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Debt Affordability Committee May 31, 2013

Debt Affordability Committee May 31, 2013. Debt Affordability Committee’s Charge.

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Debt Affordability Committee May 31, 2013

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  1. Debt Affordability CommitteeMay 31, 2013

  2. Debt Affordability Committee’s Charge • “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

  3. Meeting Topics • Introductions – April 26, 2013 • Tax Supported Debt – May 17, 2013 • Tax Supported Debt Part 2 – May 31, 2013 • Debt Ratio Comparisons – June 20, 2013 • Debt Service and Authorizations – July 17, 2013 • Recommendation – August 14, 2013 • Final Report – September 5, 2013

  4. Today’s Agenda • Introduction of attendees • Opening Remarks • Commonwealth Capital Investment Plan • Outstanding Debt • Component Units • June Meeting – June 12th • Rating Agency Criteria • Debt Ratios • Comparison states • Public Hearing in July

  5. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan • Statewide, five-year capital plan. The plan coordinates capital expenditures by state agencies and authorities that are funded primarily with Commonwealth debt, third party payments and federal reimbursements. • Maintaining a large inventory of capital assets. The Commonwealth makes targeted capital investments in improving capital assets and supporting economic growth, including: • Transportation infrastructure, • State facilities, such as courts, correctional facilities, state hospitals, • Energy and Environmental resources, such as parks, open space, dams, • State-supported public housing and private affordable housing development , and • Community and economic development investments, such as local roads and bridges, public library construction and targeted local infrastructure grants.

  6. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan • Capital Plan Development.As with the prior plans, the Administration engaged in a diligent, fiscally responsible and comprehensive process for developing this five-year capital investment plan. Demand for capital improvements far exceeds affordable funding capacity, and thus many worthy projects will not receive funding. • Committed Funding. Over 85% of the bond-funded FY13 capital investment plan is needed to fund previously-made commitments, including ongoing construction contracts, investments needed to leverage federal funds, legal commitments and personnel needed to carry out capital programs. • Year-Round Capital Spending Review. A&F works with capital agencies to continually review capital spending to ensure that we are using our limited investment capacity efficiently.

  7. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan • Year-Round Capital Spending Review. A&F works with capital agencies to continually review capital spending to ensure that we are using our limited investment capacity efficiently. Summer Fall Winter Spring Summer Propose Bond Bills Capital Mid-Year Review FY14 Capital Budget Request Capital Spending Plans FY13 Capital Budget Request Publish 5 Year Capital Plan

  8. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan • Limit on Borrowing, from all sources. The Administration limits bond-funded capital expenditures, known as the “bond cap.” • Bond cap determination is based on the Debt Affordability Analysis and policies in which A&F sets the annual borrowing limit at an amount sized to keep debt service within 8% of budgeted revenues. • FY13 bond cap is $1.875 billion with an additional $93 million in unused capacity from the prior fiscal year. • The Administration has conservatively constrained the bond cap in FY16 and FY17 at the FY15 level.

  9. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan FY13-17 Capital Investment Plan Total Bond Cap

  10. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan • Total Capital Spending. The Administration’s Capital Investment Plan also reports on other sources of funding for the capital budget, the largest of which is federal funds, primarily to reimburse transportation infrastructure improvements. FY13-17 Capital Investment Plan - Total All Sources

  11. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan FY13-17 Capital Investment Plan - Total All Sources

