November 13, 2020 Commonwealth Credit Review Replay Information - - PowerPoint PPT Presentation

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The Commonwealth of Massachusetts Bond Financing Programs

November 13, 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 November 13, 2021. http://munios.com/live/MACommonwealthNov2020 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: 50016853

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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 other similar words.

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TREASURER DEBORAH B. GOLDBERG

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GOVERNOR CHARLES D. BAKER

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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:

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FY20 Tax Collections

06/2020 Actual Collections 06/2020 v. 06/2019 $ Fav/(Unfav) 06/2020 v. 06/2019 % Fav/(Unfav) 06/2020 Actual vs Benchmark $ Fav/(Unfav) 06/2020 Actual vs Benchmark % Fav/(Unfav) 06/2020 YTD Actual Collections 06/2020 YTD

• v. 06/2019

YTD $ Fav/(Unfav) 06/2020 YTD

• v. 06/2019

YTD % Fav/(Unfav) 06/2020 YTD Actual vs Benchmark $ Fav/(Unfav) 06/2020 YTD Actual vs Benchmark % Fav/(Unfav) Income Income Withholding 1,094 (53)

• 4.6%

(122)

• 10.0%

13,736 528 +4.0% (4)

• 0.0%

Income Est. Payments 597 55 +10.1% 60 +11.1% 2,350 (118)

• 4.8%

(227)

• 8.8%

Income Returns/Bills 2,228 2,163 +3323.4% 2,163 +3354.1% 3,051 (37)

• 1.2%

199 +7.0% Income Refunds Net (outflow) (303) (266)

• 722.3%

(265)

• 691.7%

(1,789) (125)

• 7.5%

(106)

• 6.3%

Subtotal Non-withheld Income 2,521 1,951 +341.9% 1,958 +347.6% 3,612 (279)

• 7.2%

(134)

• 3.6%

Subtotal Income 3,615 1,898 +110.5% 1,836 +103.2% 17,348 249 +1.5% (138)

• 0.8%

Sales & Use Sales - Regular 419 9 +2.1% (25)

• 5.7%

4,905 217 +4.6% (131)

• 2.6%

Sales - Meals 62 (46)

• 42.5%

(53)

• 45.8%

1,077 (139)

• 11.4%

(204)

• 15.9%

Sales - Motor Vehicles 102 3 +2.7% (6)

• 5.9%

828 (66)

• 7.4%

(100)

• 10.8%

Subtotal Sales & Use 583 (35)

• 5.6%

(85)

• 12.7%

6,810 12 +0.2% (435)

• 6.0%

Corporate & Business - Total 449 (164)

• 26.7%

(101)

• 18.3%

2,924 (384)

• 11.6%

(46)

• 1.5%

All Other 166 (70)

• 29.6%

(91)

• 35.4%

2,514 27 +1.1% (74)

• 2.9%

Total Tax Collections 4,814 1,629 +51.2% 1,560 +47.9% 29,596 (96)

• 0.3%

(693)

• 2.3%

Notes: (1) The figures above exclude Tax-Related Settlements & Judgments exceeding $10 million each. The certified total for these was $0.0 million in June 2020 and $23.8 million during FY20 YTD. (2) The June and year-to-date benchmarks reflect the revised full Fiscal Year 2020 benchmark of $30.289 billion.

June 2020 Tax Collection Summary (in $ millions)

Month of June FY20 YTD as of June

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FY20 Tax Collections

• FY20 tax collections
• impacted by pandemic-related factors
• Recession,
• Federal monetary and fiscal policies,
• Extension of various tax return and payment deadlines, etc.
• Preliminary FY20 tax collections totaled $29.596 billion.
• $96 million or 0.3% below the final FY19 collections,
• $693 million or 2.3% below the final FY20 revenue estimate of $30.289 billion,

reflecting shortfall in almost all tax categories except estate tax.

• More specifically:

 Withholding ended FY20 at $13.736 billion, an increase of $528 million over FY19,

and $4 million below benchmark.

• Withholding on the expanded unemployment insurance benefits helped.

 Non-withheld personal income tax ended FY20 at $3.612 billion, $279 million less

than FY19, and $134 million below benchmark.

