Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2015

Capital Investment Plan


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 (A&F) 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 2014-2018 plan implements the vision and priorities established in each of the Patrick Administration’s first six plans.  In large part, the investments included in the FY 2014-2018 plan continue ongoing projects launched in prior years.  Over 80% of the bond-funded FY 2014 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.  The Commonwealth is responsible for maintaining a large inventory of capital assets, including transportation infrastructure, courts, correctional facilities, state hospitals, office buildings, parks and more.  In addition, the Commonwealth makes targeted capital investments to support economic growth, strengthen communities and improve the quality of life in the Commonwealth.  These investments include funding for public infrastructure to support private development and job growth, local infrastructure improvements and protection of our natural resources.  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. 

The primary factor constraining the amount of the Commonwealth’s capital budget is affordability.  The Commonwealth must pay principal and interest costs each year on the bonds it issues to fund its capital investment program.  These annual debt service expenses on outstanding Commonwealth bonds are funded each year in the Commonwealth’s annual operating budget.  The Patrick Administration is the first to develop and publish an analysis of the amount of debt the Commonwealth can afford in terms of its impact on debt service and the operating budget, and it is the first to develop a policy for determining the annual borrowing amount to fund the capital budget. In part due to the Patrick 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.

FY 2014-2018 Capital Investment Plan
Total Bond Cap
Title: FY 2014-2018 Capital Investment Plan - Description: Vertical bar chart showing the Total State Bond Cap, over $2 billion, for fiscal years 2014 through 2018.  2014 includes some unused capacity from the prior year.

 

FY2014-2018 Capital Investment Plan
Total Bond Cap (In thousands)
  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Five Year Total % of 5-Year Total
Community Investments $346,485 $324,053 $290,509 $295,305 $275,974 $1,532,326 14%
Corrections $76,412 $21,225 $30,115 $30,500 $30,100 $188,352 2%
Courts $27,681 $66,472 $120,559 $82,600 $48,200 $345,512 3%
Economic Development $126,780 $143,500 $123,500 $123,500 $117,003 $634,283 6%
Energy And Environment $191,362 $126,691 $127,061 $107,152 $124,463 $676,729 6%
Health And Human Services $92,338 $63,287 $40,081 $38,114 $48,000 $281,820 3%
Higher Education $226,813 $251,716 $330,573 $409,100 $324,103 $1,542,305 14%
Housing $179,500 $168,850 $169,500 $169,500 $170,000 $857,350 8%
Public Safety $73,351 $44,546 $44,630 $36,086 $27,080 $225,692 2%
State Government Infrastructure $220,401 $195,486 $158,197 $140,943 $142,078 $857,104 8%
Transportation $644,550 $719,175 $815,275 $817,200 $943,000 $3,939,200 36%
Total Bond Cap $2,205,673 $2,125,000 $2,250,000 $2,250,000 $2,250,000 $11,080,673  

 

 

FY 2014-2018 Capital Investment Plan
Total All Sources
Title: FY 2014-2018 Capital Investment Plan - Description: Vertical bar chart showing the Total All Sources for fiscal years 2014 through 2018.  Including Pay-As-You-Go, Project Financed, and Other Funds.  Above $4 billion in FY 2014 through 2016, then declining in 2017, to below $3 billion in 2018.

FY 2014-2018 Capital Investment Plan
Total All Sources (In thousands)
  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Five Year Total % of 5-Year Total
Community Investments $381,427 $354,953 $321,009 $326,205 $279,474 $1,663,068 9%
Corrections $76,412 $21,225 $30,115 $30,500 $30,100 $188,352 1%
Courts $27,681 $71,472 $135,559 $87,600 $48,200 $370,512 2%
Economic Development $151,780 $168,500 $148,500 $148,500 $117,003 $734,283 4%
Energy And Environment $243,038 $241,262 $237,531 $236,952 $182,392 $1,141,175 6%
Health And Human Services $165,490 $125,706 $87,645 $63,066 $64,440 $506,347 3%
Higher Education $266,611 $298,466 $386,773 $430,700 $325,603 $1,708,153 9%
Housing $179,500 $168,850 $169,500 $169,500 $170,000 $857,350 5%
Public Safety $83,001 $54,216 $47,830 $36,786 $27,080 $248,912 1%
State Government Infrastructure $309,266 $290,223 $235,545 $193,862 $189,562 $1,218,458 6%
Transportation $2,209,051 $2,372,916 $2,308,708 $1,848,490 $1,490,006 $10,229,171 54%
Total All Sources $4,093,257 $4,167,789 $4,108,714 $3,572,161 $2,923,859 $18,865,781  

 

