Hi Rain! “Projects” is a noun here. “listed as encouraged by the state” is a reduced relative clause used to describe the noun before it. The full version would be “projects that are (or have been) listed as encouraged by the state. Some people might also analyze “encouraged by the state” as a reduced relative clause, but I think it’s simpler to say that “encouraged” is an adjective, and “by the state” is a prepositional phrase serving as an adverb to modify “encouraged”. For further information, your search term is “ESL reduced relative clauses”.

Projects that the State has considered higher priority or interest? Is that what you mean?