The Commonwealth of Massachusetts November 2012 Live Investor Conference Call: Credit Update & Review of 2012 Pension Actuarial Report November 16, 2012
Investor Conference Call Presentation Participants Commonwealth of Massachusetts Executive Office for Administration and Finance Office of the Treasurer and Receiver General 617-727-2040 617-367-3900 Colin MacNaught Delia Rissmiller Scott Jordan Mike Esmond Ass’t Treasurer, Debt Mgment Investor Relations Manager Assistant Secretary Budget Director cmacnaught@tre.state.ma.us drissmiller@tre.state.ma.us scott.jordan@state.ma.us Michael.esmond@state.ma.us Public Employee Retirement Administration Massachusetts Department of Revenue Commission (PERAC) Kazim Ozyurt, Ph D James Lamenzo Director / Chief Economist Actuary DOR Office of Tax Policy Analysis jlamenzo@per.state.ma.us Disclosure Counsel to the Commonwealth John Regier Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 617-348-1720 JRRegier@mintz.com 2
Disclaimer This presentation has been prepared by the Commonwealth of Massachusetts to provide summary information relative to the general obligation credit of the Commonwealth. The presentation is incomplete. The presentation is not part of the Commonwealth’s Information Statement (Information Statement) and is qualified in all respects by reference to the most recently updated Information Statement that has been filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (EMMA) system. Investment decisions relating to Commonwealth general obligation bonds and notes should be based only upon the most recently updated Information Statement and the Official Statement of the Commonwealth relating to such bonds or notes. The provision of access to this presentation does not constitute an offer to sell or the solicitation of an offer to buy any bonds or notes that may be described or mentioned in the presentation. Commonwealth bonds and notes are sold only by means of an Official Statement and through registered broker-dealers. The information set forth herein includes information obtained from non-Commonwealth sources that are believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Commonwealth. All information and expressions of opinion herein are subject to change without notice. The Commonwealth undertakes no obligation to provide any additional information or to update any of the information or the conclusions contained herein or to correct any inaccuracies that may become apparent. This presentation contains certain forward-looking statements that are subject to a variety of risks and uncertainties that could cause actual results to differ from the projected results, including without limitation general economic and business conditions, conditions in the financial markets, the financial condition of the Commonwealth and various state agencies and authorities, receipt of federal grants, litigation, arbitration, force majeure events and various other factors that are beyond the control of the Commonwealth and its various agencies and authorities. Because of the inability to predict all factors that may affect future decisions, actions, events or financial circumstances, including, in particular, current adverse global financial market and economic conditions, what actually happens may be different from what is set forth in such forward-looking statements. Forward- looking statements are indicated by use of such words as “may,” “will,” “should,” “intends,” “expects,” “believes,” “anticipates,” “estimates” and others. 3
Agenda 1. Economic Update 2. Fiscal 2012 Results 3. Fiscal 2013 Revenue Collections Update 4. Fiscal 2013 Budget 5. Big Topic: Review of 2012 Pension Actuarial Report 6. Debt / Capital 7. Questions 4 4
1. Economic Update 5
Economic Update Wealth Measures: • 2011 Per Capita Income in Massachusetts was $53,621, or 129% of the US average Source: US Depart of Commerce, Bureau of Economic Analysis Unemployment: • The 2011 Unemployment Average was 7.4% for MA vs. 8.9% for US • As of October 2012, MA was 6.6% vs. 7.9% nationally Source: US Depart of Commerce, Bureau of Economic Analysis; MA Div of Unemployment Economic Output: Assistance • GDP grew at a rate of 2.2% in 2011 in MA vs. 1.7% for the US • For the most recent quarter (Q3), MA GDP is estimated to have grown at an annualized rate of 1.9% vs. 2.0% for the US Source: US Bureau of Economic Analysis June 2012 and http://www.MassBenchmarks.org 6
