Governor Deval Patrick's Five Year Capital Investment Plan FY2011 - FY2015

Governor's Capital Investment Plan FY2011

Fiscal Year 2011-2015 Debt Issuance Modeling

In analyzing potential levels of debt issuance to fund the Commonwealth’s capital spending plan for the next five years, the Patrick-Murray Administration has made the following conservative and fiscally responsible assumptions:

  • Timing of DebtAll debt issued to fund the capital spending program, including the Bridge Program, is assumed to be issued at the start of the fiscal year in which it will be spent.  This assumption is conservative for modeling purposes, as it results in the debt service impact of bonds issued in a fiscal year being assumed as early as possible. 

  • Term of Debt.  Although the Commonwealth has the statutory authority to issue virtually all of its authorized debt for a term of up to 30 years and the useful life of significantly more than one-third of the Commonwealth’s annual capital investments are for assets with a useful life of 30 years or longer, the Administration has adopted a policy of issuing not more than one-third of the debt it issues each year to fund the regular capital program for a term of 30 years.  Consequently, this analysis assumes that one-third of the debt to be issued each year to fund the regular capital program will have a 30-year term and two-thirds of the debt to be issued each year will have a 20-year term.  For the Bridge Program financing, all of the federal grant anticipation notes are expected to be paid by fiscal year 2022 and this analysis assumes that one-third of the special obligation gas tax bonds will have a 30-year term and two-thirds will have a 20-year term. 

  • Interest Rates.  The interest rate used for 20-year debt and for the federal grant anticipation notes for the Bridge Program is 4.55%, which was the rate used in the Debt Affordability Analysis performed last year, and which reflected the average of the prior 24 months of the Bond Buyer 11 Index[14].  Due to existing economic conditions and actions of the Federal Reserve, current interest rates are very low compared to historical averages, and we decided to use the higher and more conservative rate.  (The chart below tracks the Bond Buyer 11 Index for the 24-month period ending August 12, 2010; the average during that period was 4.41 %, and the rate at the end of the period was 3.80 %.)  The interest rate used to model the 30-year debt is 4.85%, reflecting the approximate spread between 20 and 30-year general obligation bonds according to municipal market data published in The Bond Buyer. 

    Chart tracking the Bond Buyer 11 Index for the 24-month period ending 8-12-10; the average during that period was 4.41 %, and the rate at the end of the period was 3.80 %

  • Principal Amortization.  Consistent with past practice by the Commonwealth, the principal on bonds issued for a 20-year term is structured to result in level annual debt service payments over that 20-year period and the principal on bonds issued for a 30-year term is structured to result in level annual debt service payments over that 30-year period.  The principal on the federal grant anticipation notes issued to finance a portion of the Bridge Program is assumed to be payable in the aggregate amount of $150 million each year in fiscal years 2015 through 2022.

  • Unused Bond Cap.  This analysis assumes that there will be no unused bond cap in fiscal year 2011 or any future fiscal year that will be carried forward and available for spending in a subsequent year.

In setting the annual administrative bond cap, the Administration has established a policy which sets a cap that will ensure debt service does not exceed 8% of annual budgeted revenues.  By keeping total annual debt service within this limit, the Administration will be able to maximize needed capital investments while ensuring that debt service levels remain affordable. 

For purposes of constraining growth in debt, the Administration has placed another restriction on its debt capacity model: growth in the annual bond cap for the regular capital program is limited to not more than $125 million each year (excluding carry forwards of unused bond cap from prior years).  This limit will apply even if in some years the actual revenue growth projection provides capacity to issue a greater amount of debt.  This additional constraint ensures stable and manageable growth and avoids taking on an unaffordable long-term debt burden on the basis of unusually robust short-term revenue growth. 

The table below shows the level of annual bond funding planned to meet projected capital investment needs to be funded within the bond cap and Bridge Program.


Table 7
Capital Spending
Fiscal Years 2010-2015
Fiscal Year Bond Cap Bridge Program
2010 1,650,000206,872
2011 1,625,000293,739
2012 1,750,000492,964
2013 1,875,000604,857
2014 2,000,000564,732
2015 2,125,000425,413


As shown in Table 8, funding the annual bond cap and the Bridge Program in the amounts shown above, together with the existing obligations, results in total annual debt service as a percent of budgeted revenues that is within the 8% limit described above[15].


Table 8
Projected Annual Debt Service as a Percentage of Budgeted Revenues
Fiscal Years 2010-2015
Debt Service
Fiscal Year Total Existing Obligations Cumulative New Debt Service from Annual Bond Cap Less Self Supporting Projects Cumulative New Debt Service from Bridge ProgramTotal Annual Debt Service Budgeted Revenue Growth 2.75% per year after FY11 Less Self Supporting Projects Total Annual Debt Service as % of Revenues
2010 2,125,808-1,64802,124,16029,123,7527.29%
2011 1,901,60931,79214,2111,947,61229,989,5116.49%
2012 2,079,707142,52556,7072,278,93930,804,9867.40%
2013 2,083,408261,93095,7152,441,05331,642,7767.71%
2014 1,996,052390,221131,6192,517,89232,503,7227.75%
2015 1,935,806527,769159,5862,623,16133,388,8387.86%


The annual bond cap amounts reflected in the table above are less than had been previously projected in FY08-12 and the FY09-13 Plans published by the Patrick-Murray Administration.  The reduction in the annual bond caps is a function of the Administration’s disciplined approach to debt management through its formal debt affordability analysis and policy.  The debt affordability analysis and policy ensure that planned borrowing to fund capital investments is periodically adjusted to take into account the Commonwealth’s fiscal condition and capacity to pay debt.  The following table shows the reductions in the annual bond caps from the Administration’s original five-year capital spending plan resulting from the application of the Administration’s debt affordability analysis and policy.


Table 9
Bond Cap Compared with Prior Capital Investment Plans
Fiscal Year FY08-12 Plan FY11-15 Plan Difference Between
FY11 and FY08 Plans
2008 1,661,0001,319,600-341,400
2009 1,625,0001,521,000-104,000
2010 1,750,0001,650,000-100,000
2011 1,875,0001,625,000-250,000
2012 2,000,0001,750,000-250,000
2013 2,000,0001,875,000-125,000
2014 2,000,0002,000,0000
2015 2,000,0002,125,000125,000
Total -1,045,400


The Patrick-Murray Administration will revisit the assumptions underlying this affordability model each year as part of the development of the following fiscal year’s capital plan to adjust the model’s assumptions as needed to reflect new trends in revenue growth, interest rates, and other factors.  The Administration will also reassess the debt capacity model as a whole, including the limitations of keeping debt service below 8% of budgeted revenues and of keeping maximum annual bond cap increases for the regular capital program to the levels prescribed in this report, to ensure that it continues to be an appropriate and responsible model for measuring the Commonwealth’s debt capacity in the future.


[14] The Bond Buyer 11 Index tracks the interest rates of 11 issues of 20-year municipal debt with a double-A credit rating.

[15] Table 8 excludes debt service on infrastructure development projects, fire fighting academy projects and energy efficiency projects which are self-supporting and funded with incremental new tax revenues, assessments and budgetary savings, respectively.  Table 8 also excludes an equal amount from Budgeted Revenue.  (See Table 6.)

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