Highlights of the FY 2014 Capital Investment Plan

  • In FY 2014, the Patrick Administration will triple the funding to $15 M in the Cultural Facilities Fund to support non-profit cultural facilities throughout the Commonwealth.
  • An investment of $10 M will be made in critical coastal infrastructure projects immediately ready for construction.  This funding will also provide for a sweeping risk assessment of the entire Massachusetts coastline and stimulate the development of sustainable infrastructure projects to mitigate coastal risk.
  • The Boston Public Market project will convert a vacant state building adjacent to the Rose Kennedy Greenway into a public market to offer a variety of local and culturally significant food products.  This project will create 100 construction jobs and 200 permanent jobs. 
  • Funding of $62.6 M will be invested in Governor Patrick’s Life Sciences Initiative in FY 2014, an $8.7 M increase over FY13.  These capital investments provide funding for over 15 projects including the University of Massachusetts Amherst’s new life sciences laboratories, Boston Children’s Hospital, LabCentral, Northern Essex Community College, the University of the Massachusetts Dartmouth’s Biomanufacturing Facility, the Joslin Diabetes Center, and the Dana Farber Cancer Institute.
  • The FY 2014 Capital Plan includes the announcement of an unprecedented number of new community college projects, which affirms the Administration’s commitment to investing in community colleges that provide students with strong educational foundations and relevant workforce training opportunities that will prepare them for success in the local job market or further academic study.
  • A one-time, $10 M additional investment in Affordable Housing for Priority Populations projects will be funded in FY 2014.  This additional capital funding capacity will allow DHCD to create additional housing options for priority populations, including the chronically homeless, veterans and others in need of supportive housing.
  • With over $450 M committed to the Green Line Extension project to date, the FY 2014-18 Capital Investment Plan anticipates Union Square service by mid-2017 and completing construction tasks necessary to ensure rest of the proposed service begins by the of this decade.

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 14 includes $205 million in unused capacity from the prior fiscal year.  The Administration established the FY 2015 bond cap at $2.125 B, and the FY16-2018 bond caps at $2.25 B.  Future debt affordability analysis may show sufficient revenue growth to allow increased bond cap in future plans.

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.  Every capital spending request must show the incremental and ongoing annual operating costs/savings that are expected to be incurred upon completion of the project.  The decision on whether to fund a capital project depends 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 FY 2014 operating budget impact that exceeds $500,000 per year:

  • Bridgewater State University’s Conant Science Building Modernization and Expansion
  • New Middlesex Justice Complex
  • The Hampden Sheriff’s Department’s Western Massachusetts Women’s Correctional Facility
  • The Massachusetts College of Liberal Arts’ Center for Science and Innovation
  • Springfield Data Center
  • UMass Amherst’s New Laboratory Science Building
  • UMass Lowell’s South Campus Academic Facilities

In addition, for construction projects that are starting study in FY 2014, those studies will project the operating cost impact and will be reported to A&F during 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.

With additional funding appropriated in the FY 14 General Appropriations Act, MassDOT was able to transfer $40 M in expenses from the capital budget to its operating budget.  The FY 2014-2018 Capital Investment Plan was developed in accordance with the goal of ending the historical practice of using borrowed money to pay for salaries, rents and other operating expenses within the next two years.

Several overarching initiatives currently being undertaken by the Commonwealth have both capital and operating budget components.  These initiatives include the following:

Integrated Facilities Management & the Clean Energy Investment Program

The Patrick Administration has also increased its focus on sustainable funding for capital projects once they are completed, to ensure they are properly maintained into the future.  Through the capital investment plan, the Patrick Administration has taken steps to reverse the pattern of underinvestment and reduce the deferred maintenance backlog that was facing the Commonwealth’s infrastructure.  The Administration has also taken steps to improve care for current and new capital assets as they are completed.  The Governor’s FY 2015 budget includes a $3.3 M investment in Integrated Facilities Management (IFM) which will allow the Division of Capital Asset Management and Maintenance (DCAMM) to implement a sustainable funding structure for their capital portfolio.  IFM establishes service standards as well as a detailed rent methodology to ensure state agencies are caring for their capital assets properly so they Commonwealth can use them for generations. 

DCAMM has also established the Clean Energy Investment Program (CEIP) to investment in technology that increases energy efficiency and reduces costs in the long term.  Each CEIP project is required to submit a detailed return on investment (ROI) analysis to DCAMM prior to receiving CEIP capital funds.  This ROI analysis requires each project to show at least a 10% savings figure; agencies are then required to use this savings to fund the debt service on the CEIP project once it is completed.  Requiring agencies to use their savings on debt service for the CEIP project ensures that agencies have the operating funding necessary to sustain debt service payments over the life of the bonds as it matches with corresponding decreases in energy spending need.

Project Financed IT Investments

Investments in IT have substantial impacts across all corners of state government.  State agencies are able to provide increasingly higher levels of service in even the most challenging fiscal climates; municipalities are able to invest more local aid in programmatic needs instead of support systems; and health care cost containment is in part made possible by the investments made in the Commonwealth’s IT infrastructure.  In addition to improving service, IT investments can produce a return on investment to the Commonwealth through new revenue or cost savings due to operational efficiencies.

To ensure that the Commonwealth realizes this return on investment, the Administration engaged a renowned private IT investment consultant to produce a methodology for creating, maintaining and monitoring the long term benefits and costs of IT capital projects. This methodology will be used to verify new and existing projects’ long term impact and drive investment decisions. The consultant is also now partnering with the Commonwealth to design and implement a user-friendly but powerful web-based application to help identify the key financial and non-financial benefits of IT investments. 

One of the key features of the new return on investment-based process is to help identify projects which can generate increased revenues and/or operational savings that can also help pay some or all of the costs of the project.  In cases where all or part of the project cost will be paid back through operational savings or new revenue, the Commonwealth will use those funding streams to pay back the associated debt service.

Finally, the Administration will deploy a new Strategic IT Procurement Team to provide assistance to agencies procuring large, complex IT projects and to help ensure that projects get off to a good start.  This team will take recommendations from the IT procurement study due to the Legislature in 2014 and other industry best practices to assist agencies with planning, writing and completing large procurements.  The goal of this team is to reduce onerous requirements which lead to extended timelines for project completion and implementation of dated technology, as well as to improve competition for the Commonwealth’s IT business.


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