Commonwealth of Massachusetts
Executive Office for
Administration and Finance
Debt Affordability
Committee (DAC)
FY26 Bond Cap Recommendation
December 13, 2024
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Debt Affordability Committee | Table of Contents
Debt Affordability Committee (DAC) Bond Cap Advisory Recommendation for Fiscal Year (FY) 2026
1. Introduction
2. FY 2026 Advisory Recommendation
DAC Recommendation Reference Materials
3. Debt Affordability Modeling Update
4. Revenue & Related Trends
5. Interest Rate & Bond Premium Trends
6. Commonwealth Debt Overview
7. Credit Factors
8. Capital Investment Plan (CIP) Overview
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 1. INTRODUCTION
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 Debt Affordability Committee | Overview and Charge
Committee was created in 2012 to review existing Massachusetts debt and advise on issuance of new debt.
Capital Debt Affordability Committee (DAC) was established for the purposes of reviewing the amount
and condition of the state’s tax-supported debt, as well as the debt of certain state authorities.
Statutory Charge
DAC was created by Chapter 165 of the Acts of 2012, and codified in M.G.L. Ch. 29, Sec. 60B.
DAC is responsible for providing an estimate of the total amount of new capital spending supported by
general obligation debt (“bond cap”) that can prudently be issued by Massachusetts for the next fiscal year,
Responsibilities considering certain criteria.
• The estimate is reported by DAC to the Governor and Legislature on or before December 15.
• Estimates are advisory and not binding on the Governor or the Legislature.
Committee consists of seven voting members, including the Secretary of Administration and Finance (who
chairs), the State Treasurer, the Comptroller, the Secretary of Transportation, one appointee of the
Governor and two appointees of the State Treasurer.
Committee Membership
Committee also includes nonvoting members, including the House and Senate chairs and the ranking
minority members of the Committees on Bonding, Capital Expenditures and State Assets, and the
Committees on Ways and Means.
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 Debt Affordability Committee | Debt Limits & Administrative Policies
To inform its recommendation, the DAC considers statutory debt limits and DAC policies, as well as other criteria.
While the Committee’s recommendation is for the upcoming fiscal year (fiscal year 2026), the Committee takes a long-term approach to
its analysis and considers future debt issuances over a 30-year time horizon. While the Committee looks at the projected impact of its
recommendation for 30 years, due to the uncertainty of long-term assumptions regarding tax revenues and interest rates in the
municipal market the Committee’s focus is largely on the next 10 years.
Massachusetts has a legally binding statutory outstanding Debt Limit Other DAC Considerations
Statutory Debt Limit • Capital Plan Spending
The amount of outstanding principal of Commonwealth “direct” debt is capped at 105% of the previous • Credit Ratings
fiscal year’s limit • Debt ratio analysis
• Comparison to other states
• FY24 Limit: $30.7 billion
• Type of debt outstanding (fixed, variable, hedged debt)
• FY25 Limit: $32.2 billion
• Other Commonwealth tax supported debt
• FY26 Limit: $33.8 billion
• Construction escalation
The DAC targets a bond cap recommendation that, when modeled, results in direct debt remaining
below the direct debt limit over the next decade, assuming reasonable future bond cap growth,
economic conditions, and debt structuring assumptions
DAC has traditionally followed additional policies adopted by A&F and
the Committee:
Administrative Policies
Annual Borrowing Limit: Annual Debt Service Payments < 8% of budgeted revenues
• FY23 Limit: $4.9 billion
• FY24 Limit: $4.9 billion
• FY25 Limit: $5.0 billion
The DAC targets a bond cap recommendation that, when modeled, results in debt service
remaining below 7% of budgeted revenues over the next decade, assuming reasonable future
bond cap growth, economic conditions, and debt structuring assumptions
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 Debt Affordability Committee | Recommendation Work Plan
From Oct to Dec, the Committee met 7 times to review data and analysis used to inform its FY 26
Recommendation. Below is an overview of the DAC work plan
Meeting Meeting
Topics Covered
# Date
• DAC Overview​
1
Oct 11 • MA Debt Portfolio Overview​
• Credit Factors Review
• Revenue Update
2 Oct 25 • Commonwealth CIP Overview
• Model Refresh Update
3 Nov 8 • DAC Model Update & Review
• DAC Model Update & Review (cont.)
4 Nov 22 • Prelim Debt Affordability Analysis​
• Debt Affordability Policy Review & Refresh
5 Dec 4 • DAC Model Update & Review Discussion (cont.)
• DAC Model Update & Review (cont.)
6 Dec 6 • Debt Affordability Analysis​ (cont.)
• Debt Affordability Policy Review & Refresh (cont.)
• Debt Affordability Analysis and Review (cont.)
7 Dec 13
• FY26 Recommendation Approval​
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 Debt Affordability Committee | Key Findings
Key Findings Summary
• Credit Ratings: The Commonwealth’s general obligation (GO) credit rating is strong (Aa1/AA+/AA+), supported by a robust and diverse economy, high
income levels and a history of strong financial management. Relatively high debt levels compared to other states is the biggest credit offset, however state
investment in local communities is a driver of these relatively elevated levels. Unlike many other state GO credits, the Commonwealth issues debt for both
state and local level purposes.
