Mass. treasurer reports a 'home run' $750m bond deal

Massachusetts Treasurer Timothy P. Cahill said yesterday that the state was finally able to sell $750 million in revenue bonds at favorable interest rates, averting potentially dire financial problems and securing enough money to keep the state afloat until late November.

"The deal was a home run," Cahill said in an interview. "It was much better than we had even in our best estimates hoped for."

On Tuesday, Cahill had delayed, for the second time in a week, issuing the bonds because of continued uncertainty in national credit markets.

Rather than auction the bonds themselves, state treasury officials this week hired two New York-based banks, Goldman Sachs and Citigroup, to help Massachusetts sell the $750 million in bonds. Cahill said he was afraid that if the state sought bids on its own and there were no takers for its bonds, it could hurt the state's image in the credit market.

The state got a 2.2 percent interest rate on the bonds, which will have to be paid back in April and May, largely using income tax revenues that will come in next year.

"The market received it very, very warmly," Cahill said. "It's a really good sign, not only for us, but for other states across the country."

Credit markets have been nearly frozen in recent weeks, making even the most routine borrowing by big customers far more difficult. Cahill said the state would probably not need to go back to the markets until late next month or early December, to secure enough money to make its quarterly local aid payment due Dec. 31.

Meanwhile, Lieutenant Governor Timothy Murray is summoning the state's mayors to Beacon Hill tomorrow afternoon to discuss the budget shortfall the state is facing. Governor Deval Patrick, who is planning to announce budget cuts next week, has been seeking expanded powers from the Legislature that would allow him to trim local aid, a lifeblood for mayors and other municipal officials. Patrick has not ruled out making such cuts, and House Speaker Salvatore F. DiMasi said this week that while reducing local aid is a "last resort," cities and towns should prepare to cut their budgets.

On another front, state officials said yesterday that the state's pension fund has taken some big hits from the falling stock market, losing 14.9 percent of its value since the beginning of the year and taking it to levels unseen since 2006.

The fund, which covers retirement payments owed to state employees in Massachusetts, has tumbled $8 billion since January. The fund lost $4.1 billion from January through August, then took a $4 billion hit last month.

The S&P 500 index has gone down 19.4 percent over the same time period, so the state's performance has been better than average. And Massachusetts treasury officials say that while the pension fund's erosion is certainly negative news, the fund is a long-term player that will ultimately bounce back.

"Anyone who has retired or is about to retire doesn't have to worry about us making our payments," Cahill said. "We could be up $3 billion from this by the end of the month. We've been fluctuating."

The fund, down from $53.7 billion in January to $45.7 billion, has seen similar declines during past financial downturns. Cahill announced the losses during a pension board meeting yesterday, and urged board members not to panic, saying the markets will bounce back for such long-term investments.

US economic problems have spread globally, to stock markets from London to Tokyo, as well as to state and local governments.

Patrick has not offered an estimate on how deep his expected budget cuts will be, but outside analysts suggest the reductions may need to exceed $1 billion.

The Pioneer Institute, a fiscally conservative nonprofit in Boston, released a report yesterday calling for a wide variety of cutbacks, including a paring of state employment to 2004 levels, a reduction of 6,000 employees for savings of $357.5 million; elimination of the so-called Quinn Bill, which provides financial incentives for police officers to seek master's degrees, for savings of $50.2 million; and cuts of $10 million from programs that promote the state lottery.

"While using a scalpel may be preferable to the cleaver, time is of the essence," said Jim Stergios, the Pioneer Institute's executive director. "The longer we wait, the deeper the cuts will have to be."

Matt Viser can be reached at maviser@globe.com.