Treasurer Goldberg Provides Testimony to House and Senate Committees on Ways and Means regarding Governor's Proposed FY 2022 Budget
Today, State Treasurer Deborah Goldberg joined the Massachusetts' House and Senate Committees on Ways and Means for a virtual hearing to discuss Governor Baker's proposed budget for FY22. Treasurer Goldberg provided testimony regarding the challenges faced by our state and communities 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, March 2, 2021
As prepared for delivery:
Introduction
Chairman Michlewitz, Chairman Rodrigues and Members of the Committee, thank you for the opportunity to testify today regarding the Governor's proposed budget for Fiscal Year 2022.
Bond Rating/Rainy Day Fund
I would like to start by again thanking the Legislature and Administration for previously taking the necessary steps to build the state's Stabilization Fund. Your commitment year-over-year assured we had the resources required to buffer the state against this "rainy, rainy day".
In order to maintain critical state services, the Governor has proposed a withdrawal in Fiscal Year 2022 from the Stabilization Fund of up to $1.6 billion. Combined with the estimated drawdown for Fiscal Year 2021, the state's Stabilization Fund is projected to be reduced from levels considered "good" [7.3% of operating expenditures] to "adequate" [2.4% of operating expenditures].
As noted by S&P Global Ratings just10 days ago, "drawdowns of this magnitude are to be expected during economic downturns." S&P does not consider the proposed withdrawals as cause for credit concern, unless "indicative of a large ongoing structural deficit" or if "the state lacks [the] willingness to rebuild reserves during strong economic times." [#_ftn1] [1]
The Massachusetts fiscal picture remains relatively robust, with tax revenues currently exceeding estimates and growth expected to continue into Fiscal Year 2022. Federal government relief and increased reimbursements have helped bolster the state's financial outlook.
We remain committed to working alongside you and the Administration to manage our way through the recovery and then toward future economic expansion.
PRIM
As Chair of the Board that manages our $87 billion pension fund, I am pleased to report that we continue to deliver strong investment returns. This year has exceeded expectations even during the pandemic.
Calendar year 2020 performance was 12.1% [net of fees] which equates to an investment gain of $9.6 billion for the PRIT Fund. The six-month performance of 16.4% [net of fees] in the second half of 2020 was the highest six-month performance in PRIT history--surpassing the previous high in June of 1986.
In what was clearly an unprecedented and unpredictable year, we believe the PRIT Fund achieved this performance due to adherence to a disciplined investment approach, a well-diversified portfolio, and an experienced investment team that has positioned the fund for success in both up and down markets. I believe that the recognition PRIM has received for its innovative, low-cost, high-performing investment program is well deserved.
Sadly these returns do not reflect the hardship that many families across our state and our country currently face. However, I am heartened that our sound investment approach will allow us to deliver on our promise to the more than 300,000 beneficiaries--state and local employees, public-school teachers and retirees--particularly, as so many of them worry in this time of uncertainty.
I also want to thank you for your support of the investment equity provision included in the recent economic development legislation. This provision sets a goal to increase the diversity of PRIM's investment managers and contractors to at least 20%. This effort is a continuation of the important inclusion work ongoing at PRIM. We know, and all the data supports, that organizations that have more women and more people from diverse backgrounds have increased creativity, innovation and improved financial results with better returns for their stakeholders. I look forward to reporting to you on our progress.
ABCC
Turning to the Alcoholic Beverages Control Commission [ABCC], I would like to start by thanking each of you for your ongoing support.
More so than ever before, the ABCC plays an integral role in the economic vitality and public safety of every community and our state as a whole. We support small business growth, protect consumers, and promote public safety.
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. The ABCC implemented a payment plan for impacted businesses early on, which served to alleviate shutdown-related cash flow constraints. We are now 7 months into the payment plan, and I am pleased to report it has been successful.
When I last joined you, we were still awaiting final license renewal numbers. Well, we now have numbers to share. In line with predictions, 13% of state licensees, which includes manufacturers, wholesalers, and shipping companies, have not renewed for calendar year 2021. Additionally, with 90% of municipalities reporting on restaurant and hotel license renewals, we are finding that only 3-5% have not renewed--a much lower number than we originally thought.
