Construction costs have soared over the past two fiscal years, “significantly eroding” the purchasing power of the state’s capital projects, a state panel of fiscal experts said this month, calling for the largest increase in capital borrowing. It was announced that a recommendation had been made. For at least 10 years.
The Capital Debt Ability Committee found that Massachusetts could carry $3.117 billion in general debt for 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 Although the committee generally considers the maximum annual increase in the bond cap to be $125 million, the non-binding recommendation for fiscal year 2025 includes the current threshold plus construction cost inflation. Includes an additional $87.2 million “adjustment amount.”
“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 on 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 will be affordable, the Committee will consider how much room is left under statutory debt limits and whether annual expected debt service payments will be less than 8% of budgeted revenues. Consider whether it can be suppressed. 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 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. . The report cited “very significant price increases for several construction products” as the biggest factor, and labor market conditions — “with many projects competing for small subcontractors” He said construction costs have increased by 5 to 10 percent.
“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 is about to collide On the last day of the 2016 session, lawmakers raised the debt ceiling in 2017 for the first time in history. $1.86 billion in debt forgiveness From the limitations of the rail reinforcement program. As of fiscal year 2023, the state’s outstanding debt was 84% of the limit, down from 98% in fiscal year 2016. The estimated value for 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.