Massachusetts Governor Offers Budget With $300M Restructuring

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Massachusetts Gov. Deval Patrick yesterday released a $28.2 billion fiscal 2011 budget proposal that includes a plan to restructure up to $300 million of general obligation debt that otherwise would come due in fiscal 2011.

The debt restructuring would spread out principal payments over the next seven years pending legislative approval. Finance officials would seek to restructure $200 million of the debt before June 30, the end of fiscal 2010.

Jay Gonzalez, secretary of the Executive Office for Administration and Finance, said the state is also looking to refinance certificates of participation as GO bonds for present-value savings around the same time as the state heads to market with the GO restructuring. He anticipates the COP refunding savings will surpass the estimated $1.2 million the state will spend to restructure $200 million of debt.

“There is a refinancing opportunity that we have for savings,” Gonzalez said during a budget briefing with reporters. “The transactions might happen together or they might happen separately, but we are moving forward with the refinancing opportunity for savings. And when you take the two transactions together, the savings more than offsets the present-value costs of the debt restructuring.”

The state plans to select bonds that have the highest principal payments due in fiscal 2011 and are refundable, Gonzalez said.

In addition to the initial $200 million GO restructuring, A&F will consider restructuring another $100 million of GO debt depending upon October revenue collection results. The cost of that restructuring is $2.5 million.

Taking into account the $300 million GO restructuring, Massachusetts would pay $2.06 billion in total principal and interest costs in fiscal 2011, including debt-service payments on Massachusetts Water Pollution Abatement Trust bonds, Massachusetts Turnpike Authority debt, and bonds associated with Route 3 North roadway ­improvements.

Patrick anticipates closing a $2.7 billion fiscal 2011 deficit with $800 million of spending cuts, and $1.4 billion of combined federal stimulus funds from the American Recovery and Reinvestment Act and Federal Medical Assistance Percentages funds. In addition, the budget anticipates $608 million of additional FMAP funds in the second half of fiscal 2011, pending approval from Congress.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, questioned the overall increase in the budget from $27.41 billion in the current fiscal year to $28.2 billion in fiscal 2011. In addition, he pointed out that the state would be reliant on Congress approving $608 million of FMAP funds.

“I would say that’s the major risk in the budget and then the too-heavy dependence on one-time money which will have the effect of forcing additional budget cuts in fiscal 2012 because we will have virtually no one-time money remaining at that point,” Widmer said. “Federal stimulus will run its course, we’re down to less than $500 million of rainy-day reserves, and so forth.”

Patrick’s proposal calls for $175 million of rainy-day funds, $160 million of one-time additional federal medicare reimbursements, and land-sale proceeds of surplus state property. The governor also proposes temporarily limiting tax credits to the film and life science industries to generate $75 million and $25 million, respectively. Repeal of the sales tax exemption on candy and soda would give the state $51.7 million. A sales tax increase on smokeless tobacco and cigars would generate $15 million.

Officials anticipate tax revenue growth of 3.2% next year, with general fund gross tax revenue projected to total $17.93 billion in fiscal 2011. Patrick said he would again push an initiative to funnel capital gains tax collections in excess of $1 billion into the state’s rainy-day fund to provide a cushion for the state during economic downturns.

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