The Commonwealth of Massachusetts September 2012 Live Investor Conference Call: Credit Update & Review of Major Spending Categories S eptember 18, 2012
Investor Conference Call Presentation Participants Commonwealth of Massachusetts Office of the Treasurer and Receiver General Executive Office for Administration and Finance 617-727-2040 617-367-3900 Scott Jordan Mike Esmond Colin MacNaught Delia Rissmiller Assist ant S ecret ary Budget Direct or Ass’ t . Treasurer, Debt Mgment Invest or Relat ions Manager scott.j ordan@ state.ma.us Michael.esmond@ state.ma.us cmacnaught@ tre.state.ma.us drissmiller@ tre.state.ma.us Rob Dolan Lori Hindle Henry Clay Direct or of Finance Dir Intergovt’ l Affairs A ss’ t . Treasurer, Cash Management Rob.dolan@ state.ma.us Lori.hindle@ state.ma.us hclay@ tre.state.ma.us Kazim Ozyurt, Ph D Direct or/ Chief Economist DOR Office of Tax Policy Analysis Bond Counsel to the Commonwealth on the Disclosure Counsel to the Commonwealth Bonds/Notes John Regier Walter St. Onge Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Edwards Wildman Palmer LLP 617-348-1720 617-239-0389 JRRegier@ mintz.com wstonge@ edwardswildman.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 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 1. Economic Update 2. Fiscal 2012 Close 3. Fiscal 2013 Revenue Collections Update 4. Fiscal 2013 Budget 5. Big Topic: Overview of Major Spending Categories 6. Debt / Capital 7. Questions 4
1. Economic Update
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 July 2012, MA was 6.1% vs. 8.1% nationally for August 2012 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 (Q2), MA GDP is estimated to have grown at an annualized rate of 4.0% vs. 1.7% for the US S ource: US Bureau of Economic Analysis June 2012 and http:/ / www.MassBenchmarks.org 6
Economic Update • As of July 2012, the 12-month change in the Federal Reserve Bank of Philadelphia’s S tate Coincident Index was 4.12% for MA vs. 2.71% for the US Federal Reserve Bank of Philadelphia State Coincident Indexes As of July 2012 Data (July 2011 ‐ July 2012) (July 2011 ‐ July 2012) State 12 ‐ Month % Change State 12 ‐ Month % Change Alabama 1.10% Montana 3.02% Alaska ‐ 1.84% Nebraska 2.23% Arizona 2.53% Nevada ‐ 0.03% Arkansas 1.79% New Hampshire 1.07% California 3.93% New Jersey 2.28% Colorado 2.25% New Mexico 0.06% Connecticut 1.81% New York 2.51% Delaware 1.23% North Carolina 1.95% Florida 1.26% North Dakota 10.85% Georgia 2.20% Ohio 5.81% Hawaii 1.56% Oklahoma 4.43% Idaho 3.62% Oregon 3.41% Illinois 2.06% Pennsylvania 1.77% Indiana 4.39% Rhode Island 0.65% Iowa 2.50% South Carolina 1.84% Kansas 2.11% South Dakota 2.47% Kentucky 3.95% Tennessee 2.54% Louisiana 2.55% Texas 3.77% Maine 1.19% Utah 3.02% Maryland 1.92% Vermont 2.47% Massachusetts 4.12% Virginia 2.22% Michigan 4.97% Washington 3.30% Minnesota 2.28% West Virginia 2.45% Mississippi 1.46% Wisconsin 0.06% Missouri 0.87% Wyoming 1.61% United States 2.71% 7
2. Fiscal 2012 Close
Fiscal 2012 Close • Fiscal 2012 ended on June 30, 2012, but, as is customary, the Executive Office of Administration & Finance and the S tate Comptroller continue to work to close out the fiscal year • The Commonwealth’s Comptroller typically releases the annual S tatutory Financial Basis Report toward the end of October • Executive Office for Administration and Finance expects fiscal 2012 to end in balance without requiring any unbudgeted withdrawals from the S tabilization Fund • In fact, this proj ection assumes a net deposit to the S tabilization Fund in fiscal 2012 of $159.9 million, due to $375 million in one-time tax settlements in excess of $10 million being deposited to the S tabilization Fund. These deposits were partially offset by the budgeted $200 million withdrawal • The S tabilization Fund is proj ected to have a balance of $1.539 billion at the end of fiscal 2012 • The FY2012 S tatutory Basis Financial Report is scheduled to be completed and released on October 31 st 9
3. Fiscal 2013 Revenue Collections Update
Fiscal 2013 Revenue Update • On January 12, 2012, a Fiscal 2013 consensus tax revenue estimate of $21.950 billion was agreed upon by the S ecretary of Administration and Finance and the chairs of the House and S enate Committees on Ways and Means. • The revenue estimate in the Fiscal 2013 budget is $22.011 billion and reflects the consensus estimate of $21.950 billion adj usted for the impact of Fiscal 2013 revenue initiatives enacted as part of the budget, including a) one-year delay of t he FAS 109 deduct ions ($45.9 million), and b) enhanced t ax enforcement init iat ives ($36.3 million), as well as the impact of the subsequently enacted two-day sales tax holiday on August 11-12, 2012 ($21.55 million) • Approximately $1.1 billion of the $22.011 billion tax estimate is assumed to be generated from taxes on capital gains. Under state finance law, $100 million of the proj ected capital gains tax revenue will be required to be deposited into the S tabilization Fund and will not be available for budgetary purposes. • According to Mass Benchmarks (1) , there are still risks that could affect the U.S . and Massachusetts economies: the weakness in Europe, slowing growth in China, weak growth in the U.S . economy, and uncertainty about whether and how the looming "fiscal cliff" coming in 2013 will be resolved: S o, it is likely that most states across the country will not be in a comfort zone with respect to their own economic growth and tax revenue collections for a while. However, having a lower unemployment rate and a relatively better recent economic performance compared to the nation as a whole will probably give the Massachusetts economy a slight edge over some other states. (1) http:/ / www.massbenchmarks.org/ publications/ bulletin/ 23_bulletin_072712/ index.htm 11
Fiscal 2013 Revenue Update Fiscal 2013 Year to Date Tax Collections: July and August are months with small tax collections months. Preliminary tax revenues for the first two months of fiscal 2013 totaled approximately $2.870 billion, an increase of approximately $0.4 million, or 0.02% , over the same period in fiscal 2012, $69 million below benchmark. 12
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