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FY20 Tax Collections

 Sales & use tax (which consists of regular sales, meals, and motor vehicle excise)

totaled $6.810 billion was $12 million above FY19 and $435 million below the FY20 benchmark.

 Corporate and business tax totaled $2.924 billion, $384 million below FY19, and

$46 million below the FY20 benchmark.

 “All Other” tax categories totaled about $2.5 billion, up $27 million from FY19, and

$74 million below benchmark.

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FY21 Year-to-Date (Through October) Tax Collections Update

10/2020 Actual Collections 10/2020 v. 10/2019 $ Fav/(Unfav) 10/2020 v. 10/2019 % Fav/(Unfav) 10/2020 YTD Actual Collections 10/2020 YTD

• v. 10/2019

YTD $ Fav/(Unfav) 10/2020 YTD

• v. 10/2019

YTD % Fav/(Unfav) Income Income Withholding 1,071 22 +2.1% 4,396 164 +3.9% Income Est. Payments 61 (1)

• 2.0%

659 (95)

• 12.6%

Income Returns/Bills 144 6 +4.0% 261 (7)

• 2.7%

Income Refunds Net (outflow) (101) 39 +28.1% (156) 47 +23.1% Subtotal Non-withheld Income 104 44 +71.9% 764 (55)

• 6.8%

Subtotal Income 1,175 66 +5.9% 5,160 109 +2.2% Sales & Use Sales - Regular 445 34 +8.2% 1,786 148 +9.0% Sales - Meals 81 (30)

• 27.3%

314 (147)

• 31.9%

Sales - Motor Vehicles 86 6 +7.0% 338 38 +12.5% Subtotal Sales & Use 612 9 +1.5% 2,437 39 +1.6% Corporate & Business - Total 77 1 +2.0% 932 103 +12.4% All Other 225 (14)

• 5.8%

818 (133)

• 14.0%

Total Tax Collections 2,089 62 +3.1% 9,347 118 +1.3% Note: 2) Regular sales, meals, and room taxes deferred for the period of March 2020 through April 2021 are expected to be paid in May 2021.

October 2020 Tax Collections Summary (in $ millions)

Preliminary as of November 4, 2020

Month of October FY21 YTD as of October

1) The figures above exclude Tax-Related Settlements & Judgments exceeding $10 million each. The total for these was $0.0 million in October 2020 and $14.6 million in FY21 YTD.

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FY21 Year-to-Date (Through October) Tax Collections Update

• Fiscal 2021 tax collections through October
• Year-to-Date total: $9.347 billion
• +$118 million, or 1.3% from the same period in fiscal 2020
• Increases in
• income tax,
• corporate & business tax collections, and
• sales tax

partially offset by

• Decreases in
• “All Other” taxes, incl. motor fuels, cigarettes, alcohol, and deeds.

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FY21 Year-to-Date (Through October Tax Collections Update)

More specifically:

• Withholding: $4.396B, +$164M, +3.9% actual
• The moderate withholding increase reflects unemployment

insurance benefits, one-time events, and timing factors

• Non-withholding: $764M, -$55M or -6.8% actual
• Sales & use tax collections: $2.437B, +$39M, +1.6% actual
• Corporate and business tax collections: $932M, +$103M, +12.4%

actual

• All Other taxes: $818M, -$133M, -14.0% actual

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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

• The Commonwealth continues to carry out a historic response to COVID-19,

protecting the health and safety of its residents by addressing critical priorities such as public health, food security, economic development, health care and human services, and support for local cities and towns – while maintaining fiscal discipline.

• On July 24, 2020, Governor Baker approved a supplemental appropriations bill for

Fiscal Year 2020 to “Authorize Certain COVID-19 Spending in Anticipation of Federal Reimbursement.” The bill authorized up to $1.1 billion in supplemental appropriations for spending in fiscal 2020, with a zero-dollar net cost to the Commonwealth.

• The bill established state spending authorization for the substantial, necessary

expenses incurred by the Commonwealth in its response to the COVID-19 pandemic that are likely to be reimbursable, in whole or in part, from federal sources, but which will be first paid with state dollars.

