Treasurer Goldberg Provides Testimony to House and Senate Committees on Ways and Means regarding Governor's Proposed FY 2023 Budget
Today, State Treasurer Deborah B. Goldberg joined the Massachusetts' House and Senate Committees on Ways and Means for a virtual hearing to discuss Governor Baker's proposed budget for FY23. Treasurer Goldberg provided testimony regarding how departments and agencies within Treasury performed at extraordinary levels amid the pandemic and how the Treasury will continue to provide critical services in the next fiscal year. Below are the Treasurer's remarks prepared for delivery:
REMARKS OF TREASURER DEBORAH B. GOLDBERG
Joint Ways & Means Committee Hearing
Tuesday, February 8, 2022
As prepared for delivery:
Chairman Michlewitz, Chairman Rodrigues and Members of the Committee. I want to thank you for the opportunity to testify regarding the Governor’s proposed budget for Fiscal Year 2023.
Bond Rating/Rainy Day Fund
Looking back at last year’s testimony, I realize that we were talking about potential withdrawals from the Rainy-Day Fund. Here we are a year later, and instead we are projecting additional deposits, bringing the balance to a record $6.64 billion!
I want to thank the Legislature and the Administration for your commitment to set aside these funds. Your efforts have built what rating agencies consider a “very strong balance”, estimated to be over 10% of operating expenditures.
Speaking of the rating agencies, in January,all three reaffirmed our ratings and provided a stable outlook. In doing so, they state this action reflects their expectation that the “[C]ommonwealth will continue its trend of strong financial management as it continues to navigate through the economic impacts of the pandemic…”
While their reports overall were positive, the rating agencies continue to refer to the Commonwealth’s “unfunded long-term liabilities (pension and OPEB) as some of the highest in the nation.” They also note that “the state’s contributions are consistently below the amount necessary to prevent the current liabilities from growing, posing a credit challenge over the long-term.”1
The $250 million supplemental transfer to the pension fund in Fiscal Year 2022 and the proposed supplemental transfer of $250 million included in the Governor’s Fiscal Year2023 budget are encouraging signs of our collective dedication to meet our obligation to beneficiaries. This is something we must continue to commit to.
I am happy to report that demand for Massachusetts debt remains strong. In fact, we were in the market last week and sold $650 million in General Obligation bonds. But, we have seen interest rates start to increase at a modest pace. The true cost of last week’s sale was 2.62%, compared to the recent low of 2.20% in September of 2021. Worth noting, however, rates are still significantly below the rates experienced in 2019, prior to the pandemic [e.g. 3.47% in May of 2019].
We remain committed to working alongside the Legislature and the Administration as we manage through historic risks and opportunities.
Speaking of historic, our pension fund continues to deliver strong returns and has reached a record $104 billion, up from $61 billion when I first took office in January 2015.
For the calendar year 2021, the PRIT Fund attained 20.1% net of all fees, which equates to an investment gain of $17.4 billion. We outperformed our benchmark return by over 8% net of fees, or $7 billion. This was the strongest outperformance in PRIM’s entire history,surpassing the previous record of 4% net of fees set in 1999.
As Chair of the Board that manages our pension fund, I am confident that the PRIT Fund’s performance is a result of our disciplined investment approach, well-diversified portfolio, and an experienced investment team that has positioned the fund for success in both upand down markets. The recognition PRIM has received for its innovative, low-cost, high- performing investment program is well-deserved.
We are also making progress on PRIM’s investment equity initiative, setting a goal that at least 20% of PRIM’s investment managers and vendors are women, people of color, or persons with disabilities. PRIM is actively working to reduce barriers for diverse investment managers to work with the Fund and has launched the FUTURE Initiative in May of 2021.This strategic initiative will help PRIM achieve the goals set out by legislation and position PRIM to be a leader in the industry by establishing best practices around diversity and inclusion. In fact, in December the PRIM Board voted allocations of $1 billion in its first series of investments for this initiative.
PRIM has also sharpen edits focus on incorporating Environmental, Social, and Governance factors into investment decisions across all asset classes. These initiatives are supported by an exceptional collaboration on groundbreaking research, with the Sustainability Initiative at MIT’s Sloane School, which will set the standards on data driven ESG investment.
At PRIM’s Administration and Audit Committee meeting last week, we voted to recommend that the Board incorporate industry-leading proxy guidelines relative to climate change and to recommend that the Board create an ESG Committee comprised of industry experts. This first-in-the-nation initiative will help to leverage the Fund to be a force that promotes worker safety, fosters diversity, fights against climate change, while still maintaining – and even increasing – our returns.
Turning to the Alcoholic Beverages Control Commission [ABCC], I would like to start by thanking each of you for your ongoing support.
More than ever before,the ABCC plays an integral role in the economic vitality and public safety of every community in our state. We support small business growth and protect consumers.
Throughout the pandemic, the ABCC has worked closely with the Massachusetts Restaurant Association, the Massachusetts Wholesalers Association, and other industry trade organizations to support licensees across the state. As an example, the ABCC implemented a payment plan for impacted businesses early on, which alleviated shutdown-related cash flow constraints. We are happy to announce the program was a great success for all industry stakeholders.
When I last joined you, we were still awaiting final license renewal numbers. Now we have numbers to share. In line with predictions, 8% of state licensees – which includes manufacturers, wholesalers, and shipping companies – have not renewed for calendar year 2022. Additionally, with 90% of municipalities reporting on retail license renewals, we are finding that only 5-7% have not renewed – a much lower number than originally thought.
To continue to modernize and streamline the license application process, the ABCC has worked with municipalities to successfully implement an electronic application submission process. This new procedure has expedited the review and approval process.
