The Commonwealth’s five-year capital investment plan is updated annually after the operating budget has been released. Under Governor Patrick’s leadership, the Executive Office for Administration and Finance now develops a five-year Capital Investment Plan in conjunction with an annual debt affordability analysis to help ensure Massachusetts continues to borrow responsibly.
The current FY 2013-2017 plan implements the vision and priorities established in each of the Patrick-Murray Administration’s first five plans. In large part, the investments included in FY 2013-2017 plan continue projects launched in prior years or commence projects anticipated by the prior five-year plans. Over 80 percent of the bond-funded FY13 capital investment plan is needed to fund previously-made commitments, including ongoing construction contracts, investments needed to leverage federal funds, legal commitments and personnel needed to carry out capital programs.
As with the prior capital plans, the Administration engaged in a diligent, fiscally responsible, and comprehensive process for developing this five-year capital investment proposal. One common challenge each year is that demand for capital improvements far exceeds affordable funding capacity. The inevitable consequence is that many worthy projects will not receive funding.
In order to establish the total amount of the bond-funded capital program within an affordable level, the Administration conducts a rigorous review of the Commonwealth’s debt capacity within its debt affordability policy. The debt affordability analysis underlying the FY 2013-2017 capital investment plan can be found at http://www.mass.gov/bb/cap/fy2013/exec/hdebtaffordability.htm. In part due to the Patrick-Murray Administration’s diligence in following the debt affordability analysis, the state presently has ratings of Aa1 from Moody’s and AA+ from Fitch and Standard & Poor’s. Taken together, these ratings give Massachusetts its highest credit standing in history.
Highlights of the FY 2013 Capital Investment Plan
The Patrick-Murray Administration’s capital investment plan is designed to reverse decades of underinvestment, create jobs and set the stage for a better economic future. This is accomplished by investing in public higher education, supporting innovation industries and strengthening infrastructure.
The FY 2013 Capital Investment Plan continues the Administration’s efforts to create an affordable, accessible public higher education system, by committing $1.16 billion in programmed projects and over $100 million reserved for future projects or deferred maintenance over five years. In FY 2013, the Administration strengthened its commitment to community colleges by announcing five new community college projects which will provide students with strong educational foundations and relevant workforce training opportunities that will prepare them for success in the local job market and/or further academic study. Additionally, projects are currently underway or completed at 26 of the 29 public university campuses, including laboratory facilities at the University of Massachusetts (UMass) Boston, UMass Lowell, UMass Amherst, Bridgewater State, Fitchburg State, Framingham State and Mass College of Liberal Arts; libraries at UMass Dartmouth, Salem State and Mass Maritime Academy; and classrooms at UMass Amherst and UMass Boston.
The Patrick-Murray Administration’s commitment to innovation industries continues with $500 million of capital investment over ten years to support the life sciences. This investment includes the completion of the Sherman Center at the University of Massachusetts Medical School in Worcester, University of Massachusetts Dartmouth’s Biomanufacturing facility, and the Dana-Farber Cancer Institute.
Through capital investment the Patrick-Murray Administration has strengthened infrastructure by repairing or replacing aging state facilities, roads and bridges and providing broadband communication to the 123 cities and towns in Massachusetts that previously did not have high-speed internet.
The Accelerated Bridge Program has reduced the number structurally-deficient bridges by almost 20%, and created 17,000 jobs throughout the state. In the FY 2013-2017 Capital Investment Plan, the Administration applies the same approach to energy efficiency at state facilities. The new Accelerated Energy Program is a three-year initiative to “green” 700 sites in 700 working days encompassing over 4,000 state buildings throughout the Commonwealth. This program will create thousands of clean energy job opportunities across the Commonwealth and save over $40 million annually through the conservation of energy and water.
Please note that the FY 2013-2017 Capital Investment Plan was published in October of 2012 and has not been updated to reflect the Administration’s proposal to increase the transportation capital investment by $13 B over the next ten years to create a state-of-the-art transportation network that is able to provide fast and reliable service while attracting and supporting sustainable economic growth in the future. The program budget includes FY 2014 capital spending as projected by the FY 2013-2017 Capital Investment Plan, and similarly does not include the proposed transportation investment.
The FY 2013-2017 plan continues strategic investments in the future by creating thousands of new jobs and improving the environment for economic growth. Examples of projects included in the FY 2013-2017 plan:
The full five-year Capital Investment Plan can be found at www.mass.gov/capital. The charts below show the plan’s investments by major investment categories for each of the five fiscal years covered by the plan funded only from state bond proceeds or “bond cap” and funded from all anticipated sources of capital funding. Note that FY 13 includes $93 million in unused capacity from the prior fiscal year. The Administration has conservatively constrained the bond cap in FY 16 and FY 17 at the FY 15 level. Future debt affordability analysis may show sufficient revenue growth to allow increased bond cap in future plans.
