Affordable Housing. According to U.S. News and World Report, Massachusetts ranks as the best state in the nation in 2017, with top 5 scores in education, health care and economy. All around the state, there has been a resurgence in urban areas and revitalization of town centers. Massachusetts is a one of the most desirable places to live, but it is also one of the least affordable.
Like the rest of the nation, the average house price has risen back to pre-financial crisis peak levels. But house price appreciation in Massachusetts over the past 35 years has significantly exceeded the national average. While the average house price has increased fourfold in the U.S. since 1980, the average Massachusetts house is up sevenfold.
Since 2009, asking rents in the Boston metropolitan area have increased at an average annual rate of 3.6% to $2,169 per month. Over that same period, rents in the inner Boston core have risen at a 6.9% annual rate to $2,957 per month.
The increase in housing costs reflect both rising demand and a constrained housing supply. Annual housing production has fallen by more than 50% since 1970 to below 15,000 units annually. Across the state, nearly half of households are paying more than 40% of their income in rent. The burden of high housing costs falls disproportionately on lower income households.
Unfortunately, the prognosis for remedying this situation does not look good. Most of the projected growth in employment statewide is expected to be in lower paying occupations – like personal care aides, home health aides and cooks.
Massachusetts has several strategies for addressing this problem. It is speeding up the permitting process for housing sites in key areas, especially in targeted urban areas where housing costs are especially high relative to income. It also will make surplus public land available for affordable housing development.
The Commonwealth has committed $1.1 billion in its five-year capital plan to supports the development and preservation of affordable housing units and maintenance of public housing. The plan provides new funds to (1) preserve units with expiring Section 13A affordability restrictions; (2) redevelop public housing communities; (3) develop mixed-income and workforce housing; (4) develop through its Community Scale Housing Initiative (CSHI) small-scale (i.e. 5-20 units) multi-family projects (where at least 20% of the units reserved for households whose incomes are below 80% of the area median) and (5) develop supportive housing units for the homeless and disabled.
Medicaid. Massachusetts has the highest percentage (97%) of residents covered by health insurance in the nation. This is due to its Medicaid program, MassHealth, which was expanded under the Affordable Care Act and now covers 30% of the state’s residents. That high coverage rate does, however, come at a high cost: Medicaid spending accounts for 43.6% of the state’s budgeted fund spending. Medicaid spending totaled $15.25 billion in fiscal 2017, up 401 million or 2.7%. Since 2010, Medicaid spending has increased at an average annual rate of 7.3%.
From certain disclosures made in the Commonwealth’s fiscal 2016 financial reports, I estimate that federal reimbursement for Medicaid rose from $8.7 billion in fiscal 2015 to $9.8 billion in fiscal 2016, an increase of 12.3%. I further estimate that net spending (i.e. total Medicaid spending minus the federal reimbursement), increased from $4.9 billion to $5.1 billion. The data for fiscal 2017’s federal reimbursement estimate is not yet available, but federal reimbursement probably kept pace with the increase in total state Medicaid spending of 2.7%.
Given the moves by the Trump administration and congressional Republicans to repeal (and replace) the Affordable Care Act, Massachusetts is at risk of having to make significant cuts in its Medicaid spending (and therefore to its MassHealth program) in the future.
Massachusetts lost funding for the federal Children’s Health Insurance Program (CHIP) when the deadline for renewing the program passed on Sept. 30. The state had received $295 million annually for CHIP. Although there has been talk that the program will be renewed, no action has been taken to date.
Energy and Environmental Affairs. The goal of the Executive Office of Energy and Environmental Affairs (EEA) is to advocate on behalf of the environment without harming the economy. This requires addressing environmental concerns in the most cost-effective way possible. Massachusetts was the first state in the nation to combine energy and the environment in a cabinet position.
