June 5, 2020 Commonwealth Credit Review Replay Information Please - - PowerPoint PPT Presentation

The Commonwealth of Massachusetts Bond Financing Programs

June 5, 2020 Commonwealth Credit Review

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Replay Information

Please note that a replay of the investor broadcast associated with the following slides is

• available. The replay can be accessed by following the link below and will remain available

until June 5, 2021.

http://munios.com/live/MACommonwealthJune

The full slide deck for this call is found in the pages below. These slides as well as those

• f prior investor calls may also be accessed by visiting the Investor and Rating Agency

Presentation Archive on the Commonwealth’s investor website at: www.massbondholder.com

For audio, participants are asked to dial in using the following information: Dial-in: +1 (888) 862-6557 Passcode: 49734822

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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, 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.

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TREASURER DEBORAH B. GOLDBERG

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GOVERNOR CHARLES D. BAKER

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COVID-19 and The Commonwealth

Sue Perez

Deputy Treasurer

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COVID-19 PANDEMIC - GLOBAL

• The outbreak of COVID-19 has spread globally, including throughout the

US and in Massachusetts, and on March 11, 2020, was declared a pandemic by the World Health Organization.

• In response to the pandemic, international, federal, state and local

governments, as well as private organizations, have implemented numerous measures intended to mitigate the spread and effects of COVID-19.

• Individuals and businesses have altered their behavior to adapt to such

measures and to respond to the spread of COVID-19.

• The continued spread of COVID-19, the mitigation measures

implemented, and these behavioral adaptations are causing, and are expected to continue to cause, severe disruption in global, national, and local economies, as well as global financial markets, and significant volatility in the US stock and bond markets.

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COVID-19 PANDEMIC - MASSACHUSETTS

• Mitigation measures have been undertaken in response to COVID-19, including:

the imposition of travel bans; temporary closure of schools, colleges, universities, early childhood education programs (with limited exceptions), and non-essential businesses, such as restaurants (with the exceptions for take-out

• rders), bars, and retail stores; limitations on gatherings of a certain size in

public and private venues; and a number of other social distancing measures.

• All of these measures have resulted in widespread economic disruption

throughout the Commonwealth.

• The extent of the economic and fiscal impacts within the state is not yet fully

known, and is expected to vary greatly depending on the duration and breadth

• f the COVID-19 pandemic, which remain uncertain.
• At this time the Commonwealth cannot predict the duration of the measures

taken in response to COVID-19, whether additional measures will be needed, or the extent of the impact of such measures on the state’s economy, budget or finances.

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COVID-19 PANDEMIC – MASSACHUSETTS CONTINUED

• It is anticipated that the COVID-19 pandemic will adversely impact the state’s

economy and financial condition in a number of ways.

• Many businesses are expected to experience decreases in operations and

revenues, which is expected to result in a reduction of certain revenues to the state; including personal income tax revenues, corporate business tax revenues, sales and use tax revenues, gaming revenues, lottery revenues and registry of motor vehicle revenues.

• Due to the temporary closure of non-essential businesses and the stay-at-

home advisory, there has been a significant reduction in traffic volume, which will likely result in a reduction in motor fuel excise tax receipts by the Commonwealth.

• The volatility in the stock market may result in lower capital gains tax

revenues and may negatively affect the Commonwealth’s investments and the valuations of the Commonwealth’s pension plans.

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FEDERAL FISCAL RELIEF RECEIVED BY THE COMMONWEALTH The Families First Act

The Families First Act provides paid leave, establishes free coronavirus testing, supports unemployment benefits, expands food assistance and protects health workers. The Families First Act includes an emergency 6.2% increase in the regular federal matching rate for states and territories to the Medicaid Federal Medical Assistance Percentage (FMAP) during the public health emergency. This FMAP increase is estimated to provide the Commonwealth with $530 million in unbudgeted revenue during the fiscal 2020 period.