Local, state, and federal programs have helped to provide much needed relief for these licensees. While encouraging, we will not be able to truly measure the impact of the pandemic on the industry until next year, when these relief programs have likely ended.
The ABCC is an important part of the Governor's COVID Enforcement and Intervention Team. As part of this work, the ABCC has visited and inspected over 21,000 licensed locations since August of 2020. Results of these inspections have shown that 98% of licensees are in compliance with the Governor's Executive Orders.
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.
The ABCC has also generated $5.1 million in direct revenue for the state in Fiscal Year 2020. We are on track to deliver over $5.1 million in Fiscal Year 2021 and hope to meet the same projection in Fiscal Year 2022. And, in collaboration with other state departments [the Department of Revenue, the Department of Unemployment Assistance, the Department of Industrial Accidents and the Massachusetts Lottery] the Agency helps collect back payments and penalties owed to the Commonwealth.
In the final Fiscal Year 2021 budget, the ABCC received an increase of $500,000 over Fiscal Year 2020 levels, allowing the team to hire 5 additional inspector investigators to meet these demands. Thank you!
The Governor's Fiscal Year 2022 budget level funds for the ABCC at the Fiscal Year 2021 amount. In the face of competing budgetary priorities, I appreciate the Governor's support. I respectfully request that the Legislature fund the ABCC's line-item [0610-0050] at Fiscal Year 2021 levels [$4,980,041].
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.
Your continued support for the team will enable them to meet the demands of a rapidly changing industry, promote local and statewide economic development, and improve health and safety outcomes.
OEE
I would like to thank you for your ongoing support of the Office of Economic Empowerment [OEE]. OEE provides critical programs to individuals and businesses across the state. Their work supports the mission of the Economic Empowerment Trust Fund [EETF] that you authorized in 2015.
Economic Empowerment Trust Fund
At the onset of the pandemic, OEE worked with the Trust Fund to quickly adapt our in-person programming, shifting to online formats and creating completely new virtual programs to address the changing needs of people across the state.
We completely revamped our outreach strategies and updated our websites to offer COVID-specific financial literacy tools and resources. We repurposed dollars set aside for in-person programming to offer grants to small businesses in Gateway Cities, the majority of which were women, minority, or veteran owned. And we launched Money Talk Tuesdays, a virtual talk show featuring empowerment experts from across the state on relevant topics, including understanding how the pandemic affects women, navigating the CARES Act, and avoiding COVID-19 scams and fraud, particularly for our seniors.
Additionally, an important aspect of our BabySteps Savings Plan is the ability to interact with the families of newborns and newly adopted children across Massachusetts who enrolled in the program. We have been able to reach them with our new digital tools and have already helped them save for their child's future, despite the obstacles posed by the pandemic.
In order to expand on our COVID-related programming, I respectfully request a new COVID-related account for the EETF [0610-0012] funded at $90,000.
These funds would be used to collaborate with Chambers of Commerce and local businesses, to directly advance the rehiring of those disproportionately impacted by the pandemic.
The statistics are mind-boggling. Nationwide, women have lost over 5.4 million jobs due to the pandemic. All jobs lost in December 2020 were held by woman! The vast majority were women of color, with 154,000 leaving the labor force in December, while men actually made gains in employment in the same month.[#_ftn2] [2]
Veteran's Bonus
Our Veteran's Bonus Division, this past year has seen extraordinary growth in its necessity and use. With your support, we announced the launch of our online application for the Massachusetts Global War on Terrorism [GWOT] Welcome Home Bonus, and subsequently added the Vietnam, Korean and World War II Bonuses online as well. This change to the application process could not have come at a better time, with people working virtually on their computers. Additionally, due to the pandemic, you authorized a new bonus for National Guard members mobilized in direct response to COVID-19.
Increased outreach, online applications, and the availability of a COVID Bonus has generated surge in applications of over 100% [1,660 in 2019 to 3,356 in 2020]. The results have been that in 2020, we awarded almost 4,000 [3,954] bonuses, totaling approximately $1.85 million. These bonuses have made a real difference in the lives of our veterans and service members, and will continue to do so.