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Fiscal Year 2020 Operating Budget Update (continued)

Fiscal Year 2020 Operating Budget

• A&F was able to make certain adjustments to the operating budget during fiscal 2020

to allow the Commonwealth’s budget for fiscal 2020 to achieve statutory balance. Some budgeting flexibility for fiscal 2020 was provided by a number of factors, including:

• The ability to reallocate spending within the budget due to savings in certain

categories;

• New sources of revenue, such as the federal funding in response to the COVID-

19 pandemic, and

• Legislation allowing certain tax receipts collected in fiscal 2021, due to the

extension of the income tax filing deadline from April 15, 2020 to July 15, 2020, to be recognized as fiscal 2020 revenue.

• As a result, the Commonwealth’s budget for fiscal 2020 achieved statutory balance,

without the need to draw upon the Stabilization Fund, even though tax revenue collections for fiscal 2020 were $693 million, or 2.3%, less than budgeted.

• On September 30, 2020, the Governor filed a supplemental appropriations bill to

close out fiscal 2020, the major component of which was supplemental funding for MassHealth, whose caseload has increased, although primarily in populations with the highest federal reimbursement rates.

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Fiscal Year 2021 Budget Approval Process

• On January 22, 2020, the Governor filed his fiscal 2021 budget recommendation, providing for a total
• f $44.6 billion in state spending, excluding $430.7 million in projected transfers to the Medical

Assistance Trust Fund.

• The usual budget process and schedule has been disrupted by the COVID-19 pandemic. The House
• f 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.

• An interim budget of $5.25 billion for the first month of fiscal 2021 was filed with the Legislature by

the Governor on June 19, 2020. The bill provided spending authorization to maintain necessary services through approximately July 31, 2020.

• A second interim budget of $16.53 billion was enacted by the Legislature on July 28, 2020, and

signed by Governor Baker on August 4, 2020, extending the interim budget through approximately October 31, 2020.

• A third interim budget for fiscal 2021 of $5.4 billion was enacted by the Legislature and signed by

the Governor on October 26, 2020. The current interim budget assumes funding levels for specific items in almost all cases equal to the lower of the funding levels for such items in the Commonwealth’s fiscal year 2020 budget and Governor Baker’s proposed budget for fiscal year 2021 filed with the state legislature in January 2020, prior to the outbreak of the COVID-19

• pandemic. It is intended to meet necessary obligations before the enactment of the General

Appropriations Act for fiscal 2021 and will cease to be operative on the effective date of the General Appropriations Act.

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Governor’s Revised Fiscal Year 2021 Budget Recommendation

• On October 14, 2020, Governor Baker filed a revised proposed budget for fiscal 2021, which

includes $45.5 billion in state spending, an increase of $0.9 billion from the budget proposed by the Governor in January 2020, and a 3.8% increase over preliminary estimated state spending in fiscal 2020.

• The revised proposed budget assumes tax revenues of $27.592 billion, 11.4% less than the

consensus tax revenue estimate agreed upon in January 2020.

• The revised budget includes a withdrawal of up to $1.35 billion, of the approximately $3.5

billion Stabilization Fund balance, which would result in an ending fund balance still above 2018 levels.

• Budgeting flexibility for fiscal 2021 was provided by a number of factors, including:
• One-time resources that include enhanced Medicaid Federal Medical Assistance

Percentage (FMAP) offsets from the federal Families First Act and the use of the Stabilization Fund; and

• Re-forecasted expenses and spending reductions, including lower debt service.
• The revised proposal protects local aid for cities and towns and sustains eligibility and

benefit levels in social safety net programs. It maximizes the use of available revenue from the federal government to provide core government services and ensure adequate staffing and capabilities for the ongoing COVID-19 response.

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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 June, the Commonwealth sold $1.579 billion in new money and refunding GO bonds. These were sold in four separate series.