Coronavirus Aid, Relief and Economic Safety (CARES) Act

The federal CARES Act provides $2 trillion of aid for, among other things, market stabilization efforts, expanded unemployment insurance, loans and grants to small businesses, direct payments to certain individuals, loans to corporations, businesses and health care systems, and approximately $150 billion for state and local governments of which the Commonwealth received $2.461 billion and two local government units received funding. The Commonwealth expects to utilize the CARES Act and other available federal funds to pay for the state’s emergency expenditures relating to COVID-19, including expenditures for personal protective equipment, medical equipment, and support for hospitals in managing the care of COVID-19 patients, and to provide necessary services to vulnerable populations such as supporting food banks and seniors who might not be able to obtain sufficient food and supplies.

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FEDERAL FISCAL RELIEF RECEIVED - CONTINUED U.S Department of Labor

Massachusetts applied for an amount not exceeding $1.2 billion in repayable advances to the Commonwealth’s Unemployment Trust Fund account from the federal unemployment account for the period April 2020 through June 2020, in accordance with the provisions of Section 1201 of the Social Security Act, to assure payment of all compensation that becomes due under the Commonwealth’s Unemployment Compensation Law. The number of individuals who have filed initial unemployment insurance claims in Massachusetts continues to rise. Since the Commonwealth’s Unemployment Trust Fund generally is funded through employer contributions, the federal funds will help ensure that individuals continue to receive unemployment benefits during the economic downturn caused by the COVID-19 pandemic.

• From March 15, 2020 to May 9, 2020, a total of 821,506 initial claims have been

filed for unemployment insurance.

• Additionally, from April 20, 2020 to May 9, 2020, approximately 255,000 claimants

have filed for federal Pandemic Unemployment Assistance (PUA), which provides payments to workers who are not traditionally eligible for unemployment benefits (e.g., self-employed individuals, independent contractors, and workers with limited work history) and who are unable to work as a direct result of the COVID-19 public health emergency.

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CASH FLOW AND BORROWING FOR DEFERRED REVENUES Commonwealth Revenues Deferred

• Personal income tax filing and payment deadline extended from April 15th to July 15th 2020.
• First estimated tax payment installment for fiscal 2020 extended from April 15th to July 15th .
• Collection of regular sales tax, meals tax and room occupancy taxes that would be due

March, April, and May postponed until June 20, 2020.

Commonwealth Liquidity

• In order to manage cash flows through the COVID-19 pandemic, the Commonwealth

entered into a line of credit with a syndicate of commercial banks in the amount of $1.75 billion.

• Special Legislation was enacted to authorize the Commonwealth to issue notes in

anticipation of revenues or for which revenues are not otherwise available, these notes will mature no later than June 30, 2021.

• Federal Reserve announced the establishment of a municipal liquidity facility (MLF),

pursuant to which the Federal Reserve will purchase notes from states and large cities and counties to provide liquidity for cash flow needs resulting from the delay of the federal tax filing deadline and the COVID-19 pandemic. The Commonwealth is eligible for assistance under this program and may borrow up to $7.859 billion.

• The Commonwealth anticipates that it will have sufficient liquidity to meet cash flow needs

for fiscal 2020 and fiscal 2021 through the existing liquidity and credit facilities and access to the capital markets.

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COVID-19 MASSACHUSETTS - REOPENING

• On May 11, 2020 Governor Baker announced a four-phase approach to reopening the
• Commonwealth. The goal of this phased reopening plan is to methodically allow

businesses, services, and activities to resume, while avoiding a resurgence of COVID-19 that could overwhelm our healthcare system and erase the progress we’ve made so far.

• Phase 1 began May 18, 2020 and applied primarily to construction, manufacturing and

houses of worship. On May 25th, additional businesses were eligible to open including laboratory and office spaces, certain personal care service providers (including hair salons, pet grooming and car washes), retail (remote fulfillment and curbside pickup), and recreational marijuana stores.

• Also permitted to open on May 25th with applicable guidelines were beaches, parks, drive-

in theatres, select athletic courts and fields, fishing, hunting, boating, and many outdoor adventure activities.

• Each phase will last a minimum of three weeks and could last longer before moving to the

next phase.

