The Commonwealth's borrowing needs are regular and recurring, consistent with the borrowing patterns of most large states. The Debt Management Department is responsible for short-term borrowings that are needed to enhance the state's cash position throughout the fiscal year. This is needed because cash outflows to support state services and inflows in the form of tax revenues and federal grants are not even over the twelve-month period from July to June that constitutes a fiscal year. Short-term borrowings include the sale of revenue anticipation notes (or "RANs") as well as the issuance of commercial paper. Because these borrowings are for operations, all RANs and commercial paper are repaid by the end of the fiscal year.
Long-term borrowings conducted by the Debt Management Department are done to finance the state's capital budget. The department borrows by selling Commonwealth of Massachusetts bonds to investors. The capital budget is developed over a five-year horizon by the Administration and is made up of very expensive infrastructure projects which require large up-front outlays. Examples of these projects include roads, bridges, higher education campuses, state office buildings, prisons, etc. The amount of borrowing done annually and how bond proceeds are spent is determined by the Executive Office for Administration & Finance. Debt financing allows the Commonwealth to make capital investments in long-term public infrastructure with repayment occurring over the useful life of the asset; this spreads the burden of repayment over the state budgets during which the asset was utilized.
Because long-term borrowings are typically large and involve pledging the state's taxing powers, the Debt Management Department is prudent in how it structures its borrowings to ensure that the costs are as low and as affordable as possible while also posing as little risk to the operation of the Commonwealth as possible.
Based on recent legislative bond authorizations and the Administration's five-year Capital Investment Program, the Debt Management Department expects to issue approximately $2 billion in new bonds per year over the next five years. Cash flow requirements for the state's operating budget will also require the sale of roughly $1.5 billion to $2 billion per year in short-term notes and commercial paper to ensure that the Commonwealth's liquidity remains strong.
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Last Updated: 10/27/2009
Disclaimer: The information is provided for quick reference only and is not an exhaustive compilation of information for any particular bond issue. It does not purport to present full and fair disclosure with respect to Commonwealth of Massachusetts debt within the meaning of applicable securities laws.