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Rapidly rising construction costs over the past two fiscal years have “severely eroded” the purchasing power of Massachusetts’ capital projects, the state’s Board of Fiscal Experts said last month, making the largest increase in capital borrowing. announced that it had recommended that For at least 10 years.
The Capital Debt Affordability Committee estimates that Massachusetts could take on $3.117 billion in general debt for capital expenditures in fiscal year 2025, an increase of $212.2 million or 7.3% from the current fiscal year. It was decided that this would increase. The committee generally considers a cap on annual increases in the bond cap at $125 million, but its nonbinding recommendations for fiscal year 2025 include the current standard amount plus construction cost inflation. Includes an additional “adjustment” of $87.2 million.
“According to the Commission’s data analysis, [Capital Investment Plan] Growth rates have significantly lagged behind rising construction costs, especially in the past two fiscal years. Additionally, public agencies across the Commonwealth are reporting significant budget shortfalls for many projects due to cost increases that far exceed original estimates. Examples of such projects include large-scale higher education capital projects, library reconstruction projects, school construction projects, water and wastewater infrastructure upgrades, and repairs and improvements to state facilities,” said the committee chairman. Caitlin Connors, assistant secretary of the Department of Administration and Finance. he wrote in the group’s letter of recommendation.
Connors continued, “The Committee recognizes that the Commonwealth’s ability to keep pace with capital needs is critical. As a result, the Committee, through the Committee, recognizes that the Commonwealth’s ability to keep pace with capital needs is critical. “We recommend including a modest adjustment of $87.2 million to the bond cap.” Evaluation process. ”
To determine how much new debt is affordable, the Committee will consider how much leeway is left under statutory debt limits and whether annual expected debt service payments can be kept below 8% of budgeted revenues. think about. The committee said the fiscal year 2025 decision will allow for “targeted investments in federal infrastructure while maintaining debt service and principal balance growth within long-term goals.”
The Capital and Debt Affordability Commission points to a Department of Capital Asset Management and Maintenance report that found that Massachusetts utility costs have increased by 18% to 20% over the past 24 months, exceeding the national average. did. The report said “a very significant increase in multiple construction products” was the biggest factor, with labor market conditions — “a large number of projects competing for a pool of small subcontractors” — contributing He said construction costs have increased by 5-10%.
“Changing user demands and building and energy standards are increasing costs, especially for new construction,” the commission said in its summary of the DCAMM report.
Since 1989, states have had legal limits that limit the total amount of outstanding direct state debt.
This limit automatically increases by 5% each year and is fixed at $30.655 billion for the current fiscal year. According to financial statements released earlier this month, Massachusetts’ total debt is about $31.576 billion, of which about $26.118 billion is subject to the cap.
The debt ceiling will increase to $32.188 billion in fiscal year 2025, which begins July 1, 2024.
In a presentation explaining how it reached its recommendation, the Capital and Debt Burden Affordability Committee said that while the buffer between the debt ceiling and actual debt has expanded in recent years, it is expected to shrink again over the next 10 years. He said that it has been done.
Massachusetts was on the brink of hitting the debt ceiling for the first time in 2017, but on the last day of the 2016 session, lawmakers exempted $1.86 billion in borrowings for rail enhancement programs from the cap. As of fiscal year 2023, the state’s outstanding debt was 84% of the limit, down from 98% in fiscal year 2016. The estimate for fiscal 2024 is 86% of the limit.
After at least five years of $125 million increases under Gov. Deval Patrick, Gov. Charlie Baker’s administration kept capital spending flat in fiscal year 2016 and then increased it by 3% annually from fiscal year 2017 to fiscal year 2021. We gradually increased capital investment. The annual increase of $125 million returned in fiscal year 2022.
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