Debt Affordability Committee 1 Debt Affordability Committee July 17, 2013

Debt Affordability Committee

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July 17, 2013


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• “On or before September 10 of each year, the committee shall submit to the governor and the general court the committee’s estimate of the total amount of new commonwealth debt that prudently may be authorized for the next fiscal year”

• “The committee shall review on a continuing basis the size and condition of the commonwealth tax supported debt as well as other debt of any authority of the commonwealth…The estimate shall be made available electronically and prominently displayed on the official website of the commonwealth.”

-Massachusetts General Laws Chapter 29 Section 60B

Debt Affordability Committee’s Charge


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Meeting Topics

1. Introductions – April 26, 2013

2. Tax Supported Debt – May 17, 2013

a. Tax Supported Debt Part 2 – May 31, 2013

3. Debt Ratio Comparisons – June 20, 2013

4. Debt Service and Authorizations – July 17, 2013

a. Public Hearing – July 17, 2013

5. Preliminary Recommendation – July 30, 2013

6. Recommendation – August 15, 2013

7. Final Report – September 5, 2013


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• Introduction of attendees• Vote on Minutes of June 20, 2013 Meeting• States for Consideration• Projected Debt Service• Outstanding Authorizations• General Obligation Debt• Component Unit Debt• Next meetings

Today’s Agenda


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• June 20, 2013 – VOTE

Minutes


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States for Consideration

Required• Connecticut• Maine• New Hampshire• Rhode Island• Vermont• New York

For Consideration• Colorado• Georgia• Indiana• Maryland• Michigan• Missouri• New Jersey• North Carolina• Virginia• Wisconsin


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States for Consideration with Ratings

Required• Connecticut (AA)• Maine (AA)• New Hampshire (AA)• Rhode Island (AA)• Vermont (AA+)• New York (AA)

For Consideration• Colorado (AA)• Georgia (AAA)• Indiana (AAA)• Maryland (AAA)• Michigan (AA-)• Missouri (AAA)• New Jersey (AA-)• North Carolina (AAA)• Virginia (AAA)• Wisconsin (AA)


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Pertinent Debt Ratios

• Statute– Debt service to General Fund revenues – Debt to personal income – Debt to estimated full-value of property – Debt per capita

• Other– Debt as a % of GDP– Debt service as a % of total budget– Debt service as a % of tax levy


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Debt Service Projection Based on FY2013-FY2017 Capital Investment Plan

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

Total Existing Debt Service

Projected debt service under existing capital plan

8% Limit


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Debt Service Projection Based on FY2013-FY2017 Capital Investment Plan

Fiscal Year

Total Existing Obligations

Cumulative New Debt Service

from Annual Bond Cap

Cumulative New Debt Service

from Bridge Program

Total Annual Debt Service

Budgeted Revenue Growth

Total Annual Debt Service

as % of Revenues

2013 2,321,817 132,395 20,945 2,475,157 33,604,667 7.37%

2014 2,220,277 273,615 49,952 2,543,845 34,611,145 7.35%

2015 2,150,101 423,662 75,968 2,649,731 35,648,368 7.43%

2016 2,233,725 573,710 95,949 2,903,383 36,714,616 7.91%

2017 1,862,359 723,757 102,207 2,688,323 37,816,843 7.11%

2018 1,722,898 882,630 99,230 2,704,758 38,964,013 6.94%

2019 1,662,716 1,050,330 96,126 2,809,172 40,132,934 7.00%

2020 1,660,699 1,226,856 92,890 2,980,445 41,336,922 7.21%

2021 1,877,997 1,412,208 89,517 3,379,722 42,577,029 7.94%

2022 1,734,013 1,606,387 86,000 3,426,400 43,854,340 7.81%

2023 1,503,480 1,809,392 82,334 3,395,206 45,169,970 7.52%

2024 1,370,717 1,624,039 78,512 3,073,268 46,525,069 6.61%

2025 1,280,416 1,624,039 74,528 2,978,983 47,920,821 6.22%


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Debt Authorized and Unissued

• As of July 3, 2013:– $13.595 B

• As Proposed by the Administration– Capital Supplemental - $375 M– General Government - $928 M– IT - $869 M– Energy & Environment - $912 M– Military - $177 M– Housing - $567 M– Transportation - $19 B

• $13.7 billion for projects identified in the Way Forward• $5.3 billion for projects identified in the FY13 to FY17


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General Obligation Debt

80.90%

19.10%Fixed RateVariable Rate

$000’s

$15,244,263

$3,607,275

Total GO Debt = $18,851,538

Source: June 30, 2012 CAFR


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Variable Rate GO Debt

Variable Rate De-mand; $1,340,275

Auction Rate; $401,500 CPI-Index; $197,455

LIBOR; $845,975

SIFMA; $822,250

$000’s% of Total GO


1.4%

1.0% 2.1%

7.1%

4.5%

Total Variable Rate GO Debt = $3,607,275,000


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Special Obligation Bonds

92.90%

7.10%

Fixed RateVariable Rate

$000’s

$2,398,935

$183,080

Total SO Debt = $2,582,015



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Variable Rate SO Debt

CPI Convention Center; $86,590

CPI Gas Tax; $96,490

$000’sDedicated Tax Revenue


Total Variable Rate SO Debt = $183,080,000


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Hedging Contracts

• Entered into to hedge volatility in interest rates by synthetically fixing the interest rate

