APPENDIX A The Commonwealth of Massachusetts Commonwealth Transportation Fund Revenue Bonds Rating Agency Presentation $225,000,000* Commonwealth Transportation Fund Revenue Bonds (Rail Enhancement & Accelerated Bridge Programs), 2018 Series A * Preliminary, subject to change 1
Table of Contents 1. Transaction Summary 2. Key Credit Considerations A. Legal Provisions B. Economic Fundamentals C. Pledged Revenues D. Debt Service Coverage E. Economic Development 3. Conclusions and Financing Schedule Appendix – Projects to be Financed 2
Transaction Summary* Commonwealth Transportation Fund Revenue Bonds 2018 Series A – Preliminary Amortization by Maturity Year Series: 2018 Series A Due Due (06/01) Amount (06/01) Amount Principal Amount: $225,000,000 2020 $2,230,000 2034 $4,550,000 Interest Payment Dates: June 1 and December 1, 2021 $2,300,000 2035 $4,770,000 beginning December 1, 2018 2022 $2,370,000 2036 $5,005,000 2023 $2,715,000 2037 $5,250,000 Final Maturity Date: Due June 1, 2048 2024 $2,830,000 2038 $5,500,000 Security: Commonwealth Transportation Fund. Primary 2025 $2,965,000 revenue sources: Motor Fuels Tax and Registry Fees 2026 $3,110,000 2043 Term Bond Use of Proceeds: Fund costs of certain transportation 2027 $3,260,000 2043 $31,810,000 projects of the Commonwealth under the: 2028 $3,415,000 − Rail Enhancement Program ($210,000,000) 2029 $3,590,000 2048 Term Bond − 2030 $3,760,000 2048 $123,150,000 Accelerated Bridge Program ($15,000,000) 2031 $3,940,000 Optional Redemption: Maturities on or after June 1, 2029 2032 $4,135,000 will be subject to redemption on any date after June 1, 2033 $4,345,000 2028 * Preliminary, subject to change 3
CTF's Strong Credit Features Justify the Highest Ratings Strong legal protections and underlying fundamentals have been the hallmarks of CTF's credit profile since its inception in 2010. Credit and economic factors fall well within Aaa/AAA quantitative thresholds, as evidenced by: Strong Legal Protections Safeguard Revenue Pledge - Massachusetts Constitution requires Pledged Funds to be expended for transportation purposes only - State Statutes provide for covenants in the Trust Agreement to ensure that Pledged Funds are deposited in the CTF and applied to debt service before they can be used for any other purpose Strong and Diverse Economic Base - Broad and diverse economy that encompasses over 6 million residents - Per capita personal income levels in excess of 130% of the national average in 2017 Diverse and Stable State-wide Revenue Stream - Diverse mix of six motor fuels taxes and registry fees as well as federal BABs subsidies generates over $1.39 billion of pledged revenue annually - Low degree of correlation among pledged revenue streams limits volatility - Revenue collections are strong with diversity in timing Superior Coverage and Liquidity - Pro forma debt service coverage, including expected future issuances, estimated at 6.0x - Conservative 4x ABT further supports liquidity and a healthy overall leverage position - Strong debt service set asides (1/10th principal and 1/5th interest) Transportation Capital Investment Drives Economic Development - CTF transportation projects support economic development across the Commonwealth 4
Strong Legal Protections Safeguard Revenue Pledge The Massachusetts Constitution itself protects motor fuel taxes and motor vehicle registration fees pledged to CTF bonds from diversion or use for any non-transportation purpose Article LXXVIII of the Massachusetts Constitution: No revenue from fees, duties, excises or license taxes relating to registration, operation or use of vehicles on public highways, or to fuels used for propelling such vehicles, shall be expended for other than cost of administration of laws providing for such revenue, making of refunds and adjustments in relation thereto, payment of highway obligations, or cost of construction, reconstruction, maintenance and repair of public highways and bridges, and mass transportation lines and of the enforcement of state traffic laws, and for other mass transportation