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Bay State Looking Positive

Standard & Poor’s revised Massachusetts’ outlook to positive from stable Monday based on strong management practices as the state prepares $146.3 million of SIFMA-index refunding bonds.

The rating is AA.

All three major rating agencies in recent reports noted the commonwealth’s conservative budgeting and “swift action” in balancing its spending plans during the recession. Officials quickly implemented additional spending cuts and revenue increases once tax receipts began coming in below expectations.

The state has maintained its stabilization fund and expects to have $569 million of rainy-day funds at the end of fiscal 2012 — a credit positive — after using $200 million to help balance next year’s budget. Fiscal 2012 begins July 1.

“The outlook revision is based on the commonwealth’s ongoing progress in improving financial, debt, and budget management practices, while at the same time implementing cost control and reform measures associated with its long-term liabilities,” Standard & Poor’s analyst Robin Prunty said in a statement.

Massachusetts has an unfunded pension liability of $19.98 billion and an actuarial accrued other post-employment benefits liability of $15.1 billion. While those obligations are relatively high, the state has been “actively managing” them, according to Standard & Poor’s.

In June 2009, the state passed a pension reform initiative to end loopholes and abuses within its retirement system. Gov. Deval Patrick last month released another round of changes to the pension system, including boosting the retirement age, increasing some employee contribution levels, and ending early-retirement subsidies. Officials estimate the pension reform proposals will generate $5 billion of savings during the next 30 years.

“I welcome this latest recognition of our team’s successful fiscal management,” Patrick said in a statement. “By making wise choices we are able, unlike many other states, to continue making critical investments in our schools, roads and bridges, and housing to build a stronger, lasting recovery.”

Moody’s Investors Service and Fitch Ratings rate the state’s nearly $18 billion of debt Aa1 and AA-plus, respectively.

“This news reaffirms how prudent, responsible, and sound our newest pension reform efforts have been,” Treasurer Steve Grossman said in a statement. “Addressing all of the state’s long-term obligations, while nurturing and maintaining the ­ongoing economic recovery, is a careful balancing act, but with this upgrade, you can see that the reforms we are undertaking are already paying dividends.”

Grossman was sworn in as treasurer last month after winning election in November. He has asked Colin MacNaught to continue in his position as assistant treasurer for debt management, according to Treasury spokesman Barry Nolan.

Morgan Stanley will price Wednesday $146.3 million of refunding bonds based off of the SIFMA index. The transaction will roll over SIFMA notes the state issued last year to advance refund variable-rate demand bonds sold in 2005. Attached to the bonds is a derivative in which Massachusetts receives a payment from the counterparty based off of the SIFMA municipal swap index and pays a fixed rate in return.

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