  12. FY2013-FY2017 Five-Year Patrick-Murray Capital Investment Plan • Patrick-Murray Administration Capital Achievements. The following is a select representation of the many capital plan achievements: • Developed and published the first-ever debt affordability policy, which has been positively reviewed by credit rating agencies. • Advertised 177 Accelerated Bridge Program construction projects with a combined construction budget valued at $2.09 Billion through January 1, 2013. Of these, 121 have been declared complete by MassDOT. • Created the Clean Energy Investment Program (CEIP) as a means to affordably finance energy efficiency and renewable energy improvements to state facilities. The CEIP program allowed the Commonwealth to dramatically increase (by 214%) the number of energy and water conservation projects at state facilities. • Launched the Accelerated Energy Program, which uses the innovative CEIP funding as well as assistance from energy utilities to “green” 700 sites in 700 working days • Invested in the acquisition of open space land with the recent benchmark of protection of more than 100,000 acres. • Dedicated 10% of the cumulative bond cap new higher education projects, with $775 M invested through FY12. • Developed and/or preserved 13,346 units of rental housing for individuals and families. • Provided over $120 M to Life Sciences projects which have created 2,425 jobs, with the promise of investing $500 M over 10 years. • Fully funded the Broadband Institute which will connect 123 communities. • Committed to extending the MBTA Green Line, Phases I & II. • Streamlined 6 grant programs into MassWorks which enhanced state-regional-local partnerships around economic development and housing production.

  13. Commonwealth’s Existing Debt • General Obligation Debt • Grant Anticipation Notes • Special Obligation Debt • Contingent Liabilities • Component Unit Debt

  14. Commonwealth’s Existing Debt Portfolio : General Obligation Debt • General Obligation Debt • The Commonwealth issues general obligation bonds and notes pursuant to Chapter 29 of the General Laws. • General obligation bonds and notes issued thereunder are deemed to be general obligations of the Commonwealth to which its full faith and credit is pledged for the payment of principal and interest when due, unless specifically provided otherwise on the face of such bond or note. • Issued for a variety of projects and purposes, such as highways, institutions, buildings, flood and pollution control, among others • Bonds are sold as consolidated loans, with allocation of bond proceeds to capital spending done in arrears • Bonds rated ‘AA+ / Aa1 / AA+’ by Fitch, Moody’s and S&P, respectively • The Commonwealth’s outstanding general obligation variable rate debt consists of several variable rate structures. Most of the outstanding variable rate bonds are in the form of variable rate demand bonds, which account for $1.0 billion of outstanding general obligation debt as of April 30, 2013.

  15. Commonwealth’s Existing Debt Portfolio: General Obligation Debt

  16. Commonwealth’s Existing Debt Portfolio: General Obligation Debt

  17. Commonwealth’s Existing Debt Portfolio : Grant Anticipation Notes • Grant Anticipation Notes • Chapter 121 of the Acts of 1998 authorized the original issuance of up to $1.5 billion in Federal Highway Grant Anticipation Notes (GANs) to finance a portion of the costs of construction of the Central Artery/Ted Williams Tunnel Project (the “CA/T Project”). • Debt service payments principally secured by all reimbursements and other federal assistance that the Commonwealth shall receive with respect to federally-aided highway construction projects. • The Accelerated Bridge Program, authorized in Chapter 233 of the Acts of 2008, revised the GANs program. • Senior lien GANs closed with issuance of new $100 mm GANs for Accelerated Bridge Program in December 2010, bonds back-stopped by excess CTF funds. • Authorization to issue up to $1 bn in new GANs under the Accelerated Bridge Program. • ABP GANs rated ‘AA+ / Aa2 / AAA’ by Fitch, Moody’s, and S&P respectively.