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For Up to Date Information on COVID-19 including status of Re-Opening the Commonwealth please visit: www.mass.gov/covid19

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Department of Revenue

• Dr. Kazim P. Özyurt

Chief Economist, Director, Office of Tax Policy & Analysis

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Monthly year-over-year changes in collections:

*The April 2020 revenue shortfall is attributable to multiple factors, including the extension of the personal income tax filing and payment deadline to July 15, 2020, the extension of the first estimated tax payment installment for fiscal 2020 to July 15, 2020, certain penalty waivers for the late filing and payment of corporate excise returns and payments and certain sales and meals tax returns and payments, the extension of the payment deadline for certain regular sales tax, meals tax and room occupancy excise payments to June 20, 2020, the closure of all non-essential businesses, stay-at-home advisories and the ban on on-site service at bars and restaurants, as well as the impact the COVID-19 pandemic has had on consumer and corporate behavior, the economy and the stock market.

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FY20 Year-to-Date (Through April)

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Recession has not been officially declared as of yet by the NBER (National Bureau of Economic Review), but general consensus is that we are in one. How deep is it? How long will it take to recover?

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Many states are significantly affected, facing budgetary challenges not only this fiscal year but also the next and maybe the following fiscal years.

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The impact of COVID-19 on consumers, businesses, the economy, and the stock market is significant.

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Deferral/extensions have also affected timing of collections of certain revenues, complicating the budgetary picture (may be temporarily).

 The extension of the income tax filing and payment deadline to July 15, 2020,  The extension of the income estimated payments to July 15, 2020,  The extension of the payment deadline for certain regular sales tax, meals tax and room

• ccupancy excise payments to June 20, 2020,

 Penalty waivers for certain corporate return filers, if they file their returns and pay any tax due

amounts by July 15, 2020

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DOR is very closely monitoring revenues and economic trends.

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FY20 Year-to-Date (Through April)

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FY20 Year-to-Date (Through April)

• Year-to-Date total: $23.045 billion
• -$1.463 billion, or -6.0% from the same period in fiscal 2019
• $1.932 billion below April Year-to Date benchmark
• Below benchmark performance in
• income tax,
• Sales tax

partially offset by

• corporate & business tax collections, and
• “All Other” taxes, incl. motor fuels, cigarettes, alcohol and deeds.

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FY20 Year-to-Date (Through April)

More specifically:

• Withholding: $11.521B, +$441M, +4.0% actual, +5.1% baseline, and $2M

above benchmark

• Non-withholding: $1.088B, -$2.078B or -65.6% actual, -62.6% baseline,

and $1.946B or 64.1% below benchmark

• Sales & use tax collections: $5.791B, +$192M, +3.4% actual, +2.3%

baseline, $174M or 2.9% below benchmark

• Corporate and business tax collections: $2.434B, -$176M, -6.8% actual, -

4.8% baseline; $101M or 4.3% over benchmark

• All Other taxes: $2.212B, +$159M, +7.7% actual, +3.7% baseline; $85M or

4.0% above benchmark

*Certain regular sales, meals, and rooms tax payments were partly affected by the deferrals; income estimated and return payments were affected by the filing/payment deadline extensions. Most of these payments will either be contained in FY20 or booked back to FY20. It is possible that certain corporate & business taxpayers may file their returns and make any tax due payments by July 15th because of penalty waivers.

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FY20 Year-to-Date (Through May)

• On June 3, 2020, the Massachusetts Department of Revenue (DOR)

announced that preliminary revenue collections for May totaled $1.738 billion, which is $320 million or 15.6% less than benchmark, and $262 million or 13.1% less than the actual collections in May 2019.

• For fiscal 2020 through May 2020, revenue collections totaled $24.782

billion, $1.726 billion or 6.5% less than the same fiscal year-to-date period in 2019, and $2.253 billion or 8.3% less than the year-to-date benchmark.

• Most categories of revenues were down in May except withholding.

Shortfalls in income return payments, sales and use tax, corporate and business taxes, and all other taxes were partly offset by surplus in withholding which was impacted by withholding on unemployment insurance.