purposes; and such revenue shall be expended by the commonwealth or its counties, cities and towns for said highway purposes only and in such manner as the general court may direct; provided, that this amendment shall not apply to revenue from any excise tax imposed in lieu of local property taxes for the privilege of registering such vehicles. The Special Obligation Act provides for a set of covenants that effectively protects CTF Bonds from revenue diversion, impairment of revenues and non-appropriation: So long as any CTF Bonds remain outstanding and any principal or interest remains outstanding, statute prohibits the Commonwealth from diverting Pledged Funds to “any other use” Commonwealth shall not impair the rights and remedies of the Trustee and owners of bonds under the Trust Agreement with respect to collection and application of Pledged Funds Trust Agreement covenant restricts the Commonwealth’s ability to alter Motor Fuel Taxes and Registry Fees unless the resulting Pledged Revenues exceed 4.0x MADS coverage The Massachusetts Constitution requires appropriation of most state funds, however, a non- appropriation of CTF revenues would create an annual shortfall of approximately $1.2 billion in the Commonwealth’s operating revenue, or almost $100 million per month on average 4x ABT supports liquidity and a healthy overall leverage position State governments and their priority-lien tax revenue trust fund-secured bonds (such as CTF) are protected from a federally imposed bankruptcy regime by the 10th Amendment to the U.S. Constitution – generally unlike other issuers, such as localities and territories – and from State impairment of bond contracts by the Contracts Clause 5
CTF Benefits from a Strong Economic Base Massachusetts Population (in millions) Unemployment Rate (%) 7.0 12% Massachusetts New England U.S. 6.8 10% 6.6 8% 6.4 6% 6.2 4% 6.0 2% 0% 5.8 1996 2000 2004 2008 2012 2016 1996 2000 2004 2008 2012 2016 Per Capita Personal Income, Nominal Income Per Capita Personal Income, Real Income (in nominal dollars) (2017 dollars) $70,000 $70,000 Massachusetts U.S. Massachusetts U.S. $60,000 $60,000 $50,000 $50,000 $40,000 $40,000 $30,000 $30,000 $20,000 $20,000 $10,000 $10,000 $0 $0 1996 2000 2004 2008 2012 2016 1996 2000 2004 2008 2012 2016 Source: Commonwealth of Massachusetts Information Statement , March 22, 2018 6
Pledged Funds are Diverse and Stable Direct Registry Fees (4) Motor Fuels Taxes Payments (5) Ch 64 A Gas Tax (1) Ch 64 E Special Ch 64F Motor License Registration Registry BABs/RZEDBs Fuels Tax (2) Carrier Tax (3) Information Subsidies $667.8 Million $97.4 Million $615.1 Million $11.5 Million (48.0%) (7.0%) (44.2%) (0.8%) Total Projected FY2018 CTF Pledged Funds: $1.392 Billion __________ Projected revenues for Fiscal Year 2018 revenues are projected, unaudited and subject to change. (1) Chapter 64A: 99.85% of the 24 cents/gallon tax flows to CTF Pledged Funds. 6.86 cents/gallon is pledged on a senior basis to Existing Gas Tax Bonds. Amount shown is prior to debt service for the Existing Gas Tax Bonds. (2) Chapter 64E: Special Fuels Tax levied on each of special fuels (24 cents) and liquefied gas sold or used in the Commonwealth. 100% of the 24-cent tax is included as CTF Pledged Funds. (3) Chapter 64F: Motor Carrier Tax levied on each gallon of gasoline and special fuels acquired outside and used within the Commonwealth. (4) Registry fees received by Registry of Motor Vehicles pursuant to Section 33 of Chapter 90 of the General Laws. (5) Direct payments received from US Treasury related to BABs/RZEDBs. Pledged Revenues include fuel and non-fuel sources with Motor Fuels Taxes (55.0%) and Registry Fees (44.2%) State-wide taxes and fees, on a large and diverse regional economy Revenue collections are strong with diversity in timing: Motor Fuel Taxes are collected monthly by the Department of Revenue Registry Fees are collected daily at Registry branch and other locations Direct Payments are deposited on a semi-annual basis 7
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