convention, and exhibition halls in the State.
Conclusion
Continued investment in the Commonwealth’s infrastructure and facilities is critical for Massachusetts to maintain its economic viability into the next century. This need for constant investment must be carefully balanced with fiscal responsibility and the Cellucci Administration’s strong desire to limit future increases in the Commonwealth’s outstanding debt.
Executive Office for Administration and Finance
Fiscal Affairs Division
State House, Room 272
Boston, MA 02133
(617) 727-2081
Last updated on January 21, 1998
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