Public Meeting Notice  Stabilization Fund & Long-Term Liability Financing Task Force - 9/25/25 Meeting Agenda

Kickoff Meeting Minutes
Date: September 25, 2025
Location: Virtual (Recorded; open meeting)
Convened by: Administration & Finance (ANF)

Attendees

• Chris Marino (ANF) – Assistant Secretary for Budget
• Laura Taronas (ANF) – Finance Director
• June Matte
• Thomas Smith-Vaughan (Office of the Comptroller)
• Tim Rooney (Department of Revenue)
• Sue Perez (Office of the Treasurer)
• Henry Dormitzer
• Pew Charitable Trusts 
  • Greg Mennis
  • Mark Robin
  • Sheanna Gomes

Purpose of Meeting

• Kick off the legislatively required task force created under the 2024 competitiveness and infrastructure investment law.
• Establish shared understanding of:
  • Section 5G of Chapter 29 (capital gains policy)
  • The Commonwealth Stabilization Fund
  • Long-term liabilities (pensions, OPEB, disaster relief)
• Review initial analytical work prepared by Pew Charitable Trusts.

Background

• Legislation diverts future interest earnings from the Stabilization Fund to a new matching pool for federal infrastructure and competitiveness opportunities.
• The task force was created to examine:
  • Long-term adequacy of the Stabilization Fund
  • Funding mechanisms for long-term liabilities
  • Performance and design of Section 5G capital gains policy

Statutory Charges Reviewed

The task force is required to examine and make recommendations on:

1. Appropriate long-term size of the Stabilization Fund
2. Funding approaches for long-term liabilities (pensions, OPEB, disaster relief)
3. Effectiveness and potential amendments to Section 5G
4. Best practices across states and implications for credit ratings

Capital Gains Policy Overview (Section 5G)

• Massachusetts capital gains tax:
  • Long-term: 5%
  • Short-term: 8.5%
• Capital gains are highly volatile and disproportionately drive revenue swings.
• Policy origins:
  • Implemented in FY2011 after the Great Recession
  • Established a $1 B threshold for capital gains used in the operating budget
  • Excess above the threshold allocated:
    • 90% to Stabilization Fund
    • 5% to Pension Fund
    • 5% to OPEB Trust
• Threshold indexed to five-year average GDP growth starting FY2014.

Pew Charitable Trusts – Key Findings

Policy Intent & Performance

• Original intent: reduce structural deficits by setting aside volatile, one-time revenue during strong economic periods.
• Pew estimates:
  • Over 70% of the $7.8 B increase in the Stabilization Fund since 2011 is attributable to Section 5G.
  • The policy aligns with national best practices for volatility-based revenue savings.
  • The policy is viewed positively by credit rating agencies.

Threshold Analysis

• Original $1B threshold was intentionally conservative (~10–15% below historical average at the time).
• Since implementation:
  • Capital gains have grown faster than GDP.
  • The threshold has not kept pace with economic growth, increasing conservatism by an estimated $300 M–$600 M.
• Contributing factors:
  • Initial delay in implementing annual adjustments
  • Use of five-year average GDP growth (creates lag during inflationary periods)
  • Extended period without a major recession

Illustrative Scenarios

• Counterfactual with no policy lag: threshold ≈ $1.9 B (≈ +$350 M)
• Rolling 10-year average with original conservatism preserved: ≈ $2.2 B (≈ +$600 M)

Policy Considerations Discussed

• One-time adjustment to the threshold, potentially paired with periodic review.
• Anchoring the threshold to a rolling average (more dynamic, but more complex).
• Re-examining allocation percentages (currently 90/5/5).
• Using budget stress testing to:
  • Define optimal Stabilization Fund size
  • Inform deposit and withdrawal policies
• Importance of aligning:
  • Deposit rules
  • Withdrawal principles
  • Long-term liability funding strategies

Discussion Highlights

• Strong agreement that budget stress testing should guide decisions on fund size.
• Emphasis on the Stabilization Fund as a true “rainy day” (or “monsoon”) reserve—not a routine budget tool.
• Noted that:
  • The fund has not been drawn down in recent years.
  • Some deposits have been redirected via budget policy, but the fund corpus remains intact.
• Acknowledged need to consider:
  • Time required to rebuild reserves after a drawdown
  • Interaction between deposit rules and withdrawal practices
  • Rating agency perspectives

Proposed Work Plan & Timeline

• Next meeting (mid-October): Stabilization Fund history, sizing, deposit and withdrawal rules
• Subsequent topics:
  • Pension liability and upcoming actuarial schedule
  • OPEB funding practices
  • Disaster relief as a long-term liability
  • Credit rating considerations
• Target report deadline: December 15
  • Draft sections to be shared on a rolling basis for feedback

Next Steps

• Schedule upcoming meetings.
• Pew to continue analysis and present additional findings.
• Members to provide feedback on:
  • Threshold adjustment approaches
  • Allocation flexibility
  • Additional topics for inclusion in the final report

1. Introductions
2. Task Force Background
3. Task Force Charges and Considerations
4. Capital Gains Policy in Massachusetts
5. Analysis of Capital Gains Threshold
6. Proposed Schedule with Topics