Massachusetts nears close on $1 billion working capital borrowing

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As states scramble to assess cash-flow and borrowing needs amid the COVID-19 pandemic, Massachusetts is about to close on a working capital borrowing facility of more than $1 billion with a syndicate of banks led by Bank of America, state Treasurer Deborah Goldberg said.

“This facility should be able to provide us with flexibility to draw down funds when we need them during this period of deferred tax revenues,” Goldberg said Tuesday during a virtual economic roundtable with the legislature’s House and Senate ways and means committees and the Executive Office for Administration and Finance, led by budget Secretary Michael Heffernan.

“The pre-pandemic credit of an issuer will largely determine its ability to withstand this crisis and its eventual recovery," said Massachusetts Treasurer Deborah Goldberg.

Massachusetts moved its income tax filing deadlines to July 15, from April 15, to align with the shift in federal tax deadline.

“It will also provide us with security as we manage through the volatility in the capital markets, especially the short-term liquidity market, and our annual issuance of [revenue anticipation notes],” said Goldberg, who is also president of the National Association of State Treasurers.

In addition, said Goldberg, pending legislation would authorize the commonwealth’s borrowing flexibility to manage deferred revenue this fiscal year and repay it in the next.

Fitch Ratings rates the commonwealth's general obligation bonds AA-plus, while S&P Global Ratings and Moody's Investors Service rate them AA and Aa1, respectively.

Massachusetts was scheduled to issue bonds the week of March 16, but pulled the deal due to market conditions that effectively turned off the primary new issue bond market.

“Fortunately, this was more of an opportunistic issuance of refunding bonds, rather than a necessary new money issuance,” Goldberg said.

Neighboring Rhode Island two weeks ago closed on an initial $150 million line of credit from Bank of America, and drew an initial $25 million. That line of credit extends through July 30.

Massachusetts on Tuesday reported its highest daily death toll from the coronavirus, one of several states to do so. Deaths rose by 113 cases to 957, according to Johns Hopkins University data. The number of confirmed coronavirus cases soared by 1,296 to 28,163.

Gov. Charlie Baker, meanwhile, has joined a seven-state coalition of eastern governors who will coordinate planning the region’s emergence from stay-at-home orders. Baker is the sole Republican in the group; the other states are New York, Rhode Island, Connecticut, New Jersey Pennsylvania and Delaware.

California, Oregon and Washington have formed a similar regional pact.

According to Goldberg, state treasurers are monitoring for further guidance from the Federal Reserve, which last seek created the Municipal Liquidity Facility. The facility will purchase up to $500 billion of short-term notes directly from the states. While the term is up to 24 months, pricing is not yet known.

Tom Kozlik, director of municipal strategy and credit for Hilltop Securities, suggested that the U.S. Treasury’s short deadline for state and local governments to apply for $150 billion available for relief under the CARES Act, and scant details about the Fed’s Municipal Liquidity Facility, suggest that states and localities are little more than afterthoughts.

“Most local governments have been shut out of easy, if any, access to many of the [recent] state and local government programs,” said Kozlik, who noted that these governments are at the front lines of the health crisis.

Massachusetts, after a wave of recent replenishments, has nearly $3.5 billion in its rainy-day fund, its highest balance since fiscal 2008.

“Thank goodness, because certainly we are experiencing the kind of serious situation that rainy day funds are meant to address,” Goldberg said. “The pre-pandemic credit of an issuer will largely determine its ability to withstand this crisis and its eventual recovery.”

Included in the collateral economic damage of the pandemic are state lottery products, with sales down significantly across the board, according to Goldberg.

Total sales last week were down almost 33% from the same week last year. So far in April, Goldberg said, sales of Keno, one of the commonwealth’s best performing products, have dropped by 53% year over year. Similarly, instant ticket sales for April are down by 29%. With recent weekly sales of instant tickets have plummeted to their lowest amount in at least the last 15 years.

“This pandemic has dramatically exposed the limitations and vulnerabilities of the lottery’s all-cash, in person business model,” Goldberg said. “The ability to process cashless payments and to sell our products online would have undoubtedly helped to mitigate our losses.”

She cited increased online sales in New Hampshire, Michigan and Pennsylvania.

Governors Ned Lamont and Phil Scott of Connecticut and Vermont, respectively, have proposed an expansion of their states’ lotteries online. Former Alabama treasurer Young Boozer, just appointed to Gov. Kay Ivey’s task force on gambling, has asked for a meeting with Massachusetts to discuss an online operation.

The Massachusetts pension fund, the $70 billion-plus Pension Reserves Investment Management system, is “is fully operational and well-positioned to navigate these volatile markets,” Goldberg said.

Over the last five years, PRIM has gradually reduced its global equity allocation from a midpoint of 50% to 39%, and implemented risk mitigating strategies such as long-duration U.S. Treasuries, which according to Goldberg returned 30% in the quarter that ended March 31.

“We are much better prepared in 2020 to withstand this market than during the last market crisis in 2008-2009,” she said.

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