• Return filing and payment deadline extensions and measures enacted to

mitigate the impact of COVID-19 significantly affected May revenues.

• DOR has received 20% fewer income tax returns through May 31st than

the same period last year, which is mostly due to the 2019 return filing and payment date extension.

For a full review of May’s preliminary tax revenue collections, please visit the Department of Revenue’s website at https://www.mass.gov/orgs/massachusetts-department-of-revenue

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Executive Office for Administration & Finance (A&F)

Michael Heffernan

Secretary

Catharine Hornby

Undersecretary

Mark Attia

Assistant Secretary

Kaitlyn Connors

Assistant Secretary

Bran Shim

Assistant Secretary for Budget

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Fiscal Year 2020 Operating Budget Update

COVID-19 Updates

• On May 12, 2020, Governor Baker filed a supplemental appropriations bill to

authorize certain COVID-19 spending in anticipation of federal reimbursement consisting of up to $1 billion for spending in fiscal 2020, with a zero dollar net cost to the Commonwealth.

• As fiscal 2020 revenues to date are lower than the revenue projected in the fiscal

2020 budget, when adopted, and certain expenses are higher, the Administration is evaluating whether further adjustments are necessary.

• Some budgeting flexibility is provided by a number of factors, including:
• The ability to reallocate budgetary savings;
• New sources of revenue, such as federal funding in response to COVID-19; and
• The recently enacted legislation allowing certain tax receipts collected in fiscal

2021 due to the extension of the income tax filing deadline to be recognized as fiscal 2020 revenue.

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Fiscal Year 2020 Operating Budget Update (continued)

Fiscal Year 2020 Operating Budget Estimates

• Tax revenues are based on the benchmarks set in the fiscal 2020 budget, as adopted

in July 2019 and as revised in January 2020, and have not yet been further revised as of the date of the Commonwealth’s most recent Information Statement – May 22, 2020.

• However, other revenue and expense items generally have been updated as of May

4, 2020, including adjustments in certain areas to reflect the expected impacts of the COVID-19 pandemic on the operations of the Commonwealth, such as:

• Decreases in lottery, gaming, registry of motor vehicle, and certain other

revenues due to the closing of non-essential businesses and the stay at home advisory issued in March 2020; and

• Increases in MassHealth costs and other areas incurred in response to COVID-

19.

• Adjustments to expenditures also reflect the anticipated reimbursement of COVID-19

related costs from federal funds.

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Fiscal Year 2021 Consensus Revenue Estimates

Fiscal Year 2021 Consensus Revenue Estimates

• On January 13, 2020, a fiscal 2021 consensus tax revenue estimate of $31.151

billion was agreed upon by the Secretary of Administration and Finance and the chairs of the House and Senate Committees on Ways and Means.

• After accounting for statutorily required transfers for pensions, and to the MBTA, the

MSBA and the Workforce Training Fund, the Secretary and Committee chairs agreed that $25.621 billion would be the maximum amount of tax revenue available for the fiscal 2021 budget. COVID-19 Update

• The fiscal 2021 consensus tax revenue estimate of $31.151 billion has not yet been

formally revised or adjusted in light of the outbreak of the COVID-19 pandemic and the anticipated negative fiscal impact the pandemic is expected to have on tax revenues.

• It is expected that a material adjustment or revision to the consensus tax revenue

estimate will result as the fiscal 2021 budget process proceeds through the Legislature, although the extent of any such revision is not known as of the date of the Commonwealth’s most recent Information Statement – May 22, 2020.

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Fiscal Year 2021 Governor’s Budget Recommendation (“H.2”)

Governor’s Budget Recommendation on January 22, 2020

• On January 22, 2020, the Governor filed his fiscal 2021 budget recommendation,

providing for a total of $44.6 billion in state spending, excluding $430.7 million in projected transfers to the Medical Assistance Trust Fund. Budget Approval Process Update

• The usual budget process and schedule has been disrupted by the COVID-19
• pandemic. The House of Representatives generally approves its version of the budget

in April, and the Senate generally approves its version in May. However, on May 4, 2020, the House of Representatives amended its rules to allow the fiscal 2021 budget to be released from the House Committee on Ways and Means as late as July 1, 2020.