  18. Commonwealth’s Existing Debt Portfolio : Grant Anticipation Notes • Grant Anticipation Notes Table

  19. Commonwealth’s Existing Debt Portfolio : Grant Anticipation Notes

  20. Commonwealth’s Existing Debt Portfolio : Special Obligation Debt • Special Obligation Debt • Commonwealth Transportation Fund (CTF) • Section 2O of Chapter 29 of the General Laws, authorizes the Commonwealth to issue special obligation bonds secured by all or a portion of revenues from taxes and fees relating to the operation or use of motor vehicles in the Commonwealth, including the motor fuels excise tax and registry of motor vehicles fees. • Between 1992 and 2005, the Commonwealth issued special obligation bonds secured by a lien on a specified portion of the motor fuels excise tax. As of April 30, 2013, the Commonwealth had outstanding $337,545,000 of such special obligation bonds secured by a pledge of 6.86¢ of the 21¢ motor fuels excise tax. Bonds are rated ‘AA / Aa1 / AAA’ by Fitch, Moody’s, and S&P, respectively. • The Commonwealth is also authorized to issue $1.875 billion of special obligation bonds secured by a pledge of all or a portion of revenues accounted to CTF to fund a portion of the Commonwealth’s Accelerated Bridge Program. As of April 30, 2013, the Commonwealth had outstanding $995,385,000 of CTF Bonds. Bonds are rated ‘Aaa / AAA’ by Moody’s and S&P, respectively. • Convention Center Fund • Chapter 152 of the Acts of 1997 authorizes $694.4 million of special obligation bonds to be issued for the purposes of building a new convention center in Boston ($609.4 M), the Springfield Civic Center ($66 M) and the Worcester convention center ($19 M). • The bonds are payable from hotel tax receipts in Boston, Cambridge, Springfield and Worcester, a surcharge on car rentals in Boston, a parking surcharge at all three facilities, a surcharge on sightseeing tours and cruises in Boston and sales tax receipts from hotels and other retailers in Boston, Cambridge and Springfield. • In June, 2004, the Commonwealth issued $686.7 million of special obligation bonds secured solely by the pledge of receipts of tax revenues within the special districts surrounding the centers and other special revenues connected to such facilities, $638.7 million of which remained outstanding as of April 30, 2013. • Bonds are rated ‘A1 / A’ by Moody’s and S&P, respectively

  21. Commonwealth’s Existing Debt Portfolio : Special Obligation Debt

  22. Commonwealth’s Existing Debt Portfolio : Special Obligation Debt

  23. Commonwealth’s Existing Debt Portfolio : Special Obligation Debt

  24. Commonwealth’s Existing Debt Portfolio: Contingent Liabilities • Commonwealth Full Faith and Credit • Massachusetts Bay Transportation Authority (MBTA) • The Commonwealth remains contingently liable for the payment of MBTA bonds and notes issued prior to July 1, 2000. As of December 31, 2012, the MBTA had approximately $494.7 million of such prior bonds outstanding. • Woods Hole, Martha’s Vineyard and Nantucket Steamship Authority • The Steamship Authority issues its own bonds and notes, which includes the Commonwealth guaranty requiring the Commonwealth to provide the Authority with funds sufficient to meet the principal of and interest on their bonds • The Steamship Authority is currently self-supporting, requiring no net cost of service or contract assistance payments. As of June 30, 2012 the Steamship Authority had approximately $58.1 million of bonds outstanding. • Regional Transit Authorities • The subsidies and local assessments are paid one fiscal year in arrears to reimburse the authorities for the net cost of service not covered by operating revenues. In anticipation of receipt of these subsidies and local assessments in the following fiscal year the authorities issue revenue anticipation notes to fund their net costs of service. Legislation approved in 2008 gave the Commonwealth guaranty for revenue anticipation notes issued by regional transit authorities. As of October 1, 2012, revenue anticipation notes issued by regional transit authorities were outstanding in the aggregate principal amount of approximately $159.6 million.

  25. Commonwealth’s Existing Debt Portfolio: Contingent Liabilities • Commonwealth Full Faith and Credit (cont.) • University of Massachusetts Building Authority • The University of Massachusetts Building Authority may have outstanding up to $200 million in Commonwealth-guaranteed debt and had approximately $130.4 million of Commonwealth guaranteed debt outstanding as of April 30, 2013. • Massachusetts State College Building Authority • As of April 30, 2013, the Massachusetts State College Building Authority had approximately $28.3 million of Commonwealth-guaranteed debt outstanding. Under its enabling act, the Massachusetts State College Building Authority is not permitted to issue any additional Commonwealth-guaranteed debt.

