State lawmakers are considering spending more on infrastructure projects for things like roads, bridges, parks and other government assets, but a tight annual budget means there may not be enough cash to pay for more big projects.
The House committee overseeing borrowing and capital spending heard from the Baker administration and outside experts on whether or not to increase the state’s bond cap - essentially borrowing more now in order to spend more over the next few years on crucial infrastructure projects.
“Not how much that should we have, but how much investment should we be making. How should we measure the right level of investment? How should we weigh the trade-offs between potential returns on our infrastructure investments and the costs to taxpayers needed to support those investments?” Rep. Antonio Cabral asked in opening remarks at a hearing of the committee he chairs, the House’s Bonding, Capital Expenditures and State Assets Committee.
Time could be of the essence when it comes to borrowing money against the state’s immaculate bond rating. On Wednesday, the Federal Reserve was expected to raise interest rates for only the second time since 2006. Federal Reserve chair Janet Yellen may see the increase as a way to shore up the steady economic recovery, but higher rates make borrowing just a bit harder for lendees like the Commonwealth to pay back.
But increasing how much the state borrows each year also means increasing how much the state has to pay back each year. Debt payments come out of the state’s annual operational budget, the nearly $40 billion spending plan that gets tighter and tighter each fiscal year.
Incoming state revenues have performed poorly for much of the last few months, which has led legislative budget leaders and the Baker administration to reevaluate just how much the state will have to spend on next fiscal year’s budget.
Cabral remarked at the hearing that additional debt payments could be “somewhat of an impact, not a great impact” on the state’s annual operating budget.
Rising interest rates could be a problem for the federal debt as well. A new report from the Committee for a Responsible Federal Budget said that interest on payments for borrowed money, the fastest growing part of the federal budget, could add $1.5 trillion to the nation’s debt over the next decade.
“The government spent more on interest in 2016 than on veterans and homeland security or education, transportation, labor and housing. By 2023, it’ll spend more on interest than Medicaid, and by 2027 it’ll spend more on interest than defense,” the Committee’s Patrick Newton wrote in a press release on the report.
“As we all know, the president-elect campaigned on a platform of significant new capital investment to the federal investment, and infrastructure investment was one of the few issues that united virtually the entire political spectrum,” Cabral said, adding that investing in infrastructure connects “workers to jobs, connects residents to affordable housing, connects students to learning, and makes government more responsive to residents. Massachusetts has huge public infrastructure investment needs.”
Not everyone in the Legislature agrees with Cabral that increased debt payments won’t overly-burden the budget. In a recent Facebook post, Rep. James Lyons (R-Andover,) a conservative budget hawk, tied Democrats’ spending to recent emergency budget cuts Baker made in light of the lower-than-expected revenues.
“The insiders on Beacon Hill continue to complain about the recent budgets cuts. In addition to state spending increasing by 50% the state debt is also increasing,” Lyons wrote, citing a State House News Service article that pegged spending on debt service at $640 million in the current fiscal year, an increase of 30 percent since fiscal year 2008.
“There is never enough money for the political power brokers and insiders on Beacon Hill,” Lyons wrote.
The state’s Debt Affordability Committee will issue a report this week about how much additional debt the state is expected to be able to afford next fiscal year.
“We also take very seriously the responsibility that our growth trajectory on the capital budget must be set at sustainable levels ... we have to balance our needs with our available resources, preserve that flexibility in the discretionary budget that is so essential,” said Jennifer Sullivan, the Executive Office of Administration and Finance’s Assistant Secretary for Capital Finance.
[Material from the State House News Service was used in this report.]
