Strong economic activity in the commonwealth has allowed the state to maintain a high credit rating. But this could change if the cycle turns and Massachusetts doesn’t get a handle on its debt.
“Massachusetts’ economy is strong, but a slowdown may be on the horizon,” Genevieve Nolan, vice president at Moody’s Investors Services and lead analyst for Massachusetts, said in a new Moody’s report. “Some declines are already starting to show, with GDP growth slowing to 1.6 percent in the first quarter of 2018, below the national growth rate of 2.3 percent. Should the projected economic slowdown come to fruition, it may put the state in a position of having to make difficult budgetary decisions to accommodate its elevated fixed costs while maintaining adequate service delivery and balancing annual budgets.”
The state’s debt and pension liabilities rank sixth highest among the 50 states, as a percentage of GDP. Moody’s projects Massachusetts’ adjusted net pension liability for fiscal year 2016 to be $65.2 billion, which is 201.5 percent of its revenues.
The commonwealth has amassed large liabilities by borrowing for schools and mass transit; many other states handle this borrowing at the local level. State pension funding has been lower than levels needed to keep liabilities from growing.
Recently, Massachusetts’ growing economy has provided a solid base to keep pace with its high liabilities. The state’s higher education, technology and health care sectors are among the strongest in the nation.
But, according to Moody’s, future economic slowing, potentially driven by the commonwealth’s aging population, could result in challenging budget decisions ahead.