• Variable rate plus swap costs still lower than fixed interest rates

• Varying final maturities, some match associated bonds, others only a portion

• Fair value balance of negative $564 million as of 6/30/12– the negative fair value of swap contracts is offset by lower

interest rates on the swapped debt


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Hedging Contracts

• 16 outstanding contracts on GO bonds with a notional amount of $3.1 billion

• 4 outstanding contract on SO bonds with a notional amount of $183 million

• Overall of the $3.6 billion variable rate bonds, $3.3 billion are swapped to fixed rate

• There are no fixed-to-floating rate swaps in the portfolio• All swaps are deemed effective hedges pursuant to GASB 53


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Outstanding Swaps



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Contingent Liabilities

Issuances Total Debt Annual Debt Service

Guaranteed

MBTA Closed Lien $388 million $127.9 million

Steamship As needed $58 million $7.5 million

RTAs Annual RANs $160 million, collectively Varies by RTA

UMBA As needed up to $200 million $130 million $8.4 million

MSCBA No additional allowed $28 million $8.1 million

Moral Obligation

MassHousing(Rental only)

Available but unused for 20 years $196 million* $21 million

MassDevelopment None, Program not yet active $0 --

* MassHousing is actively redeeming bonds in this program


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Contract Assistance

Issuances Total Debt Contract Assistance

2013

Contract Assistance

2014

Contract Assistance

2015

Contract Assistance

2016

Contract Assistance

2017

MassDOT(Turnpike)

No additional allowed

$2.1 billion $125 million $125 million $125 million $125 million $125 million

MWPAT Annual $3.3 billion $63 million $58 million $54 million $47 million $41 million

I-Cubed As needed $10 million $2 million $2 million $2.5 million $2.5 million $2.5 million

Route 3 North No additional allowed

$5 million $1 million $1 million $1 million $1 million $1 million(last

payment)

Saltonstall Building Redevelopment

No additional necessary

$184 million $9.4 million $9.5 million $9.6 million $9.7 million $9.7 million

Long-term Leases

As needed $155 million $120 million $100 million $83 million $65 million


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FY12 Component Units of the Commonwealth

• Massachusetts School Building Authority (MSBA)* • $5.2 billion

• Massachusetts Department of Transportation (MassDOT)*• Includes the MBTA and 15 RTAs, which are component units of MassDOT• DOT = $2.1 billion• MBTA = $5.4 billion• RTAs = $160 million, collectively

• Massachusetts Water Pollution Abatement Trust (MWPAT)*• $3.3 billion

• MassDevelopment*• $184 million

• Massachusetts Housing Partnership (MHP)*• $392 million

• Massachusetts Convention Center Authority• Commonwealth Corporation• Commonwealth Health Insurance Connector• Massachusetts Clean Energy Center (CEC)• Massachusetts Growth Capital Corporation (MGCC)• Community Economic Development Assistance Corporation (CEDAC)• Massachusetts Life Sciences Center• Massachusetts Technology Collaborative• Commonwealth Zoological Corporation

• *Had debt outstanding as of 6/30/12


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• UMASS, the State Universities and Community Colleges and their component units, some of which issue debt, are shown in the Commonwealth’s financial reports separately as “business-type activities” – i.e., they provide services in exchange for fees. These institutions are Commonwealth departments and not separate legal entities, and their component units are therefore component units of the Commonwealth.

• UMASS has 4 component units, including the UMASS Building Authority and the Worcester City Campus Corporation, both of which have issued debt. The State Universities (formerly the state colleges) include the State College Building Authority, a component unit that has issued debt, and each of the 9 State Universities and 15 Community Colleges has a foundation that is a component unit, the primary function of which is fund raising, though some foundations have also issued debt.

• Debt of these institutions and their component units is not the Commonwealth’s liability, except where that debt is guaranteed, in which case for financial reporting purposes it becomes a contingent liability of the state.

UMASS, State Universities and Community Colleges


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Entity Total Debt Outstanding Commonwealth Guarantee

UMass

UMass $59,560,000

UMBA $1,917,855,000 $130,000,000

Worcester City Campus Corporation

$286,870,000

State Universities

Bridgewater $12,218,193

Fitchburg $3,105,398

Framingham $36,564,705

MassArt $13,980,902

MCLA $1,159,030

Mass Maritime $3,042,483

Salem $21,666,535

Westfield $16,923,526

Worcester $12,061,667

UMASS and State Universities


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Entity Total Debt Outstanding

Community Colleges

Berkshire $658,005

Bristol $0

Bunker Hill $21,620,225

Cape Cod $0

Greenfield $141,405

Holyoke $4,104,366

Mass Bay $0

Massasoit $1,729,118

Middlesex $5,575,909

Mount Wachusett $7,074,580

North Shore $4,436,311

Northern Essex $2,485,075

Quinsigamond $1,692,997

Roxbury Not Available

Springfield Technical $6,137,907

Community Colleges


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Next Meeting Topics

• July 30th

– Preliminary Recommendation Discussion

• August 15th– Pension/OPEB– Other Considerations– Final Recommendation

Documents

Debt Affordability Committee 1 Debt Affordability Committee July 17, 2013