Massachusetts brings GO bond refunding to market

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Massachusetts intends to come to market Wednesday with its $178.2 million competitive sale of general obligation refunding bonds.

PFM is financial advisor. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel.

Moody’s Investors Service rates the bonds Aa1, while Fitch Ratings and S&P Ratings assign AA-plus and AA, respectively. All three assign stable outlooks. Maturities will run from 2020 to 2031.

Massachusetts sold $700 million of GOs last month. The commonwealth ranks sixth in debt issuance among the states this year, having sold $5.25 billion. It ranks behind California, Texas, New York, Florida and Pennsylvania.

In August, the commonwealth intends to sell up to $1.5 billion of revenue anticipation notes, followed by a September sale of $600 million in fixed-rate, tax-exempt new-money bonds. Later in the fall it intends to issue $225 million under the Commonwealth Transportation Fund's rail enhancement program.

S&P cited Massachusetts’ second-highest per capita income among the states at 131% of the nation in 2017. The commonwealth’s stabilization, or rainy-day fund balance equals an estimated 4.5% of expenditures and other uses at fiscal year-end 2018, with a 5.4% projection for fiscal year-end 2019.

The proposed budget anticipates a $297 million deposit to the rainy-day fund, for fiscal 2020.

“Tax-supported debt and net pension liabilities, recalculated based on a 6% discount rate, are high for a state but represent only a moderate burden on resources,” Fitch said.

The commonwealth’s role in funding local capital needs, according to Fitch, partly accounts for Massachusetts’ comparatively high debt.

The bond sale comes as a legislative concurrence panel plans to negotiate the commonwealth’s proposed $42.7 billion fiscal 2020 budget. It is due July 1 but Gov. Charlie Baker didn't sign last year's $41.2 billion spending plan until July 26.

Under Massachusetts law, the three members each from the House of Representatives and Senate meet to reconcile their approved budget versions before sending the final version to Baker.

Unlike the House plan, the Senate is calling for new taxes on prescription opioid manufacturers and on sales of vaping products. The Senate is also proposing a one-year freeze on tuition and fees at the University of Massachusetts, while both chambers would fund the system at the same level.

Meanwhile, the legislature’s joint committee on education is working on a bill to overhaul the state’s school funding formula, a concept on which Baker and leaders of the House and Senate agree.

Target areas for increased spending are special education, employee health insurance, English language learners and poorer districts.

Additionally, the Senate is targeting $90.5 million for 15 regional transit authorities, including $4.5 million in incentivized grants to encourage modernization. A task force on regional transit authority performance and funding called overall service quality “highly variable.”

Recommendations in its draft report included maintaining local control of daily operations and management, while standardizing performance metrics for level and quality of service and increasing regional collaboration.

"Unpredictable funding has limited efforts to improve innovation and modernization to meet 21st century demands," the report said.

Separate from the Massachusetts Bay Transportation Authority, the RTAs serve Worcester, Springfield, Cape Cod and diverse communities in the Berkshires and Franklin County.

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Primary bond market State budgets Charlie Baker Commonwealth of Massachusetts Massachusetts