Report on Capital Spending & Borrowing in the Commonwealth of Massachusetts 2017-2018 House Committee on Bonding, Capital Expenditures and State Assets Representative Antonio F. D. Cabral, Chairman Contents A Message from the Chairman ..................................................................................................................... ii 2017-2018 Committee Members ................................................................................................................ iii Executive Summary ....................................................................................................................................... 4 Chapter 1: Capital Spending & Borrowing Practices ..................................................................................... 6 The Assets: What Does Capital Spending Buy? ......................................................................................... 7 The Liabilities: Why Does the Commonwealth Borrow? ........................................................................ 10 The Process: How Does the Commonwealth Borrow? ........................................................................... 10 Massachusetts Debt Affordability ........................................................................................................... 12 Chapter 2: Capital Needs and Issues by Agency ......................................................................................... 15 Administration & Finance ....................................................................................................................... 17 Energy & Environmental Affairs .............................................................................................................. 21 Health & Human Services ....................................................................................................................... 24 Housing & Economic Development ........................................................................................................ 26 Public Safety ............................................................................................................................................ 28 Education ................................................................................................................................................ 30 Judiciary .................................................................................................................................................. 35 Transportation ........................................................................................................................................ 37 Quasi-Public Agencies ............................................................................................................................. 44 Chapter 3: Borrowing Activity & Bond Bills ................................................................................................ 51 Chapter 4: Capital Debt Affordability Committee ...................................................................................... 55 Chapter 5: Committee Recommendations ................................................................................................. 57 Appendix 1: Rule 17G of the Massachusetts House of Representatives, 2017-2018 Legislative Session .. 61 Appendix 2: Explanation of Terms .............................................................................................................. 63 Appendix 3: Capital Budget Transparency Data ......................................................................................... 66 Appendix 3A: FY2016-FY2017 Capital Project Spending by Bond Bill ..................................................... 67 Appendix 4: 2017-2018 Committee Oversight Hearing Schedule .............................................................. 89 i A Message from the Chairman The House Committee on Bonding, Capital Expenditures and State Assets is pleased to release this Report on Capital Spending & Borrowing that details the capital spending and borrowing activities of the Commonwealth during the 2017-2018 legislative session. In addition, the report provides a general review of the nature of capital budget spending executed by the Commonwealth in FY2016 and FY2017. While the Commonwealth’s operating budget undergoes thorough analysis and outside scrutiny on an annual basis, the capital budget process is often considered to be less understood, and ultimately, less critiqued. This report aims to provide context and transparency as it relates to state capital borrowing and spending, to evaluate trends and better inform future decision-making. The Massachusetts capital budget is a critical part of state government that operates as a long-term investment tool that funnels resources to benefit our communities’ economic and social fabric. This report is a product of the research and analysis performed by the Committee pursuant to Rule 17G of the Rules of the Massachusetts House of Representatives. The goal of this report is to inform the discussion among legislators and the public regarding the investment and borrowing choices that the Commonwealth must make annually. The Committee recommendations, contained in Chapter 5 of this report, emphasize that there are tools at the General Court’s disposal, to influence and guide how capital dollars are spent, that should be utilized. The Committee also recommends that the Commonwealth continue to focus on improving the capital asset and capital spending data available to both policy makers and the public. Progress has been made with the introduction of the Office of the Comptroller’s CTHRU Open Records Platform in the fall of 2016, which includes project-level capital spending data. I would like to thank the leadership and staff of each of the secretariats, agencies and authorities, who provided the Committee with thoughtful, in-depth presentations and data upon which this report is based. The Committee would like to specifically thank Secretary Michael Heffernan and Undersecretary Jennifer Sullivan at the Executive Office of Administration & Finance, Deputy Comptroller Howard Merkowitz at the Office of the Comptroller and Assistant Treasurer for Debt Management Sue Perez at the Office of the State Treasurer for their invaluable work and for making their knowledgeable staff available to us. I would like to thank Speaker Robert DeLeo, Majority Leader Ronald Mariano, and House Ways & Means Chairman Jeffrey Sánchez and their staffs for their assistance and support. I would also like to thank Committee Vice Chair Representative Ruth Balser and each member of the Committee for their active participation and contributions in fulfilling the Committee’s oversight function. Vice Chair Balser’s summer intern, Jacob Creem, also contributed to the data collection for this report. Finally, I offer my appreciation to my staff, Staff Director Dana DeBari, Committee Counsel Andrew Strumfels, and Research Analyst & Assistant Staff Director Kate Miller, for their dedication and insight throughout this legislative session. If you have any questions about the information in this report, please do not hesitate to contact my office. Thank you. Antonio F. D. Cabral State Representative, 13th Bristol District Chairman, House Committee on Bonding, Capital Expenditures and State Assets ii House Committee on Bonding, Capital Expenditures and State Assets 2017-2018 Committee Members Representative Antonio F. D. Cabral, Chairman Representative Ruth B. Balser, Vice Chair Representative Angelo M. Scaccia Representative James J. Dwyer Representative Kenneth I. Gordon Representative Daniel M. Donahue Representative Michelle M. DuBois Representative Mike Connolly Representative William Driscoll Representative David T. Vieira, Ranking Member Representative Kevin J. Kuros Committee Staff Dana DeBari, Staff Director Andrew Stru mfels, Committee Counsel Kate Miller, Research Analyst & Assistant Staff Director Rachael L. Scott, Administrative Assistant iii Executive Summary During the two fiscal years that this report covers, the Commonwealth spent approximately $6.82 billion on capital projects and related spending—$3.51 billion in FY2016 and $3.31 billion in FY2017. In addition, the Office of the State Treasurer spent roughly $3.9 billion over these two fiscal years, financing the bonds. The top three object class capital spending categories in both FY2016 and FY2017, inclusive of the Treasurer’s related spending, are as follows: (1) horizontal and vertical construction, improvements, maintenance and repair costs and land acquisition; (2) debt payment; and (3) grants and subsidies. Debt-related payments exceeded construction costs in FY2017. The Commonwealth’s capital spending is dictated largely by the administrative bond cap set annually by the Executive Branch. The cap on how much general obligation debt can be issued influences each secretariat’s budgeted capital spending. Frozen in FY2015 and increased by $65 million in FY2016, the bond cap has grown modestly over the Baker Administration’s first full term from $2.125 billion in FY2015 to $2.34 billion in FY2019. This bond cap schedule differs from the preceding Patrick Administration, which grew the Commonwealth’s capital plan by an identical $125 million each year of its second term. Meanwhile, the debt service to budgeted revenues ratio, over the same time period, has hovered well below the 8% self-imposed cap. In the summer of 2017, Massachusetts faced a credit rating downgrade from Standard