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Series Par Amount Sale Date Bookrunner Maturity Range Average Life (yrs) All-In-TIC

GO 2020 A Refunding $177.18 MM 6/9/2020 Barclays 2023 2.9 0.57% GO 2020 B Refunding $170.57 MM 6/25/2020 BofA Securities 2024-2034 9.3 1.57% GO 2020 C Refunding (Taxable) $456.66 MM 6/25/2020 BofA Securities 2022-2041 15.7 2.38% GO 2020 D $775.00 MM 6/25/2020 BofA Securities 2026-2048 20.0 2.91%

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Upcoming Transactions

Plan of Finance *

21 * Preliminary, subject to change

Timing Par Amount Structure Type Credit Method

• f Sale

Week of Nov 16, 2020 $1,362MM Fixed-Rate Tax Exempt/Taxable New Money/ Refunding GO Negotiated December 2020 $1,200MM Revenue Anticipation Notes New Money GO Negotiated Q1 2021 $350MM Fixed-Rate Tax Exempt New Money CTF Negotiated Q1 2021 $500MM Fixed-Rate Tax Exempt New Money GO Competitive Q2 2021 $500 MM Fixed-Rate Tax Exempt New Money GO Competitive

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22 * Preliminary, subject to change

Next Week’s Financing Overview and Additional Information

Issue* $500,000,000* General Obligation Bonds Consolidated Loan of 2020 Series E $417,655,000* General Obligation Refunding Bonds 2020 Series D $444,090,000* General Obligation Refunding Bonds 2020 Series E (Federally Taxable) Tax Status Tax-Exempt Tax-Exempt Federal: Taxable Commonwealth: Tax-Exempt Use of Net Proceeds New Money Refunding Refunding Amortization* 2022-2050 2034-2042 2022-2034 Ratings (Moody’s/S&P/Fitch) Aa1 (Stable) / AA (Stable) / AA+ (Stable) Timing* Taxable Indications of Interest and Tax-Exempt Retail Order Period: November 18, 2020 Taxable Launch and Tax-Exempt Pricing: November 19, 2020 Closing* December 3, 2020 Preliminary Official Statement https://emma.msrb.org/P21412468-P21097677-P21506815.pdf Additional Information www.massbondholder.com

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Preliminary Amortization

* Preliminary, subject to change

Maturity (11/01)* Par Amount* 2022 $20,000,000 2025 25,000,000 2026 25,000,000 2027 25,000,000 2028 25,000,000 2029 25,000,000 2030 25,000,000 2031 25,000,000 2032 25,000,000 2033 25,000,000 2043 30,000,000 2044 30,000,000 2045 30,000,000 2046 30,000,000 2047 30,000,000 2048 30,000,000 2049 35,000,000 2050 40,000,000 Maturity (11/01)* Par Amount* 2022 $75,760,000 2023 6,850,000 2024 6,885,000 2025 48,470,000 2026 41,245,000 2027 36,745,000 2028 61,920,000 2029 13,200,000 2030 25,025,000 2031 34,725,000 2032 24,435,000 2033 58,840,000 2034 9,990,000

$500,000,000* General Obligation Bonds Consolidated Loan of 2020 Series E $417,655,000* General Obligation Refunding Bonds 2020 Series D

Maturity (11/01)* Par Amount* 2034 $34,460,000 2035 45,555,000 2036 46,550,000 2037 47,215,000 2038 28,105,000 2039 29,370,000 2040 70,120,000 2041 85,060,000 2042 31,220,000

$444,090,000* General Obligation Refunding Bonds 2020 Series E (Federally Taxable)

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Summary of Potential Bonds to be Refunded*

* Preliminary, subject to change (1) Registered trademark of American Bankers Association. No representation is made as to the accuracy of the CUSIP Numbers of the Refunded Bonds. CUSIP numbers are included solely for the convenience of the Holders of the Refunded Bonds.

