Moody’s : Aa1/Stable S&P: AA+/Stable Fitch: AA+/Stable The Commonwealth of Massachusetts July 2012 Credit Update & Investor Disclosure Conference Call July 30, 2012 NetRoadshow Information: website: www.netroadshow.com password: MAJuly12 (not case sensitive) conference call: 877-434-2303 password: 6173481720
Presentation Participants Commonwealth of Massachusetts Executive Office for Administration and Finance Massachusetts Department of Revenue 617-727-2040 Scott Jordan Mike Esmond Amy Pitter Kazim Ozyurt, Ph D. Assist ant S ecret ary Budget Direct or Commissioner Direct or/ Chief Economist scott.j ordan@ state.ma.us michael.esmond@ state.ma.us Office of Tax Policy Analysis Lori D. Hindle Dir. of Intergovt’ l Affairs Lori.Hindle@ state.ma.us Office of the Treasurer and Receiver General Disclosure Counsel to the Commonwealth 617-367-3900 John Regier Colin MacNaught Delia Rissmiller Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Ass’ t . Treasurer, Debt Mgment Invest or Relat ions Manager 617-348-1720 cmacnaught@ tre.state.ma.us drissmiller@ tre.state.ma.us JRRegier@ mintz.com Jeff Perlman Assoc. General Counsel, Debt Management j perlman@ tre.state.ma.us 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 S tatement (Information S tatement) and is qualified in all respects by reference to the most recently updated Information S tatement that has been filed with the Municipal S ecurities 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 S tatement and the Official S t atement 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 S tatement 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 subj ect 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 subj ect to a variety of risks and uncertainties that could cause actual results to differ from the proj ected 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 maj eure 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 Economic Update 1. 2. Fiscal 2012 Update Fiscal 2012 Revenue Review 3. 4. Fiscal 2013 Budget Debt / Capital 5. 6. Questions 4
1. Economic Update http://www.mass.gov/anf/slideshows/homepage-slideshow/pension-reform-462.jpg
Economic Update Wealth Measures: 2011 Per Capita Income in Massachusetts was $53,621, or 129% of the US average S ource: 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 June 2012, MA was 6.0% vs. 8.2% nationally S ource: US Depart of Commerce, Bureau of Economic Analysis; MA Div of Unemployment Assistance Economic Output: GDP grew at a rate of 2.2% in 2011 in MA vs. 1.7% for the US For the most recent quarter, MA GDP is estimated to have grown at an annualized rate of 4.0% vs. 1.5% for the US S ource: US Bureau of Economic Analysis June 2012 and http:/ / www.MassBenchmarks.org As of May 2012, the 12-month change in the Federal Reserve Bank of Philadelphia’s S tate Coincident Index was 4.2% for MA vs. 2.8% for the US Real GDP - Annual and Latest Quarterly Change Seasonally Adjusted Annual Rates 8% 6% 4.0% 4.0% 3.7% 3.6% Change from prev year 4% 2.0% 1.5% 2% 0% -2% -4% Massachusetts Note: Mass. FY2012 are United States -6% estimates and proj ections -8% 6 Year/Qtr
2. Fiscal 2012 Budget Update http://www.mass.gov/anf/slideshows/homepage-slideshow/pension-reform-462.jpg
Fiscal 2012 Update In July 2011 Governor Patrick signed into law the FY 2012 budget, which called for $30.597 billion in spending this year. The adopted budget relied on $449 million in non-recurring resources (A&F has revised this amount upwards to roughly $650 million, based on supplemental budget legislation adopted to-date and other revised assumptions). The budget assumed the use of up to $200 million in S tabilization Fund resources, leaving a proj ected Fund balance of $1.53 billion at the close of FY 2012. (Based on the reported FY 2012 closing balances in the NAS BO S urvey of S tates, this Fund balance would leave Massachusetts with the fourth largest rainy day reserve in the country.) The FY 2012 adopted budget assumed annual tax receipts of $20.636 billion, up from FY 2011 collections of $20.517 billion. Based on collections through S eptember 2011 the tax estimate was revised upwards to $21.010 billion. 8
Fiscal 2012 Update Total FY 2012 tax collections were $21.117 billion, exceeding the revised forecast for the year. On July 16, the Governor filed “ year-end” supplemental legislation proposing $30.5 million in supplemental appropriations, “ P ACing” or re-appropriating $47 million and requesting various technical legislative items needed to close the fiscal year. This legislation is currently being finalized by the House and S enate and we expect passage by July 31. (Comparatively, the “ year end” supp was not adopted for FY 2011 until October 2011.) We have complied with the FY 2012 reform to segregate all one-time settlements in excess of $10 million from general operating resources and deposit them into the state’s rainy day fund, except for payment of a one-time $29 million settlement. Based on receipts to-date, we anticipate at least $390 million in one-time settlements and capital gains taxes (in excess of $1 billion) to be deposited, resulting in a net S tabilization Fund deposit in FY 2012 of $160 million. A&F and the Comptroller’s Office will be working through August to track final state spending and revenue in FY 2012, before closing the books in October. 9
Projected Stabilization Fund Balance Stabilization Fund Balance, 1986-2013, in Millions $2,500 $2,000 $1,539 $1,379 $1,500 $1,284 $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 $709 $700 $160 $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) -$255 ($800) ($1,300) (1) FY 2012 assumes $200 M in S t abilizat ion Fund t ransfers t o t he General Fund, $404 M of set t lement s revenue deposit ed int o t he S t abilizat ion Fund, $20 M used for st art -up gaming cost s and $29 M for one-t ime set t lement cost s for Ambulat ory Payment Group. (2) FY 2013 assumes a $400 M draw from t he S t abilizat ion Fund t o t he General Fund, part ially offset by $90 M in capit al gains Proceeds in excess of $1 B. 10
3. Fiscal 2012 Revenue Review http://www.mass.gov/anf/slideshows/homepage-slideshow/pension-reform-462.jpg
Fiscal 2012 Revenue Review Background (FY09, FY10, FY11): After declining by 12.5% in FY09, due to the recent Great Recession, tax revenues began to recover in Fiscal 2010 and Fiscal 2011, growing by 1.6% and 10.6% , respectively. The Fiscal 2011 performance drew on an underlying sound economy that generated year to year increases in withholding, sales and corporate taxes, as well as an infusion of revenue from income tax on investment income. The increase of collections (10.6% actual and 9.3% baseline) reflects a Massachusetts economy that grew noticeably stronger during the fiscal year, as well as a strong recovery of the stock market. 12
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