Public Meeting Notice  November 21, 2025 Capital Debt Affordability Committee Meeting

Teleconference line: 1-301-715-8592

Meeting ID: 875 3086 8474

Passcode: 096551

The meeting was called to order at 1:02pm

Board members comprising a quorum:

Kaitlyn Connors, Chair, Executive Office for Administration & Finance

Martin Benison, Appointee of the Treasurer

Pauline Lieu, Office of the State Comptroller

Sue Perez, Office of the Treasurer and Receiver-General

Michelle Scott, Massachusetts Department of Transportation

Catherine Walsh, Appointee of the Governor

Others in attendance:

Representative Michael Finn, Chair of Bonding, Capital Expenditures, and State Assets Joint Committee Senator Paul Mark, Vice Chair of Bonding, Capital Expenditures, and State Assets Joint Committee

Daniel Aldridge, Office of the Treasurer and Receiver-General

Cory Bannon, Office of the Treasurer and Receiver-General

Aidan Bettencourt, Office of State Representative Michael Finn

Michael LaFlamme, Office of State Representative Michael Finn

Gita Swamy, Office of Senator Paul Mark

Joshua Tavares, Office of Senator Ryan Fattman

Timur Kaya Yontar, Executive Office for Administration and Finance

Minutes:

Ms. Connors called the meeting to order and conducted the roll to establish quorum.  She immediately moved into the agenda and called the first item of business which was Administrative Matters.  She asked for the approval of the meeting minutes from the November 14, 2025, committee meeting.  Upon a motion made by Mr. Benison, and duly seconded by Ms. Scott, the minutes were approved unanimously.

Ms. Connors then moved on to the next item on the agenda, where she recapped the current Committee schedule and work plan, highlighting that there are two scheduled meetings remaining (December 5^th and December 12^th), and that this meeting would be her last.  

She then turned to Mr. Yontar, who began his presentation by recapping the assumptions being used as model inputs, both those that are constant across scenarios and those that vary. He noted that compared to last year’s assumptions, we had revised the premium inputs downward, based upon data from the Treasurer’s office, specifically to 10%, 8.5%, 5.5%, and 3%. In the modeling we are focusing on the first two premium levels. Mr. Yontar and Ms. Perez showed the history of Bond Series’ premia since 2022, which have averaged 8.8% over 4 years, with two years’ averages in excess of 10% and a 10% median premium level. Mr. Benison asked whether the premia were all for bonds with 5% coupons, and Ms. Perez confirmed. Ms. Connors then noted that a 10% premium is not a stretch, especially since our scenarios allow for an increase in coupon to 5.5%, which would permit a higher premium than for 5% coupon bonds.

Mr. Yontar also clarified what is and is not being counted in revenue assumptions. Specifically, for total revenue amounts (to compare with debt service payments) we are excluding surtax revenues, but including capital gains tax collections – the latter is consistent with how the DAC has always calculated revenues. He also reiterated that the calculated CAGR assumptions of 3.2% (lowest 20-year CAGR; conservative) and 1.6% (lowest 10-year CAGR; stress) do not change whether surtax is included or excluded.

Then Mr. Yontar showed the outputs from three scenarios. Scenario #1’s key inputs are (i) interest rates starting at 5% and gradually increasing to 5.5% over 5 years, (ii) revenue excluding surtax, (iii) revenue CAGR of 3.2%, and (iv) premium of 10%. With these assumptions, annual bond cap growth of +$110 million is possible without breaching any of the statutory (outstanding principal level) or policy (debt service as a percent of revenues) limits. Scenario #2’s inputs are the same as #1 except that premium is reduced to 8.5%, with the result that at +$110 million of annual bond cap growth leads to a breach of the statutory debt limit in 2031. To avoid such a breach at the 8.5% premium level, annual bond cap growth must be reduced to +$95 million, as shown in Scenario #3. This is expected since the amount of outstanding principal is highly sensitive to premium level. In all scenarios the debt service remained well below the 7% threshold or 8% cap as a percent of revenues.

The committee members had several questions and comments. Mr. Benison observed that the +$110 million of annual growth will not have the same impact in, say, 2036 as it does in 2026, since inflation keeps eroding purchasing power. Ms. Scott asked what would happen if we exceeded the statutory debt limit in FY31, and Ms. Perez clarified that we cannot – it’s a wall. Ms. Lieu then asked whether bond rating agencies might lower our credit ratings if we approached the debt limit, and Ms. Perez responded that she believes that it would not affect ratings because the rating agencies do not know, or measure, how close we come to that limit. They do, however, know that as part of our governance, the Commonwealth monitors this, which is viewed positively.

The committee then moved into open discussion focusing on the tradeoff between premium level and bond cap growth level. Ms. Walsh asked whether +$100 million of annual growth was too much for 8.5% premium, and Mr. Yontar replied that yes, with those inputs the debt limit would just barely be breached. He also observed that the difference between the breach and no breach scenario outputs is less than a percentage point (in the no breach scenarios, outstanding principal peaks at 99+% of the limit, while in the breach scenario, it peaks at just over 100% of the limit). Mr. Benison asked for more color on the recent premia history, and Ms. Perez noted that there have been nuances around special obligation vs. general obligation, taxable vs. tax-exempt, and market volatility in response to tariff policy driving the fluctuations. She also noted that her office is budgeting a forecasted 10% premium assumption for 5% coupon bond issues.

Mr. Benison and Ms. Lieu initially expressed that they were leaning toward +$95 million of annual bond cap growth based on an 8.5% premium level. Ms. Connors and Ms. Perez said they were comfortable with +$110 million of annual bond cap growth based on a 10% premium level. Ms. Perez also emphasized that whatever level we choose, our messaging should communicate that we are close to the debt limit, that because of that a subsequent possibly could be to reduce bond cap growth in the future, and that no one should assume that the DAC will soon revert to prior practice and recommend a bump up to +$125 million of annual growth. Ms. Connors reiterated that the recommendation, as always, is only about the coming year’s increase, and there’s still several years to course correct before hitting the debt limit; she said A&F views +$110 million of annual growth as still reasonable but that we intend to watch it closely.

Mr. Benison asked whether we had to pick a specific scenario, and Ms. Connors noted that in the past we have described several scenarios as part of the rationale in our recommendation letter to the Governor, but ultimately our recommendation is the bond cap increase dollar amount. She also reminded the committee that our final letter was redone last year to be much more robust; it includes a discussion of the debt limit, at Ms. Perez’s request, as well as the caveat that CIP growth after the first year is assumed to be steady but could be reduced based on actual future results.

Ms. Walsh observed that in last year’s letter we had a table to show in which scenarios we were breaching or not. Ms. Perez recommended that we include all three scenarios to show how close we are and that Scenario #3 implies a possible future of lower bond cap growth, and Mr. Benison suggested that while showing that, the committee can note that we chose not to go there now but could opt for it at a later point.

Based on the sense that a consensus had formed, the committee did not ask for further modeling analysis. The intent for the next meeting, on December 5, would be to vote to adopt the committee’s recommendation to the Governor on the bond cap increase level for FY27. The meeting after that, on December 12, could be used to refine the wording of the letter containing the recommendation and the supporting deck of presentation materials and scenario outputs.

There were no more questions from Committee members.

On a motion made by Ms. Scott, duly seconded by Mr. Benison, and approved unanimously, the meeting was adjourned at 2:05 pm.  

1. Administrative Matters
   • Introductions
   • Adoption of meeting minutes from November 14, 2025 (Vote)
2. Debt Affordability Model Review and Preliminary Analysis Discussion Continued
3. Adjournment