Economic Update • As of September 2012, the 12- month change in the Federal Reserve Bank of Philadelphia’s State Coincident Index was 3.18% for MA vs. 2.81% for the US Federal Reserve Bank of Philadelphia State Coincident Indices As of September 2012 Data (Sept 2011-Sept 2012) (Sept 2011-Sept 2012) State 12-month % Change State 12-Month % Change Alabama 1.90% Montana 1.85% Alaska -0.70% Nebraska 3.61% Arizona 3.17% Nevada 3.05% Arkansas 1.95% New Hampshire 0.95% California 3.70% New Jersey 1.08% Colorado 2.67% New Mexico 2.61% Connecticut 1.64% New York -0.83% Delaware 0.29% North Carolina 2.79% Florida 1.47% North Dakota 2.01% Georgia 3.07% Ohio 10.09% Hawaii 3.06% Oklahoma 5.64% Idaho 3.99% Oregon 3.73% Illinois 3.06% Pennsylvania 3.60% Indiana 4.98% Rhode Island 1.75% Iowa 1.94% South Carolina 3.34% Kansas 3.01% South Dakota 1.57% Kentucky 3.89% Tennessee 2.45% Louisiana 1.63% Texas 4.30% Maine 0.69% Utah 3.09% Maryland 2.42% Vermont 1.47% Massachusetts 3.18% Virginia 1.60% Michigan 2.97% Washington 2.83% Minnesota 2.59% West Virginia 0.80% Mississippi 1.56% Wisconsin -0.08% Missouri 1.85% Wyoming 1.87% United States 2.81% 7
2. Fiscal 2012 Close 8
Fiscal 2012 Results • The FY2012 Comprehensive Annual Financial Report is expected to be released in December • However, the State Comptroller released the FY2012 Statutory Basis Financial Report (SBFR) at the end of October • A downloadable version of the SBFR has been posted to EMMA and has also been uploaded to the Net Roadshow platform • The SBFR shows the following results for FY12: • $301 million FY12 “consolidated net surplus” (unreserved fund balance ) • $89 million FY12 budgetary gain (revenues minus expenditures) • Budgetary Fund ending balance of $1.990 billion • $117 million deposited to the Stabilization Fund at year-end • In total, $273 million deposited to Stabilization Fund during FY12 (including year-end deposit) – a 20% y/o/y increase over the Fiscal 2011 ending balance • Stabilization Fund Balance at $1.652 billion – we had originally been projecting an ending Stabilization fund balance of $1.539 bn 9
Projected Stabilization Fund Balance Stabilization Fund Balance, FY1986-FY2013, ($ mm) $2,500 $1,652 $2,000 $1,392 $1,379 $1,500 $1,000 $500 $0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual Change in Stabilization Fund, FY1986-FY2013 ($ mm) $709 $700 $273 $200 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ($300) -$260 ($800) ($1,300) (1) As of close of FY12, including final transfer from FY12 surplus 10
3. Fiscal 2013 Revenue Collections Update 11
Massachusetts Tax System and Tax Expenditure Budget Topics: 1. Overview of Massachusetts Taxation 2. Sources of Massachusetts Tax Revenues Personal Income Tax Corporate and Business Tax Sales and Use Tax All Other Taxes 3. Recent and Current Developments 4. Tax Revenue Trends in Recent Years 5. Fiscal 2012 Revenue Review 6. Fiscal 2013 Revenue Update 12
Overview of Massachusetts Taxation Corporate & business Tangible Income Individual property Income /net worth Sales of Motor tangible goods and Fuels telecom Tax services Cigarettes Estate Room Deeds occupancy Alcohol 13
Sources of Massachusetts Tax Revenues 14
Personal Income Tax 15
Corporate and Business Taxes 16
Sales and Use Tax 17
All Other Taxes All Other Taxes ($Millions) $1,824 Other Budgetary DOR collections $1,727 Motor Fuels 662 Cigarettes 451 Estate 293 Room Occupancy 122 Deeds 110 Alcoholic Beverages 76 Miscellaneous 13 Other Budgetary Non-DOR collections $97 Deeds, Sec. of State $49 Division of Insurance $24 UI Surcharges $21 Beano 3/5ths $1 Raffles/Bazaars $1 18
Recent and Current Developments: Personal Income, Corporate, & Sales/Use Taxes Income Tax: • Part B income tax rate is reduced to 5.25% from 5.3% on January 1, 2012 • Potential lowering of rate to 5.20% on January 2013 • Statutory requirement • DOR Certification Corporate Tax Reform: • Combined Reporting • Phased-in Rate Reduction from 9.5% to 8% for 2012 Sales/Use Tax: • Rate change (5.0% to 6.25%) • Sales Tax on Alcohol – Instituted and then repealed 19
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