Mass. to Sell $400M in GO Bonds, $1.2B in Notes

bb092112ma-600.jpg

Massachusetts will sell $400 million of general obligation bonds on Tuesday and $1.2 billion of GO revenue anticipation notes two days later, both competitively.

The Series 2012C bond sale represents the commonwealth's first borrowing in fiscal 2013 and the only borrowing in this quarter.

Proceeds from the fixed-rate bonds will fund the capital budget, with officials expecting to release its updated five-year capital improvement plan this fall. Public Resources Advisory Group is the financial advisor.

Next Thursday's note sale, with Public Financial Management Inc. advising, involves two series. It represents Massachusetts' only cash-flow borrowing for fiscal 2013, according to Colin MacNaught, the assistant treasurer for debt management. Massachusetts has set a minimum bid size of $50 million to increase the number of bids its receive. According to MacNaught, a smaller size brings in more small firms to bid.

"We believe our cash-flow position remains strong," MacNaught said on an investor conference call Tuesday. Cash-flow projections are at or above $1 billion month-end throughout 2013, according to the presentation.

Massachusetts has sold Rans the past three years. It does no inter-fund borrowing.

Closing for both the bond and note sales is Oct. 3. Maturities will run from 2027 to 2042 on the bond sale, with maturities for the Rans set for April and May 2013.

Moody's Investors Service rates Massachusetts GO bonds Aa1, while Fitch Ratings and Standard & Poor's assign AA-plus.

"The commonwealth has benefited from conservative budgeting and sound financial practices over time," Fitch said in a report, released Friday. "A limitation on the use of capital gains-related tax revenue has reduced the volatility of economically sensitive revenues, and the commonwealth has shown a commitment to reserve funding."

The commonwealth's five-year capital plan calls for borrowing of roughly $1.9 billion though GO bonds, and an additional $489 million though the accelerated bridge program.

Massachusetts follows a debt affordability policy tied to its five-year capital plan. Debt service does not exceed 8% of budgeted revenues in any given year and the total increase in a given year must not exceed $125 million.

"When we report debt, we include all general obligation, special obligation, and other tax-supported debt, such as full faith and credit liabilities. We report debt fully without off-balance-sheet transactions," Scott Jordan, Massachusetts Treasury's deputy secretary for capital finance, told investors.

Gov. Deval Patrick in July signed Massachusetts' $32.5 billion budget for fiscal 2013, an estimated increase of 4% over the previous year. About 7% of state spending is on debt service.

Although one-time resources included a $350 million withdrawal from its stabilization, or rainy-day fund, Massachusetts still projects a $1.3 billion fund balance by the end of fiscal 2013. The state ranks fourth in the nation in rainy-day surplus.

The economic journal MassBenchmarks said European instability, slowing growth in China, weak growth in the U.S. economy and uncertainty about a "fiscal cliff" in 2013 all pose challenges to the Bay State. "However, having a lower unemployment rate and a relatively better recent economic performance compared with the nation as a whole will probably give the Massachusetts economy a slight edge over some other states," Kazim Ozyurt, director and chief economist for the Department of Revenue's tax policy analysts division, told investors.

Massachusetts has also taken measures to cope with its high unfunded pension and other post-employment benefit liabilities. According to a June report by the Pew Center on the States, the commonwealth in 2010 only paid 65% of the recommended contribution to its pension plans and just 32% to fund retiree health benefits.

Beginning in fiscal 2013, Massachusetts will transfer 10% of annual tobacco settlement payments it receives to the state retiree benefits trust fund, projected to be roughly $27.6 million in fiscal 2012, with the deposit amount to increase by 10% increments annually thereafter until all benefits are transferred to that fund.

Walter St. Onge of Edwards Wildman Palmer LLP is bond counsel. John Regier of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is disclosure counsel.

For reprint and licensing requests for this article, click here.
Massachusetts
MORE FROM BOND BUYER