The State House Notes program (SHN) is older than the Division of Local Services (DLS). It has been a longstanding program within the State Department of Revenue, inherited by a newly created DLS in the early 1980s. As of January 1, 2011, the program will mark its one hundredth anniversary. It was initially established by the Massachusetts Legislature in Chapter 616 of the Acts of 1910 and made free of charge by Governor Deval Patrick's Municipal Relief Act of 2010. The program is administered by the Bureau of Accounts within Local Services.
The Bureau of Accounts provides certification services for municipal issuers, predominantly Massachusetts' smaller towns and districts. The certification is, in effect, a guarantee of the genuineness of the note. While it is not a certificate of the legality of the loan, the Director of the Bureau of Accounts (currently Gerry Perry) is required to withhold his certification signature if the laws relating to municipal indebtedness have not been complied with, or if it appears that the proceeds of the note are not to be used for the purpose specified in the vote authorizing the loan.
Similar to years past, the State House Note Program in Fiscal Year 2010, saw a wide variant in the types of communities and entities applying for notes and for what amount. During FY10, there were a total of 407 notes with 210 municipal entities responsible for the payments.
Towns dominate the SHN program: 81.9 percent of the notes certified were for towns, while a smaller percentage was represented by districts (16.7 percent) and even fewer for cities (1.4 percent). The majority of municipal entities that borrowed using SHN did so with very few notes: 110 of the 210 municipalities that were a part of SHN had only one note. However some towns bought a relatively large number of notes: Montague (9), Hopkinton (7), Westminster (6), and Millis (6).
The FY10 notes in the State House Note Program were issued by towns for 47 different purposes. Similar purposes are grouped by DLS in our records. Examples of these lumped purposes are: Building, Departmental Equipment, Street and Highway, School, Sewer, and Water. Other popular "purposes" were: Land Acquisition, Municipal Purpose Loan, and Revenue. Municipal Purpose Loan (91) and Revenue (51) were the two highest categories. Only 39 of the 407 (10.6 percent) notes were not categorized under one of the nine purposes listed above.
The total amount of money included in notes certified through the SHN program was $298,798,915.59. The amount of money in each note varied, ranging from a low of $10, 343.51 to a high of $6,400,000. The largest six notes, and 12 of the top 13, notes certified through SHN were for Revenue or Municipal Purpose Loans. The smallest notes were mostly for Departmental Equipment.
Only 27 of the notes issued in fiscal 2010 will not be paid within one year. The majority (20) of these notes were serial notes, which have an average lifespan of 1,953 days. The serial notes skew the overall average time of each note. Excluding the serial notes, the average number of days per note is only 236 days. The majority of the borrowing in FY10 was for capital purposes. The only exceptions were the 51 notes for Revenue, and the 3 notes issued for Deficits.
In 2010, the Municipal State House Note Program had various banks purchasing the notes. This year 14 banks purchased a portion of the 407 notes. Only three of the banks purchased one note, while Eastern Bank and UniBank purchased the most by a great margin with 147 and 99 notes respectively.
Nick DeChillo was a summer intern within the Bureau of Accounts at the Division of Local Services. He is currently a senior at the University of Massachusetts Amherst, majoring in finance and minoring in economics.