• It is anticipated that one or more interim budgets will be enacted to provide funding

after the end of fiscal 2020 until a full budget can be enacted and approved by the Governor.

• It is expected that a material adjustment or revision to the consensus tax revenue

estimate will result as the fiscal 2021 budget process proceeds through the Legislature, although the extent of any such revision is not known as of the date of the Commonwealth’s most recent Information Statement – May 22, 2020.

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Office of the State Treasurer Debt / Capital Presentation

Sue Perez

Deputy Treasurer

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Financing Update

• Since the last investor call in February, the Commonwealth sold $685 million in

new money GO bonds. These were sold in three series, competitively.

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Series Par Amount Sale Date Award/ Bookrunner Maturity Range Avg Life All-In-TIC GO 2020 A $100 MM 2/19/2020 JPMorgan 2022-2029 7.3 1.08% GO 2020 B $200 MM 2/19/2020 BofA Securities 2032-2043 17.3 2.32% GO 2020 C $385 MM 2/19/2020 BofA Securities 2047-2050 28.6 2.76%

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Upcoming Transactions

Plan of Finance *

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Month Par Amount Structure Type Credit Method

• f Sale

Week of June 8th 2020 $175 MM Fixed-Rate Tax Exempt Refunding GO Negotiated Week of June 22nd 2020 $1,250 MM Fixed-Rate Tax Exempt/ Taxable New Money/ Refunding GO Negotiated September 2020 $1,250 MM Fixed-Rate Tax Exempt/ Taxable New Money/ Refunding GO Negotiated TBD 2020 $1,500 MM Revenue Anticipation Notes New Money GO Negotiated Q4 2020 $250 MM Fixed-Rate Tax Exempt New Money CTF Negotiated

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Ratings

All 3 rating agencies have affirmed the Commonwealth’s long-term ratings and maintained a stable outlook

• Moody’s Aa1
• “Massachusetts’ stable outlook reflects our expectations that the Commonwealth will continue its trend of

strong financial management, taking proactive measures to navigate credit challenges that are emerging as the country enters into an economic downturn.”

• S&P AA
• “In our view, Massachusetts' economic fundamentals and key anchors, which center on higher education,

technology, finance, and health care, should position the commonwealth for an economic rebound once pandemic restrictions are lifted.” The Commonwealth has “a history of timely monitoring revenues and expenditures and taking swift action when needed to make adjustments.”

• Fitch AA+
• “The AA+ rating on the Commonwealth of Massachusetts is linked to its considerable economic resources,

strong budget controls and a record of careful financial management.” “The Commonwealth has exceptional fiscal resilience, with strong gap-closing capacity stemming from a practice of building solid reserve balances and making revenue and spending changes as needed in response to changing circumstances.”

The Rating Agency reports are available at www.massbondholder.com.

*Such ratings reflect only the respective views of such organizations, and an explanation of the significance of such ratings may be obtained from the rating agencies. Please read the rating reports for a full understanding of the rating rationale.

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Issuance Timeline* 2020 Refunding Series A - $177 million

• Pricing on a negotiated basis June 9th
• Barclays will be the book-running senior manager
• Closing – June 23, 2020

2020 New Money Series D and Refunding Series B - $1,250 million

• Pricing on a negotiated basis the week of June 22nd
• BofA Securities will be the book-running senior manager
• Closing – July 2020

Our current Information Statement is available at www.massbondholder.com. The Preliminary Official Statements have also been posted to our website. To receive email notifications of our investor events please send us an email at: massbondholder@tre.state.ma.us or follow us on Twitter @BuyMassBonds

2020 Series A General Obligation Bonds

* Preliminary, subject to change 31

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Contact Information

Questions, please contact:

Office of State Treasurer Division of Debt Management Sue Perez Deputy Treasurer sperez@tre.state.ma.us (617) 367-3900 ext. 816 Kathy Bramlage Senior Debt Analyst kbramlage@tre.state.ma.us (617) 367-3900 ext. 494

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QUESTIONS

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