To meet the increase in demand, I respectfully request a modest increase of $44,000 to the OEE line-item [0610-0010, which will allow our team to hire a dual program assistant to support both OEE and the Veterans' Bonus Division. This position would enhance OEE's work on military financial wellness and assist the Veterans' Bonus Division in processing increased applications and inquiries, while coordinating outreach. Operation Money Wise, our financial literacy program for members of the service, veterans and their families, has proven to us that outreach to the military community is significantly more effective when it comes from a person familiar with their experience and needs.
Deferred Compensation
The Deferred Compensation Department at Treasury has also been hard at work adapting our policies and procedures to meet the COVID-related needs of plan participants.
This Department administers the SMART Plan, a high-quality, low-cost retirement savings program available to Massachusetts state and municipal employees. And if you haven't joined yet, you should!
In line with the federal CARES Act [Coronavirus Aid, Relief, and Economic Security Act] the Department allowed for a new distribution option for SMART Plan participants-- the CARES Act withdrawal. Through December 31, 2020, this distribution allowed certain participants facing COVID-related financial difficulties to access Plan funds without facing the IRS early withdrawal penalty. In 2020, the SMART Plan facilitated over $146 million in COVID-related distributions.
To meet the unique needs of participants at this time, the Deferred Compensation Department will need to hire two additional full-time employees. The Department's unique challenge is the lack of flexibility to budget for the salaries of employees who run the SMART Plan, from the program's administrative expense account. Similar programs across state government have this capability, including the Massachusetts State Retirement Board [MSERS], the Massachusetts Teachers' Retirement System [MTRS], and the Public Employee Retirement Administration [PERAC].
Instead, Treasury's operating account must sustain these costs. I have filed H. 34, An Act relative to SMART Plan budgets for your consideration this session. This bill would allow the Department to budget for salary expenses in line with other state programs.
I respectfully request that the Legislature adopt H. 34 as part of its Fiscal Year 2022 budget. In the alternative, I respectfully request an increase to the Treasury operating account [0610-0000] of $150,000.
Lottery
I am pleased to report that despite the odds, the Lottery has continued to deliver important sources of unrestricted local aid to the cities and towns throughout the state.
As you know, sales of all Lottery products dropped dramatically at the onset of the pandemic. Overall sales in the months of March, April, and May 2020 decreased by a combined $244.6 million compared to the same period in Fiscal Year 2019.
Since then, our revenues have stabilized and improved. We recently revised our Fiscal Year 2021 net profit projection from $940 million to $985 million. Through January, Fiscal Year 2021 year-to-date sales have increased by 4.5% over Fiscal Year 2020, due in large part to increased sales of Mega Millions and Powerball tickets driven by large jackpots. Keno sales, however, still trail last year's numbers by over 11% [11.3%].
While we have regained ground, we remain vulnerable to disruption. The pandemic has brought unprecedented changes in consumer behavior. More than half [51%] of Americans today, use some form of contactless payment.[#_ftn3] [3] More-and-more retailers have also made the shift to e-commerce. Now, that consumers have experienced the ease and security provided by these types of transactions, for most, there is no going back.
As we manage this ongoing uncertainty and technological changes, your continued operating and capital support of the Lottery is essential.
I would like to thank you for authorizing the capital funds [$15 million] necessary to migrate core Lottery business functions from a legacy mainframe system to a new secure system. These funds were critical to keep current operations running without interruption.
For Fiscal Year 2022, the Governor has proposed funding the Lottery's operational account [0640-0000] at $86.5 million. I respectfully reques an increase to $92.9 million, which will directly support technology improvements, including cybersecurity and IT staffing. This investment will allow the Lottery to better equip itself in a data and technology driven business environment by replacing aging systems and introducing the new forms of technology necessary in today's business world.
The Governor has also included language in his budget authorizing cashless Lottery transactions. To be successful, the Lottery must have the operational flexibility to expand cashless transactions in a way that will benefit both retail businesses and the state.
At a time when we face increased challenges and demand for state services, the revenue generated by the Lottery is essential. We look forward to working with you to modernize the Lottery and to maximize our ability to meet the needs of your constituents.
Conclusion
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 joined remotely by Lottery Director Michael Sweeney and Deputy Treasurer for Debt Management, Sue Perez. We are happy to answer any questions.
###
Comentários