  26. Commonwealth’s Existing Debt Portfolio: Contingent Liabilities

  27. Commonwealth’s Existing Debt Portfolio: Contingent Liabilities • Moral Obligation Debt • Massachusetts Housing Finance Agency (MassHousing) • As of April 30, 2013, MassHousing had outstanding approximately $196.3 million of multi-family housing bonds secured by capital reserve funds to pay debt service on bonds. Upon certification by the chairperson of MassHousing to the Governor of the amount necessary to restore the fund to at least the maximum annual debt service in any succeeding calendar year on all outstanding bonds, the Legislature may, but is not legally bound to, make an appropriation in such amount. No such appropriation has been necessary to date. • Massachusetts Development Finance Agency (MDFA) • Under legislation approved in 2010 and amended in 2011, MDFA (MassDevelopment) is authorized to issue bonds for the benefit of nonprofit community hospitals and nonprofit community health centers.

  28. Commonwealth’s Existing Debt Portfolio: Contract Assistance • General Obligation Contract Assistance Liabilities • Massachusetts Department of Transportation • On February 19, 1999, the Commonwealth and the Massachusetts Turnpike Authority entered into a contract which provides for the Commonwealth to make annual operating assistance payments to the MassDOT, as successor to the Authority, which are capped at $25 million annually and extend until the end of the 40th fiscal year following the transfer of certain facilities associated with the Commonwealth’s Central Artery Project to MassDOT. On June 30, 2009, the Commonwealth and the Turnpike Authority entered into a contract for financial assistance which provides for the payment by the Commonwealth to MassDOT, as successor to the Authority, of $100 million per fiscal year, commencing July 1, 2009 until June 30, 2039. Payments under both contracts constitute a general obligation pledge of the Commonwealth for which the full faith and credit of the Commonwealth are pledged. • Massachusetts Water Pollution Abatement Trust • The Massachusetts Water Pollution Abatement Trust manages the Commonwealth’s state revolving fund program under the federal Clean Water Act and the federal Safe Drinking Water Act. The Trust is authorized to apply for and accept federal grants and associated Commonwealth matching grants to capitalize the revolving funds and to issue debt obligations to make loans to local governmental units and others to finance eligible water pollution abatement and drinking water projects. The Commonwealth’s agreement to provide contract assistance constitutes a general obligation of the Commonwealth for which its faith and credit are pledged, and the Commonwealth’s contract assistance payments are pledged as security for repayment of the Trust’s debt obligations. • Massachusetts Development Finance Agency • On June 12, 2008, the Governor approved legislation amending a 2006 law authorizing an “infrastructure investment incentive” program, known as “I-Cubed.” Under the program, up to $325 million of public infrastructure improvements to support significant new private developments may be financed by bonds issued by the Massachusetts Development Finance Agency (MassDevelopment) that will be secured by and payable from a general obligation pledge of contract assistance from the Commonwealth.

  29. Commonwealth’s Existing Debt Portfolio: Contract Assistance • Budgetary Contract Assistance Liabilities • Route 3 North Transportation Improvements Association Commonwealth Lease Revenue Bonds • The Commonwealth is obligated to make payments equal to the debt service on the bonds and certain other expenses associated with the project. The obligations of the Commonwealth do not constitute a general obligation or a pledge of the credit of the Commonwealth and are subject to annual appropriation by the Legislature • Saltonstall Building Redevelopment Corporation Project • In May, 2002, MassDevelopment issued $195.8 million of lease revenue bonds pursuant to an agreement to loan the proceeds of the bonds to the MassDevelopment/ Saltonstall Building Redevelopment Corporation. The loan was used to finance the redevelopment of the Saltonstall State Office Building. Under the provisions of the legislation relating to the building’s redevelopment, the building was leased to MassDevelopment/Saltonstall Building Redevelopment Corporation for a term of up to 50 years, with extension terms permitted for an aggregate of 30 more years. The obligations of the Commonwealth under the office sublease do not constitute a general obligation or a pledge of the credit of the Commonwealth and are subject to annual appropriation by the Legislature. • Long-Term Operating Leases and Capital Leases • In addition to Commonwealth-owned buildings and facilities, the Commonwealth leases additional space from private parties. In certain circumstances, the Commonwealth has acquired certain types of capital assets under long-term capital leases; typically, these arrangements relate to computer and telecommunications equipment and to motor vehicles.

