With an unprecedented cache of federal dollars on the table, Massachusetts officials need to find at least $800 million more in matching funds if the state wants to compete for federal cash for its own punch list of infrastructure projects and other big-ticket priorities, warns a new watchdog report.
Federal programs usually require the state to contribute a share of funding — typically about 20 percent — when applying for grant money. That, the Massachusetts Taxpayers Foundation estimates in a new report, could total at least $2.7 billion, if Massachusetts wants to meet the requirements laid out by programs funded under a wave of pandemic-era federal laws.
But while the state has already identified how it will cover a large chunk of that through borrowing, it still has a gap of about $800 million, the report finds. And because policymakers are hitting self-imposed limits on how much they can borrow each year to spend on capital projects, they’ll likely have to cobble together huge swaths of the remaining money from other sources, according to the report.
That could pose a challenge as Governor Maura Healey and lawmakers grapple with slowing tax revenue and an array of spending demands.
“It’s something we have to do if we want to get what we can from these resources,” said Doug Howgate, president of the Massachusetts Taxpayers Foundation, which is urging lawmakers to, among other things, use one-time resources that aren’t currently tied to specific spending. The report also suggests the Legislature give the Healey administration the flexibility to access funds outside the typical legislative process, which can be cumbersome and unpredictable.
“It’s a way for us to take the lead, compared to other regions, by having a more coordinated, thoughtful strategy that can be nimble,” Howgate said.
Identifying matching funds is crucial. The state is already pursuing billions of dollars in federal funds to help pay for major projects, including realigning the Massachusetts Turnpike in Allston or replacing the aging bridges that cross the Cape Cod Canal. The state’s initial bid for federal funds to replace the Sagamore and Bourne bridges, for example, failed in part because the state didn’t have a “full financial plan,” prompting Healey to double the state’s commitment to $700 million.
An infusion of federal funds could also help the state realize its lofty climate change goals, or keep its status as a hub of biotech research, according to the report from the Mass. Taxpayers Foundation.
The report, due to be released Thursday, does not pick specific projects the state should prioritize. But it identifies nearly $17 billion in federal funding the state could pursue in the coming years, most of which — about $14 billion — falls under the Infrastructure Investment and Jobs Act, the 2021 law that marked the largest investment in traditional infrastructure in decades.
The state has made headway in identifying the estimated $2.7 billion in matching funds necessary to go after the federal dollars. Built on two different borrowing bills the Legislature has passed, Healey’s five-year capital plan identified more than $1.8 billion the state could use as matching funds toward infrastructure or other projects. Nearly all of it is concentrated in the Department of Transportation, according to the foundation’s report.
That leaves roughly $800 million the state has yet to formally identify. The number could fluctuate, increasing if the state scores more grants than expected or dropping if officials choose not to pursue as many. But it’s likely to be significant, and given the state caps how much debt it can absorb for capital projects, policymakers likely won’t be able to fill the gap through borrowing alone, according to the report.
Healey’s budget office appeared to agree with the foundation’s findings. Matthew J. Gorzkowicz, the governor’s top budget aide, said in a statement that the report “did an excellent job outlining the challenges and opportunities” in front of the state, and added that the administration is “actively exploring state matching-fund strategies to put Massachusetts in the best position to compete.”
The report pointed to several options, including tapping a $1.4 billion trust fund the state created using past budget surpluses, or funneling a portion of the revenue raised by the state’s so-called millionaires tax toward matching funds.
The state budget Healey signed in August specifies how $1 billion raised by the new surtax should be spent, including helping pay for universal school lunches, addressing safety concerns at the MBTA, and covering tuition for some community college students. But should the surtax bring in revenue above the $1 billion threshold this year, the excess flows to two newly created accounts, one of which is geared specifically toward capital spending.
The state could also divert money that otherwise would flow into its emergency savings account, known as the Rainy Day Fund. That, according to the foundation report, could be an “appealing option” because it wouldn’t affect the state’s operating budget, and it could backfill a planned deposit in other ways.
The Rainy Day Fund is also more flush than it’s ever been. With $8 billion currently in the fund, the state in three years has more than doubled what it can tap in case of an economic crash.
The state could also create new capital financing programs that aren’t bound to the state’s so-called bond cap, similar to a temporary bridge infrastructure program the state created 15 years ago. That would also require the state to take on more debt.
Either way, the report urges, the state should have a plan. Federal grant opportunities tend to be “posted sporadically” over multiple years, and relying solely on specific bills to identify the money — which then would need to churn through the Legislature, which is not known for speed — could hamstring the state.
“You’re going to need a mix of capital and operating resources, which is a little unusual,” Howgate said. “We know we’re going to have significant state resources that the state will need to bring to bear. And we know these things are going to happen on timelines that are going to be impossible to predict.”