|FY 2013-2017 Capital Investment Plan Total Bond Cap (in $thousands)|
|FY 2013||FY 2014||FY 2015||FY 2016||FY 2017||5-Year Total||% of 5-Year Total|
|Energy and Environment||167,141||159,329||114,179||86,346||87,346||614,340||6%|
|Health and Human Services||27,582||37,615||69,575||75,400||102,000||312,172||3%|
|State Office Buildings||73,553||64,103||72,835||58,951||68,056||337,497||3%|
|Total Bond Cap||1,968,155||2,000,000||2,125,000||2,125,000||2,125,000||10,343,155|
|FY 2013-2017 Capital Investment Plan All Sources of Funding (in $thousands)|
|FY 2013||FY 2014||FY 2015||FY 2016||FY 2017||5-Year Total||% of 5-Year Total|
|Energy and Environment||266,791||287,279||221,296||143,296||132,546||1,051,040||6%|
|Health and Human Services||30,982||40,000||88,600||103,600||106,000||369,182||2%|
|State Office Buildings||73,553||64,103||72,835||58,951||68,056||337,497||2%|
|Total All Sources||3,274,513||3,525,755||3,445,925||3,359,209||3,052,335||16,667,737|
Many of the projects funded in FY 2013 are multi-year projects with costs that will be incurred in subsequent fiscal years; these projected future costs have been taken into account in making investment category reservations for future years. Projects will evolve and change, and the Executive Office for Administration and Finance (ANF) intends to adjust the capital plan during the fiscal year as circumstances dictate. ANF will also undertake a formal reassessment of capital investment needs to develop an annual update to the five-year capital plan. The Administration plans to update and publish a new five-year capital investment plan with specific projects identified in FY 2014 after the new fiscal year.
Affordability and Fiscal Responsibility
The Commonwealth’s capital budget is separate and distinct from the annual operating budget. The capital budget is funded mainly by borrowing through the issuance of bonds. Other sources of funding for the capital budget include federal funds, primarily to reimburse transportation infrastructure improvements and other sources of funding available to finance certain capital investment projects.
Because the capital program is funded primarily through bond proceeds, the total size of the capital program is determined primarily by the amount of debt the Commonwealth can afford to issue. Annually, ANF has established what is known as the “bond cap” as an administrative guideline for annual bond issuance in support of the capital program. For the sixth consecutive year, the Patrick-Murray Administration engaged in a rigorous analysis of the state’s outstanding debt to determine the affordable level of bond issuance. A complete description of the Administration’s debt affordability analysis and policy can be found at http://www.mass.gov/bb/cap/fy2013/exec/hdebtaffordability.htm .
For purposes of its analysis of existing payment obligations, ANF takes into account both debt service on general obligation bonds and debt service on certain special obligations, contract assistance obligations and certain capital lease payments. Although the Accelerated Bridge Program is being carried out in addition to the regular capital program in order to achieve savings from avoided cost inflation and deferred maintenance and to achieve the other objectives of the program, the debt service resulting from the program is also taken into account within the 8% limit under the debt affordability analysis.
The Administration takes a conservative approach to projecting future budgeted revenues, basing its growth estimate on the lesser of 3% or the actual compound annual growth rate of the Commonwealth’s revenues over the last 10 years, which included both economic booms and downturns. ANF models future debt issuance using fiscally conservative assumptions about interest rates, maturities, dates of issuance and market conditions.
The Patrick-Murray Administration intends to limit the total amount of virtually all future bond-funded capital projects to the bond cap. However, there are certain, limited circumstances in which the Administration plans to undertake borrowing outside the bond cap when there is a sound policy justification for doing so. For example, if there are certain projects for which a dedicated stream of new, project-related revenues can be identified to support debt service costs related to those projects.
The debt affordability analysis methodology is based on the Commonwealth’s current available financing resources and mechanisms. Changes in financing structures and resources in the future may impact how the Administration examines the administrative bond cap and the state’s capacity for additional borrowing. The Administration revisits the debt capacity and affordability analysis every year, revising its estimates for future years by taking into account fluctuations in interest rates, budgeted revenues and other changes impacting the Commonwealth’s debt capacity. In addition, the Administration will annually assess the appropriateness of the methodology and constraints for establishing the bond cap described above. The complete Debt Affordability Analysis can be found online at http://www.mass.gov/bb/cap/fy2013/exec/hdebtaffordability.htm
Impact of Capital Budget on the Operating Budget
Each year, as part of the annual development of the capital investment plan, the Executive Office for Administration and Finance evaluates the operating budget impacts for all requested projects. This year the Administration has taken steps to better evaluate the impact of capital investments on the operating budget. Starting in FY 13, before investing in new IT projects, a private IT investment consultant will forecast the project’s return on investment and long term operating impact.
Every state government capital spending request must show the incremental on-going annual operating costs/savings that are expected to be incurred upon completion of the project. Decisions on whether to fund the capital projects depend on A&F’s assessment of not only the programmatic need for the project, but also the affordability of the related operating costs. The following capital budget construction projects are expected to result in an FY13 operating budget impact that exceeds $500,000 per year:
In addition, for construction projects that are starting study in FY 2013, those studies will project the operating cost impact and will be reported to A&F over the year. When agencies are preparing their annual budget requests during A&F’s spending plan process they are asked that the additional operational costs associated with capital projects are reflected in their projected funding requirements.