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Rapidly rising construction costs over the past two fiscal years have “significantly eroded” the purchasing power of the state’s capital projects, the state’s Board of Fiscal Experts says this month, resulting in 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 shoulder $3.117 billion in general debt in capital expenditures in fiscal year 2025, an increase of $212.2 million, or 7.3 percent, from the current fiscal year. It was decided that it was. Although the committee generally considers a maximum annual increase in the bond cap to be $125 million, the nonbinding recommendation for fiscal year 2025 includes the current standard amount plus construction cost inflation. Includes an additional $87.2 million “adjustment amount” to take into account.
“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. said Caitlin Connors, assistant secretary of the Office of Management 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 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 that we determine.” Evaluation process. ”
To determine how much new debt will be affordable, the Committee will consider how much room remains under statutory debt limits and if annual expected debt service payments are below 8% of budgeted revenues. Consider whether or not. 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 pointed to a report from the Office of Capital Asset Management and Maintenance that found that Massachusetts’ utility costs have increased by 18% to 20% over the past 24 months, exceeding the national average. . The report found that “significant price increases for several construction products” were the biggest factor, and that labor market conditions — “many projects are competing for small subcontractors” — were driving up construction costs by 5%. He said it has increased by ~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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