Massachusetts State Bond Rating Bounces Back As S&P Praises Historic Savings

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By Chris Lisinski
State House News Service

Beacon Hill is headed into the thick of budget season buoyed not only by consistently better-than-expected tax revenues, but also by a long-sought upgrade to the state’s bond rating.

Nearly six years after Standard & Poor’s Global Ratings knocked the Bay State’s credit rating down a peg, the agency upgraded its assessment of Massachusetts general obligation bonds from AA to AA+ late last week, according to state treasurer Deborah Goldberg’s office.

“The upgrade reflects our view that the Commonwealth’s commitment to strengthen its budget management practices supported by the state’s improved reserves and strong economy will be sustained through near-term recessionary pressures,” S&P wrote in a notice to investors, which Goldberg’s office quoted in a press release.

The new rating, more than half a decade and a pair of administrations in the making, landed amid two-plus years of surging tax collections and state budget surpluses. It could carry implications on borrowing costs budget-writers incur through bonding legislation regularly approved to fund public-sector investments.

“We are extremely pleased that the S&P credit rating is now aligned with the other ratings for the Commonwealth’s General Obligation bonds,” Goldberg said in a written statement. “The Governor’s proposed Fiscal Year 2024 budget sent a strong signal that the state’s commitment to prudent financial management continues across Administrations. Our Rainy-Day Fund Balance has reached [a] historic high of approximately $7.1 billion with additional deposits forthcoming, providing excellent coverage for when, no doubt, it will rain again. And we have made progress toward tackling and improving the state’s pension liability, lowering the actuarial rate of return to 7% and adopting the new three-year funding schedule.”

In June 2017, S&P Global Ratings lowered its rating for Massachusetts general obligation bonds from AA+ to AA, criticizing “the commonwealth’s failure to follow through on rebuilding its reserves as stipulated through its own fiscal policies.”

At the time, state government had collected hundreds of millions of dollars less in revenue than state officials expected in that year’s budget, and lawmakers and Governor Charlie Baker had recently agreed to spend excess capital gains tax collections rather than stick that money into reserves.

The Baker administration and the Democrat-controlled House and Senate moved to save significantly more money after the S&P downgrade. The state’s “rainy day” stabilization fund had a balance of about $1.2 billion in June 2017, and now stands at about $7.1 billion — about 13.5 percent the value of the fiscal year 2023 budget enacted last summer — three months into Governor Maura Healey’s term, according to Goldberg.

Top House Democrats forecast the rainy day fund could surpass $9 billion by the end of fiscal year 2024, and they want to raise the cap on allowable savings before automatic tax relief is triggered.

Goldberg, Baker, and other top officials went to New York in December 2022 to meet with the big three rating agencies and pitch the state’s financial outlook as strong.

The other two ratings agencies, Moody’s Investor Service and Fitch Ratings, rate the state’s general obligation bonds at Aa1 and AA+, respectively.

S&P also improved its long-term rating on Commonwealth Transportation Fund outstanding revenue bonds from AA+ to AAA, according to Goldberg’s office.

“I’m thrilled to see S&P recognize the work that we have been doing with the Legislature and Treasurer Goldberg in just a short time to continue to build the state’s reserves, while also investing in programs and people to ensure that our economy remains strong and vibrant,” Healey said in a written statement. “We will continue to lean on these best practices to put Massachusetts in the strongest position possible for short- and long-term success.”

Healey proposed transferring $100 million to the state’s pension fund in a supplemental budget (H 3545) she filed last month, which she described as part of an agreement the administration and legislative leaders made in the annual consensus revenue process “to fully pay down pension liabilities attributable to the 2015 Early Retirement Incentive Program ahead of schedule.”

The state’s Administration and Finance secretary, Matthew Gorzkowicz, said the upgrade is “proof that a state like Massachusetts can prudently build its reserves, cover long-term liabilities, and still invest in priorities like child care, schools, roads, and housing while balancing its books.”


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