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With state revenues crumbling, Massachusetts took out a $1.75 billion credit line

Governor Charlie Baker and other state policy makers face years of tough budgets, a report warns.Sam Doran/Pool

Drawing little public attention at the time, Massachusetts state officials opened a $1.75 billion line of credit this month to help plug budget gaps ripped open by the novel coronavirus, a grim fiscal reality that, one watchdog warned, could hang over the state for years.

The credit line, disclosed in a nearly 600-page financial statement released last week by state leaders, marks a rare step by state officials, both in its size and purpose. While the state regularly leans on tens of billions of dollars in borrowing to help fund projects, entering a line of credit to potentially help the state’s cash flow is more unusual.


The state entered the credit line on May 11 with a syndicate of commercial banks, including Bank of America, and it doesn’t expire until May 2021, according to the financial document.

State Treasurer Deborah B. Goldberg’s office, which is responsible for issuing the state’s debt, said the state has not yet drawn on the credit line.

The state regularly issues what are called revenue anticipation notes, or short-term debt, ranging from $1 billion to $1.5 billion each year, according to the treasurer’s office. But before recent legislation passed giving the state more flexibility, that debt had to be paid down in the same fiscal year.

“The times we are in are unprecedented and it requires being able to have access to funds,” the treasurer’s office said in an e-mail.

Goldberg referenced the line of credit in testimony to state budget writers in mid-April, saying her office was finalizing a “working capital borrowing facility." At the time, she described it as being “$1 billion-plus," according to her prepared remarks.

“This facility should be able to provide us with flexibility to draw down funds when we need them during this period of deferred tax revenues,” Goldberg said then.


Massachusetts isn’t alone in opening avenues to borrowing money amid the pandemic. Rhode Island lawmakers in March agreed to Governor Gina M. Raimondo’s request to borrow up to $300 million, and the budget New York lawmakers passed last month authorizes that state to borrow $11 billion, including a line of credit worth up to $3 billion that could help pay state expenses.

The Legislature this month passed a bill that gives the treasurer more flexibility in borrowing this fiscal year, which ends next month, but to not have to pay it back until June 2021. State Representative Aaron Michlewitz, the House budget chairman, said at the time that the amount could be “in the range of $3 billion,” depending on how the state’s finances weather the pandemic.

According to one watchdog, the state budget won’t weather it well. The Massachusetts Taxpayers Foundation projected in a report released Thursday that it could take five years for state revenues to exceed prepandemic levels.

Even that scenario comes with a caveat. For revenues to surpass prepandemic expectations by fiscal year 2025, tax receipts would need to grow at 6 percent annually, starting in fiscal year 2022 — a rate that would surpass average annual growth from the past decade.

At that pace, revenues would have still eroded by more than $11.9 billion in a five-year span. And should tax revenues fail to grow at those levels, it would take even longer to once again reach the $30.3 billion in tax receipts state officials had projected to collect this year.


“Despite the initial hopeful claims of MTF and others that both the economy and everyday life will recover on a faster track, current data, as well as recent history, suggest otherwise,” the report states, noting it took three years for revenues to recover after the recessions of 2002 and 2009.

“When the potential structural changes to key pillars of the economy are considered,” the report adds, “it could take considerably longer for the state to recoup tax revenues lost from this pandemic.”

The foundation cautions that there’s little certainty in predicting the economic tides during the health crisis. The business-backed budget watchdog has already downgraded its revenue forecast for next fiscal year, when it projects the state will lose $6 billion in revenue — far above the $4.4 billion it initially predicted.

Dozens of economists wrote to Governor Charlie Baker and legislative leaders this week, urging them to raise taxes, and avoid cuts, to balance the financial picture, arguing that slashing services is more harmful than raising costs on taxpayers.

But it’s unclear what appetite policy makers have for such a strategy, including Baker, a Republican who repeatedly pushed back against pursuing broad-based tax increases during healthier financial times.

Matt Stout can be reached at Follow him @mattpstout.