Construction Costs Soar in Massachusetts, Leading to Increased Borrowing for Capital Spending, US

Construction costs in Massachusetts have surged over the past two fiscal years, resulting in a significant erosion of the state’s capital investment plan, according to a panel of state finance experts. To address this issue, the panel has recommended the largest increase in borrowing for capital spending in at least a decade. The Capital Debt Affordability Committee has proposed a $212.2 million or 7.3% increase in general obligation debt for capital spending in fiscal year 2025. The committee cited construction cost inflation as the primary driver for the increase, noting that the growth of the Capital Investment Plan has not kept pace with escalating costs. Various public projects across the state, including higher education capital projects and infrastructure upgrades, have experienced significant budget gaps due to the surge in construction costs. The committee’s recommendation aims to address these challenges and enable targeted investments in the state’s infrastructure. The committee also highlighted a Division of Capital Asset Management and Maintenance report, which revealed that construction costs for public projects in Massachusetts have outpaced the national average by 18% to 20% in the last 24 months. Factors such as labor market conditions and changes in building and energy codes have contributed to the increased costs. By increasing borrowing, the committee aims to ensure that Massachusetts can meet its capital needs while keeping debt service and outstanding principal within long-term targets. The state’s debt limit is set to increase to $32.188 billion in fiscal 2025, allowing for continued investment in key infrastructure projects.