Series Maturity Coupon Par CUSIP(1) 2001B 1/1/2021 Variable 48,250,000 NA 2011D 10/1/2025 3.000% 42,000,000 57582PB66 2011D 10/1/2028 4.000% 48,000,000 57582PB90 2013D 8/1/2033 3.750% 20,000,000 57582PN48 2013D 8/1/2033 4.000% 15,000,000 57582PN55 2014A 12/1/2034 5.000% 20,000,000 57582PU24 2014A 12/1/2035 5.000% 20,000,000 57582PU32 2014A 12/1/2036 5.000% 20,000,000 57582PU40 2014A 12/1/2037 5.000% 20,000,000 57582PU57 2014A 12/1/2040 5.000% 40,000,000 57582PU81 2014A 12/1/2041 5.000% 20,000,000 57582RYX8 2018A 2/1/2021 Variable 118,505,000 57582RSD9 Total $431,755,000 Series Maturity Coupon Par CUSIP(1) 2012B 6/1/2027 3.000% 35,000,000 57582PF96 2012B 6/1/2042 4.000% 34,000,000 57582RG59 2012C 10/1/2027 4.000% 31,745,000 57582PG46 2012C 10/1/2028 3.000% 10,000,000 57582PG53 2012C 10/1/2029 3.000% 10,000,000 57582PG61 2012C 10/1/2030 3.000% 22,000,000 57582PG79 2012C 10/1/2031 3.000% 32,000,000 57582PG87 2012C 10/1/2032 3.250% 22,000,000 57582PG95 2012C 10/1/2033 3.250% 21,965,000 57582PH29 2012C 10/1/2034 3.250% 23,090,000 57582PH37 2012C 10/1/2035 3.375% 24,275,000 57582PH45 2012C 10/1/2036 3.500% 25,520,000 57582PH52 2012C 10/1/2037 3.500% 26,690,000 57582PH60 2012C 10/1/2038 3.600% 27,780,000 57582PH78 2012C 10/1/2039 3.625% 28,915,000 57582PH86 2012C 10/1/2040 3.625% 30,095,000 57582PH94 2012C 10/1/2041 3.625% 31,325,000 57582PJ27 2012C 10/1/2042 3.625% 32,600,000 57582PJ35 Total $469,000,000

Tax-Exempt Refunding Candidates Taxable Refunding Candidates

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Recent GO Ratings

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

• Fitch AA+

“The AA+ rating on the Commonwealth of Massachusetts reflects its considerable economic resources, adroit management of economic and revenue cyclicality and strong budget controls. A strong reserve funding mechanism that shields the general fund from volatility, careful revenue monitoring and a requirement to cut spending or identify other balancing measures if revenues fall below planned spending are among the fiscal management tools that position the commonwealth to confront near-erm public health, economic and fiscal uncertainty. The commonwealth carries a long-term liability burden for debt and net pension liabilities, adjusted to Fitch’s standard 6% investment return assumption, that is well above the U.S. state median but remains a moderate burden on resources.”

• Moody’s Aa1

“The Aa1 rating reflects the commonwealth's robust economic base in good times and its strong management practices to help navigate challenging times. The commonwealth retains strong social factors, such as a highly educated workforce and high-income levels, that draw employers and help the commonwealth afford its elevated long-term liability burden. Reliance

• n economically sensitive revenues is balanced by healthy reserves and the ability to access alternate sources of liquidity.

Massachusetts' strong governance framework is reflected in its sound financial and budgetary management practices, which will remain key credit factors as the state navigates future uncertainty.”

• S&P AA

“The stable outlook reflects our view that Massachusetts’ strong BSF provides a cushion allowing the state to ride out the current pandemic-related economic slowdown without significant liquidity pressure. This supposes that the commonwealth's economy will rebound after fiscal 2021, and that Massachusetts will rebuild its BSF once the economy is again in an expansionary mode.

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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Preliminary Financing Schedule and Additional Resources

Financing Schedule*

Sue Perez Deputy Treasurer 617-367-3900 x816 sperez@tre.state.ma.us Kathy Bramlage Senior Debt Analyst 617-367-3900 x494 kbramlage@tre.state.ma.us

November / December 2020 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4 5

Contact Information

Additional Resources

• Information Statement as of October 28, 2020
• https://emma.msrb.org/MarketActivity/ContinuingDisclosureDetails/P21077039
• Massachusetts Investor Website
• https://massbondholder.com
• Department of Revenue
• https://www.mass.gov/service-details/dor-press-releases-and-reports

Tuesday, November 10: Post POS Friday, November 13 at 2:00PM: Investor Call Wednesday, November 18: Indications of Interest / Retail Order Period Thursday, November 19: Taxable Launch and Tax-Exempt Pricing Thursday, December 3: Closing of the Bonds

* Preliminary, subject to change

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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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QUESTIONS

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