Report urges state to borrow, fix infrastructure
Sam Bonacci
The state is being urged to invest in construction while interest rates remain low.
Massachusetts should address its infrastructure needs by taking advantage of low interest rates and borrowing more money to make capital investments, the House committee that tracks capital borrowing and spending concluded, though some budget watchers said additional borrowing could put the state in a tough spot.
In a report released last week, the House Committee on Bonding, Capital Expenditures and State Assets concluded that because of low interest rates and the state's AA+ bond rating, the cost of long-term borrowing "has not been as cheap as it is now in the lifetime of most people working in Massachusetts."
The committee's chairman, Rep. Antonio Cabral of New Bedford, told the News Service that it would be a missed opportunity if the state does not increase borrowing while the cost is so low.
"To let this opportunity go by will put us further behind in terms of all the infrastructure needs we have in the state and that our communities across the state have," Cabral said, making specific note of the stalled South Coast Rail project. "I think because of that and because of the historical low rates and historical low cost of borrowing ... I think we should engage in a very serious discussion on how can we better benefit from this opportunity."
Cabral acknowledged that increasing how much the state borrows would also mean an increase in the state's debt payments, one of the larger line items in an annual operating budget approaching $40 billion. But the chairman said he thinks the increase in borrowing would have "somewhat of an impact, not a great impact" on the operating budget.
An official from the Massachusetts Taxpayers Foundation (MTF) disagreed, and said the state's ability to borrow more is hampered by a number of factors.
"Theoretically, with low interest rates, sure it's a good time to borrow in a vacuum," Andrew Bagley, vice president for policy and research at MTF, told the News Service. "But we're up against the debt limit, we have an operating budget from which we just had to carve out $650 million in FY16, there are concerns about whether revenues will show up and we have debt service costs that go up every year."
At $2.64 billion, the fiscal 2017 debt service allocation is up $640 million -- or 30 percent -- over fiscal 2008, according to MTF.
"It's a hard time to argue that we really should be borrowing more, even though we sure do have enormous capital needs," Bagley said.
Massachusetts has a statutory limit that caps the total amount of outstanding direct state debt. The limit is fixed at $21.786 billion for the current fiscal year and as of April 30 the state had approximately $20.9 billion in outstanding direct debt, according to state financial disclosure statements. The limit automatically increases by 5 percent each year but can also be increased by a vote of the Legislature.
Executive branch budget officials had projected that Massachusetts would hit the debt ceiling for the first time this fiscal year, but in July said updated projections now show the state remaining just under the limit this fiscal year and bumping up against it in fiscal 2018.
Cabral advocated for a "cautious and prudent" approach to increasing borrowing and told the News Service hitting the debt ceiling is a possibility "depending on how we manage the capital budget ... and also which projects will be under the cap and which ones will be outside the cap. There are a number of those, especially those big investment projects, that would be outside the cap."
The Legislature, on the last day of formal sessions this year, exempted from the debt ceiling large amounts of borrowing authorized in the 2014 transportation bond bill, including the Rail Enhancement Program (REP), which budget trackers pointed to as a main reason the state is fast approaching its debt ceiling.
That exemption, Cabral said, should give the state some wiggle room under the borrowing limit.
After at least five years of $125 million increases under former Gov. Deval Patrick, the maximum allowable amount, the Baker administration held capital spending flat for fiscal year 2016. And for fiscal 2017, the Capital Debt Affordability Committee determined that the state can afford to issue $2.19 billion of bonding for capital spending, an increase of about $65 million or 3 percent.
The chairman said he hopes he and the rest of the Legislature can have a "discussion, if not debate" on increasing capital borrowing, as well as the other recommendations from his committee's report.
The report calls for the administration to collect and make available more detailed data on capital projects, so lawmakers and the public can track how money in the capital budget is being spent. The committee also makes the case for the Legislature to play a more hands-on role with the capital budget, and for an expansion of the membership and resources for the Capital Debt Affordability Committee.
"We cannot identify the capital projects most in need of funding without accurate data," Cabral said. "Presently, neither the Legislature nor the public has the necessary data to determine what major pieces of state infrastructure are most in need of investment and how much that investment is likely to cost."
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