Massachusetts exceeding $2 billion in its rainy-day fund for the first time in 11 years is a major plus for the commonwealth, according to state Treasurer Deborah Goldberg.
"Given the uncertainties in our world-wide economies, this is excellent progress," Goldberg said at the eighth annual Massachusetts Investor Conference at the Boston Convention and Exhibition Center.
Massachusetts in late June deposited $322 million into its stabilization account. State law requires diversion of excess capital gains into the fund.
One year earlier, S&P Global Ratings downgraded Massachusetts to its third-highest tier, to AA from AA-plus. S&P, in the first downgrade of the commonwealth's GOs in 23 years, cited the failure by state officials to not follow through on rainy-day replenishment despite economic growth above the national average and through prolonged expansion.
In addition, Massachusetts expects a windfall from new marijuana tax revenue. State revenue Commissioner Christopher Harding said the marijuana industry could corral $93 million to $172 million in for fiscal 2020.
Fitch Ratings and Moody's Investors Service rate Massachusetts GOs AA-plus and Aa1, respectively.
Massachusetts' healthy economy for now outweighs its high legacy costs, said Alan Schankel, a managing director with Janney Capital Markets. According to Moody's, they surpass the national average.
"They never talk about their debt and liability levels, which are pretty high," said Schankel. "It's a concern, although their economy is doing better than most states. They have a lot of things going with tech and 'eds and meds'. Whether that continues remains to be seen."
Federal tax cuts resulted in many one-time tax payments and account for most of the state's $1 billion-plus surplus for fiscal 2018, said Michael Goodman, executive director of the Public Policy Center at the University of Massachusetts, Dartmouth.
Schankel warned that many states could develop a false sense of security over the one-time revenue.
"You need to worry about that," he said. "You don't want to count next year's chickens."
Goldberg, a Democrat, and Gov. Charlie Baker, a Republican, said they will continue to work together on economic matters. Voters re-elected both to four-year terms in November.
"We have a very collaborative environment here in the commonwealth," Baker told investors on a conference call. Adding to the rainy-day fund, said Baker, "speaks to the high level of bipartisanship, creativity and cooperation between the branches of government."
Baker, a moderate Republican, works with a heavily Democratic legislature.
"Massachusetts is essentially an east coast Democratic blue state," said Schankel. "If the Republican governor wants to get anything done, he has to work with his legislature."
Goldberg also cited the growth of the Pension Reserves Investment Management fund to $72 billion, calling it "one of the top performing in its class." The American Investment Council recently ranked PRIM first in private equity returns among 163 U.S. public pension funds based on 10-year performance.
She also referenced the commonwealth's proxy voting guidelines requiring that 30% of the corporate boards have women and diverse directors, that no director can serve on more than four corporate boards at a time, and that companies continue to provide protections to gay and lesbian employees.
"[They] are all based upon sound business judgment. And the research by McKinsey, State Street, and Pew, to name a few, supports this," she said.
Goldberg, incoming senior vice president of the National Association of State Treasurers, said NAST would lobby hard to maintain the tax-exempt status of municipal bonds and to restore advanced bond refundings, which the federal tax-cut law eliminated.
Massachusetts and the nation rely increasingly on foreign-born workers, said Goodman, who called tariffs "a lose-lose proposition for most market participants."
In many respects, he added, Massachusetts is as well-positioned as any state to ride out whatever comes next, while adding: "Our policy options in the next recession will be highly limited."