At the top of EEA’s list is preparing for the impact of climate change. It is pursuing aggressively projects to reduce greenhouse gases. It has also set carbon reduction goals for the state. However, in planning its programs, EEA must also consider the state’s high cost of electricity (fifth highest in the nation, despite leading the nation in energy efficiency). To that end, it is advocating installing 1,600 MW of offshore wind turbines south of Martha’s Vineyard.
Other EEA initiatives include:
Green Communities: 185 Massachusetts towns and cities, representing 64% of the state’s population, have signed up for the Green Community program, which provides technical and financial assistance to help communities find clean energy solutions.
Municipal Vulnerability Preparedness: The MVP grant program provides support for Massachusetts cities and town to begin the process of planning for resiliency in the face of environmental change (e.g. rising sea levels). The state provides funding for vulnerability assessments and the development of action-oriented resiliency plans. Communities that complete the program are eligible to receive additional grants to assist in the implementation of their resiliency plans.
MBTA. The MBTA issued its first sustainability bonds in October 2017. The deal was recognized as 2017 Northeast Region Deal of the Year by The Bond Buyer. Proceeds were used to fund projects that have distinct social and environmental benefits, such as the construction of a new seawall to protect an existing bus facility, implementing Positive Train Control technology to enhance the safety of the MBTA’s transit system, the construction of a handicapped accessible and environmentally efficient entrance to Government Center station and the purchase of new hybrid and CNG buses. The bonds garnered strong interest from underwriters and were priced at slightly tighter spreads to a simultaneous “plain vanilla” MBTA bond offering.
The MBTA’s 5-Year Capital Improvement Program (CIP) is focused on three core areas: (1) Reliability, (2) Modernization and (3) Expansion. $4.4 billion or 60% of its $7.4 billion CIP budget, is earmarked for reliability projects including upgrades of vehicles, stations, tracks, controls and bridge and tunnels. $1.4 billion or 18.7% will be devoted to modernization projects, including capacity and system improvements, accessibility and meeting Federal mandates. The remaining $1.6 billion or 21.3% is for expansion, primarily the extension of the Green line from Lechmere station in Cambridge to Somerville and Medford (Tufts University).
Nearly $4.0 billion of the $7.4 billion CIP will be funded by various programs and grants from the Federal government. The remaining $3.4 billion will come from state sources, including the planned issuance of $1.24 billion of rail enhancement bonds and $1.34 billion of revenue bonds. Despite the planned issuance of revenue bonds, the MBTA expects to pay down an equivalent amount of its existing debt ($1.3 billion) over the next five years.
The MBTA’s fiscal 2018 CIP budget has been set at $942 million, a 16.2% increase from fiscal 2017.
Since the Fiscal Management and Control Board was put in place in 2015, the MBTA has stepped up its focus on improving operating efficiency. Its goal has been to hold the line on operating costs without cutting services. It has met this goal by pursuing numerous initiatives, including adopting zero-based budgeting, reducing corporate and administrative staff positions, renegotiating labor contracts, placing limits on overtime and enforcing attendance policies and refinancing its outstanding debt.
The MBTA also made progress against other key objectives. It achieved revenue growth through rebidding parking and advertising fee contracts and increasing the average fare by 9.3% system-wide (while reducing cash bus fares). It accelerated its capital investment program to address pressing problems with system reliability. Major accomplishments in this area include: accelerating winter resiliency projects (e.g. replacing ties and track, upgrading third rail insulation, purchasing new portable emergency generators), replacing most of its fleet of Red line subway cars, replacing one-third of the bus fleet with 375 new hybrid and CNG buses, modernizing the automated fare collection system and re-engineering the Green Line extension project (to reduce its cost). The MBTA has also upgraded its internal operating systems and replaced 40% of its executive management team.
Despite the performance improvements, ridership on the system is down modestly, consistent with the general trend in public transportation ridership across the country.
December 16, 2017
Stephen P. Percoco
Lark Research, Inc.
839 Dewitt Street
Linden, New Jersey 07036
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