Investor event underscores Massachusetts approach to disclosure

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BOSTON -- Massachusetts officials struck an upbeat tone at the commonwealth's seventh annual investor conference.

A bustling economy and an oversubscribed bond sale provided the backdrop for Wednesday's seventh annual event at the Boston Convention and Exhibition Center. It drew nearly 300 investors and issuers -- a conference high -- and included a keynote pep talk from Kevin O'Leary, a personality from the entrepreneurial TV show "Shark Tank."

Not even a June downgrade from S&P Global Ratings, the first for the commonwealth by a major bond-rating agency from the early 1990s, slowed down Massachusetts. S&P lowered its general obligation bonds to AA from AA-plus, citing the need for rainy-day fund replenishment.

Last week, the commonwealth received $1.84 billion of orders for its $593.3 million transportation fund new money and refunding bond sale. The deal, with Bank of America Merrill Lynch as lead manager, was oversubscribed 2.78 times, drew $276 million in retail orders and produced net present value savings of $32.5 million, according to state Treasurer Deborah Goldberg’s office.

“Even with our challenges we have a very healthy economy and we’re a good investment,” Goldberg said in a post-conference interview. “I think the evidence was there in our bond deal last week, which was completely oversubscribed, and we saved a lot of money for the commonwealth.

"Luckily, [the downgrade] has not impacted our bond issuance whatsoever,” said Goldberg, who supports boosting rainy-day reserves. “We’re still a very sought-after investment and we are continuing to have the fiscal discipline that is necessary in what are more volatile times.”

While the stabilization, or rainy-day account, has dipped from its high of $1.65 billion in fiscal 2012, the commonwealth projects a $98.4 million deposit in fiscal 2018. Treasury officials, during a recent investor conference call, forecast a nearly $1.38 billion balance by the end of the fiscal year.

Fitch Ratings and Moody’s Investors Service rate Massachusetts AA-plus and Aa1, respectively.

"The commonwealth has benefited from strong management," said Michael Solomon, a senior vice president at FTN Financial. "The treasurer's office is really strategic in the area of debt management, and very focused on transparency and disclosure, which is always favorably viewed by market participants."

In addition to the annual conference, the Treasury holds up to five investor calls annually.

"If you look at Massachusetts historically, the commonwealth regularly sold $1 billion of GOs every quarter, and that created oversupply," said Solomon, "That's come down and I think they've benefited from improved supply-and-demand dynamics."

Massachusetts has been riding an economic boom, notably around Boston. General Electric Co. moved to Boston's Seaport District last year and the city is considered a short-list candidate to land Amazon's second world headquarters, the so-called HQ2.

“Harvard and the Massachusetts Institute of Technology provide a rich talent pool for biotech, software and [Internet technology] firms, and the share of jobs in high tech in Massachusetts is higher than in any other state,” said Moody’s Analytics. “Tech is on a roll, with a slew of large-scale expansions and relocations in the works.”

According to Moody's Analytics, the state’s three main economic drivers -- tech, healthcare and finance —will propel it past its Northeast brethren, although any changes to federal immigration policy could pose a downside risk, as do other variables from Washington.

The commonwealth relies heavily on foreign-born workers.

Per-capita debt and unfunded pension liability are high. Think tank Mercatus Center at George Mason University, which ranked Massachusetts 48th among the states for fiscal health, pegged unfunded obligations on a guaranteed-to-be-paid basis at $115.75 billion, or 28% of state personal income.

Long-term liabilities, said Mercatus, are 239% of total assets for a per capita long-term liability of $9,919. Mercatus also calculated total primary government debt is $28.43 billion, or 6.9% of personal income, nearly twice the average in the states.

"They have some high debt load and pension challenges, but they have the wind at their backs," said Alan Schankel, a managing director at Janney Capital Markets. "Their economy is expanding, their unemployment is low and they're doing much better than troubled states like New Jersey and Connecticut.

“They're a well-run government financially. For instance, they evaluate revenue as it comes in to see if they're on track. That's an example of strong management.”

The state is on track to fully fund its pension obligations by 2037. The $70 billion Massachusetts Pension Reserves Investment Trust fund finished in the top 10% of its peer group for investment performance over the three years ending Sept. 30.

“Considering the fact that we have been on a de-risking campaign, that’s pretty darn good,” said Goldberg.

By contrast with squabbles in Connecticut and Pennsylvania that led to budgets four months late and to no one's surprise a rating-agency backlash, moderate Republican Gov. Charlie Baker works well with the legislature, which is heavily Democratic.

Speaking at the conference, Baker said he meets with Goldberg once a month, while he and his top finance officials huddle with legislative leaders every Monday.

“That’s a sacrosanct gathering,” he said. “It’s a non-breakable event on the calendar, and in many cases it gives us an opportunity to engage in a pretty lively discussion about what’s in front of us [and] what we need to be working on.

“It’s also a little harder to engage in a little bit of the noise that exists in public life generally if you know you’re going to be seeing these people every Monday afternoon,” said Baker, a budget chief under Gov. William Weld two decades ago.

Other challenges, byproducts of large-scale growth, include infrastructure and affordable housing. Also, the Boston-centric prosperity hasn’t spread to other regions.

"While the rising tide is beginning to lift more boats, conditions remain difficult for selected communities, regions, and demographic groups,” said Michael Goodman, director of the Public Policy Center at the University of Massachusetts, Dartmouth.

The Massachusetts Bay Transportation Authority, which has operated under a fiscal control board since the snow crisis of 2015, is under new leadership. Modernization attempts include a U.S.-first tax-exempt sustainability bond sale that covered most of a $574 million issuance. Also on order are long-overdue new subway cars for the Red and Orange lines.

In housing, the Baker administration’s current five-year capital plan commits $1.1 billion to housing production and preservation, an 18% increase over fiscal 2016 levels. Also pending the legislature is a $1.5 billion housing bond bill.

“Success also brings a curse,” said Chrystal Kornegay, undersecretary for the Department of Housing and Community Development. “Our housing prices are some of the highest in the country, as well as our average asking rent in metro Boston, which is part of the economic engine in the commonwealth.
Part of the challenge is that we haven’t been producing housing at the pace that we have in decades past. This is in essence a supply-and-demand problem.”

Goldberg, from the Stop & Shop supermarket chain's founding family and a strong advocate for female business empowerment and financial literacy, speaks frequently to municipal leaders and to the public, about the importance of debt management.

“I say to them, ‘you’re not going to believe this, but I actually find debt issuance a sexy topic.' True story. They look at me like I’m a little nuts, but I want people to understand this.”

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Infrastructure Ratings Budgets Charlie Baker Deborah Goldberg Michael Solomon Massachusetts Bay Transportation Authority Commonwealth of Massachusetts Janney Moody's Analytics FTN Financial Massachusetts