  30. Commonwealth’s Existing Debt Portfolio: Contract Assistance

  31. Commonwealth’s Existing Debt Portfolio: Contract Assistance

  32. Component Units of the Commonwealth • Chapter 165 of the Acts of 2012: “The [debt affordability] 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 that is determined to be a component unit of the commonwealth…” • Prior to enactment of Chapter 165, state finance law included a list of state authorities; Chapter 165 defines a state authority as … “a body politic and corporate constituted as a public instrumentality of the commonwealth and established by an act of the General Court to serve an essential governmental function; provided, however, that state authority shall not include: (1) a state agency; (2) a city or town; (3) a body controlled by a city or town; or (4) a separate body politic for which the governing body is elected, in whole or in part, by the general public or by representatives of member cities or towns.”

  33. Component Units of the Commonwealth • Not all authorities are component units. Whether an authority is a component unit is determined by criteria established by Governmental Accounting Standards Board (GASB) Statements 14 and 39. New GASB Statement 61 affecting component units will be implemented in FY13. • Component units are legally separate organizations for which the elected officials of the primary government are financially accountable. In addition, component units can be other organizations for which the nature and significance of their relationship with a primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. • The primary government is financially accountable if it appoints a voting majority of the organization’s governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government • The primary government may be financially accountable if an organization is fiscally dependent on the primary government

  34. FY12 Component Units of the Commonwealth • Massachusetts School Building Authority (MSBA)* • Massachusetts Department of Transportation (MassDOT)* • Includes the MBTA and 15 RTAs, which are component units of MassDOT • Massachusetts Water Pollution Abatement Trust (MWPAT)* • MassDevelopment* • Massachusetts Housing Partnership (MHP)* • 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

  35. UMASS, State Universities and Community Colleges • 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.

  36. Some Authorities are Not Component Units • To be a component unit, an entity must meet the criteria set out in GASB Statements 14 and 39 (and now GASB Statement 61). The following debt-issuing authorities have been determined not to be component units: • Massachusetts Port Authority • Massachusetts Water Resources Authority (MWRA) • Massachusetts Housing Finance Agency (MHFA) • Massachusetts Educational Finance Authority (MEFA) • Steamship Authority

  37. Commonwealth’s Existing Debt Portfolio: Component Unit Debt (Debt Outstanding in thousands as of June 30, 2012) • Blended Component Unit • Massachusetts School Building Authority ($5,443,265) • Major, Discretely Presented Component Units • MassDOT ($8,067,494) • Massachusetts Water Pollution Abatement Trust ($3,640,403) • Non Major, Discretely Presented Component Units • Massachusetts Development Finance Agency ($172,408) • Massachusetts Housing Partnership ($372,097) • Community Economic Development Assistance Corporation ($46,726) • Higher Education Institutions (Not Component Units)($3,370,389)

  38. Commonwealth’s Existing Debt Portfolio: Component Unit Debt (Debt Outstanding in thousands as of June 30, 2012)

  39. Commonwealth’s Existing Debt Portfolio:

  40. Projected Debt Profile: General Obligation Debt Based on FY2013-FY2017 Patrick-Murray Capital Investment Plan

  41. Projected Debt Profile: General Obligation Debt Based on FY2013-FY2017 Patrick-Murray Capital Investment Plan

  42. June Meeting Topics • June Meeting – June 20th • Rating Agency Criteria • Debt Ratios • Comparison states • Public Hearing in July

  43. Comparison States Additional • California • Illinois • Maryland • Minnesota • New Jersey • North Carolina • Ohio • Oregon • Pennsylvania • Washington Required • Connecticut • Maine • New Hampshire • Rhode Island • Vermont • New York Remove • California Add • Kansas • Oklahoma • South Carolina

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