Minutes for 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