• Debt Service Affordability: Debt service as a percentage of revenues is approximately 4% - well below the Committee’s targeted affordability limits. The
Committee found that debt service as a % of revenues remains within policy limits in all modeling scenarios except the revenue “stress test” scenario, which
shows debt service exceeding the revenue limit sometime within in 2047–2049. However, this is well outside the 10-yr window that the DAC tends to focus on.
• Direct Debt Limit: The Committee views the statutory direct debt limit as the most constraining factor in its affordability analysis. At the end of fiscal year
2024 current outstanding direct debt was 89% of the current statutory direct debt limit, however this buffer is expected to decrease in the coming years as the
bond cap continues to grow. Modeling suggests outstanding direct debt will hover around 99% from 2031 – 2037, assuming reasonable assumptions around
future bond cap growth and economic conditions.
• Construction cost escalation: Construction cost escalation, which has been historically high, is something the Committee continues to monitor. The
Committee notes that construction escalation has outpaced CIP growth in recent years, and while construction escalation has somewhat cooled, it still remains
a capital challenge and will likely continue to erode the CIP’s purchasing power. We note that this erosion is likely to be further compounded given bond cap
growth will be constrained by the direct debt limit.
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 Debt Affordability Committee | Key Findings (cont.)
At the end of FY24 MA current outstanding debt was 89% of the current limit, however buffer will decrease if net
bond cap growth outpaces direct debt limit. DAC modeling suggests that the direct debt limit is the constraining
factor to consider for this year’s recommendation.
Debt Limit Recap
• The direct debt limit increases by 5% each fiscal year (per
statute)
• Buffer between the statutory limit and actual outstanding debt
is a function of annual net new principal (new principal issued
– principal being paid off) vs direct debt limit growth (5% YoY)
• Amount of new principal is a function of actual capital spending
(annual bond cap budget is presumed capital spending)
• Model inputs that impact direct debt forecasting:
• Future Bond Cap Growth
• Premium = bonds proceeds for capital spending above
par amount therefore it doesn’t count towards direct debt
limit.
• NOTE: Interest rate and revenue growth assumptions
have no bearing on direct debt forecasting
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 2. FY 2026 Advisory Bond Cap Recommendation
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Debt Affordability Committee | DAC Fiscal Year 2026 Recommendation
Fiscal Year 2026 DAC recommended bond cap*: $3.227 billion.
Voted December 13, 2024:
To recommend to the Governor a bond cap increase of $110 million for fiscal year 2026, resulting in a recommended
bond cap amount of $3,227,200,000 for fiscal year 2026, and to make the slide deck report with modeling publicly
available online.
*Bond cap refers to the total amount of new capital spending supported by general obligation debt.
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 Debt Affordability Committee | DAC Historic Recommendations
FY 2026 Bond Cap Recommendation: $3.227 billion, which is a 3.5% increase over prior year’s bond cap.
Average annual Bond Cap growth over the past decade: 4.2%
$4.000 B
$3.500 B
3.53%
7.30%
$3.000 B 4.50%
4.71%
4.94%
3.50%
$2.500 B
3.85%
$2.000 B
$1.500 B
$1.000 B
$0.500 B
$0.000 B
FY20 FY21 FY22 FY23 FY24 FY25 FY26
Increase to Bond Cap $0.090 B $0.100 B $0.125 B $0.125 B $0.125 B $0.212 B $0.110 B
Annual Cap Growth (%) 3.85% 3.50% 4.94% 4.71% 4.50% 7.30% 3.53%
Recommended Bond Cap $2.430 B $2.530 B $2.655 B $2.780 B $2.905 B $3.117 B $3.227 B
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 DAC Affordability Modeling | Model Overview
To assess overall affordability, the DAC uses a model it developed in-house to project both outstanding direct debt and debt service
payments under various modeling scenarios.
This year the DAC worked with financial advisors PFM to update the model, resulting in a more refined and sophisticated tool.
Details on the model update and modelling analysis can be found be found in the “3. Debt Affordability Modeling” section of this
report. Below is an overview of key model inputs.
Significant Changes made via
Model Input Description
Model Update?
Debt Service on Existing Debt • Debt service schedules for existing debt (GO & Special Obligation (SO) debt)
Contract assistance payments • Projected payment schedules for existing contract assistance agreements
Issuance maturity terms for • Assumed bond maturity distribution across future issuances
Held future debt • Maturity Terms: 1 -10 yrs; 11 – 20 yrs; & 21 – 30yrs )
Constant
Across Other debt structuring • Assumed interest only period for future debt • New feature added to model
Scenarios
assumptions for future debt • Debt service assumptions for future debt: level debt service vs. level principal
Issuance timing • Assumed bond issuance timing • New feature added to model
Premium Assumptions • Assumed bond premium to be received • New feature added to model
Interest rates for new debt • Assumed interest rates for future debt issuances by maturity term
Adjusted
Across Revenue Growth • Assumed rate of growth for budgeted revenue
Scenarios
FY26 Projected Bond Cap • Projected new direct debt issued in FY26 • Includes new “maximization”
(DAC Recommendation) modeling feature
Future Bond Cap Growth • Assumed rate at which the bond cap will grow annually; based on DAC • Includes option to grow by constant
recommendation $ value or % rate
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 DAC Affordability Modeling | Mo