As you know, the pandemic has altered consumer behavior dramatically. The ABCC has seen an uptick in direct-to-consumer alcohol deliveries of 300%. Our workload has increased proportionately. Inspector investigators work tirelessly to vet direct shipment companies, prevent unlawful third-party deliveries, and collect excise taxes. Without increased enforcement and oversight in this area, the ABCC estimates that millions of dollars in excise taxes would go uncollected.
In Fiscal Year 2021, the ABCC generated $5.85 million in direct revenue for the state. We are on track to deliver over $5.6 million in Fiscal Year 2022 and hope to meet the same projection in Fiscal Year 2023. In addition,through collaboration with other state departments [the Department of Revenue, the Department of Unemployment Assistance, the Department of Industrial Accidents and the Massachusetts Lottery] we help collect back payments and penalties owed to the Commonwealth.
The Governor’s Fiscal Year 2023 budget funds the ABCC line-item [0610-0050] at just over $5 million [$5,072,163]. I appreciate the Governor’s support and respectfully request that the Legislature fund the ABCC’s administrative line-item at the full amount.
I am extremely proud of everyone who works at the ABCC. Under the most demanding circumstances, they have provided superlative service to all our constituents.
Thank you for your ongoing support of the Office of Economic Empowerment [OEE]. Their work supports the mission of the Economic Empowerment Trust Fund [EETF] authorized in 2015. This office is the first of its kind in the country and provides critical programs to individuals and businesses across the state.
We are now in the third year of the BabySteps Savings Plan, the state’s first child savings account program designed to empower all families to save for their child’s future, for both college and vocational/technical training. This public-private partnership deposits $50 in seed funding into a 529 account and wraps financial literacy around the entire participating family. Since its inception, almost15,000 families have enrolled [14,736] and have started on a path to support their child’s future. We continue to focus on increasing enrollment, particularly in communities disproportionately impacted by the pandemic, and aim to deliver more programming and financial education support.
The team at OEE has also conducted in-depth research on the state of personal financial literacy [PFL] education provided in our public schools. Massachusetts is one of only 12 states and the District of Columbia that have no state level requirement that schools teach or offer personal financial literacy content to students. I look forward to working with you to increase access to money management skills for youth.
The Governor’s Fiscal Year 2023 budget includes $726,700 in funding for OEE. I respectfully request your support for this amount.
I also respectfully request that the Legislature include the Fiscal Year 2022 earmark $90,000 for the EETF in this year’s annual budget. These funds will directly support the Trust Fund’s Covid response programming.
Veterans’ Bonus The Veteran’s Bonus Division has continued to remain exceptionally busy. The withdrawal from Afghanistan did not reduce the number of applications submitted by service members from Massachusetts. In fact, the number of applications and bonuses processed has actually consistently increased. For Fiscal Year 2021, the Division processed almost4,500 applications [4,437], an increase of 34% [34.3%] over Fiscal Year 2020. And, the applications keep coming in! Also, through a new partnership with the Department of Veterans’ Services, my office now administers the Persian Gulf Bonus. For the first time ever, all wartime bonuses are under one roof. As a one-stop-shop, the Division can now provide more timely, efficient service to our veterans.
This past October, we began awarding Massachusetts Covid bonuses to National Guard members activated to support the state’s Covid response. However, our authorization to award these bonuses ended with the end of the State of Emergency on June 15, 2021. And yet, we all know that the work of these brave men and women continues. National Guard members have since been activated to drive our children to school and provide back up for our essential healthcare workers. In fact, when I drove up for an outdoor Covid test in December, two National Guard members were helping assist the nurses at the hospital.
In recognition of this tremendous sacrifice, I respectfully request a change to the eligibility criteria, providing bonuses to all National Guard members activated to support the state’s Covid response, despite the date of their service.
Turning to the Massachusetts State Lottery, as you may recall, sales of all Lottery products dropped sharply at the onset of the pandemic. However, the Lottery’s ability to adjust with safe and nimble business practices has resulted in a record rebound.
The Lottery exceeded expectations for Fiscal Year 2021, generating a record net profit of $1.112 billion. We are currently on track to meet the projected net profit of $995 million in Fiscal Year 2022. Looking ahead to Fiscal Year 2023, the Lottery projects $1 billion in net profit.
As mentioned at the Consensus Revenue hearing, outcomes for Fiscal Year 2022 and projections for Fiscal Year 2023 both could be impacted by potential supply chain issues. I want to reassure you again that the Lottery has taken a proactive approach to mitigate any adverse impacts.
The Lottery’s mobile cashing feature continues to gain traction with customers. This feature enables customers to claim prizes of $601 to $5,000 and have their winnings securely deposited electronically into their bank account. Since its launch last year, almost 9,500 claims [9,450] have been processed, totaling over $12.5 million [$12,520,235] in prizes.
While we continue to evolve our operations to meet the latest technological standards and consumer trends, your continued operating and capital support of the Lottery is essential.
The Governor has filed a general governmental bond bill [H4336], which includes an authorization for $35 million to modernize the Lottery’s IT infrastructure. The authorization will facilitate the virtual and physical security infrastructure of Lottery facilities, including installing systems upgrades, decommissioning end of life equipment, and addressing cybersecurity vulnerabilities. I respectfully request your support of this important bill.
For Fiscal Year 2023, the Governor has proposed funding the Lottery’s operational account [0640-000] at $98.3 million. This funding is essential to cover standard operational and material costs that have increased over the course of the pandemic. I respectfully request your support for the full amount.
As always, I want to thank you for the opportunity to testify today and for the consideration of our requests.
Please consider my office a partner and a resource as you move forward with the budget drafting process.
I am happy to answer any questions.
1 Rappmund, D., January 27, 2022, Massachusetts (Commonwealth of) Update to credit analysis. Moody’s Investor Services.