The Bonding Numbers Game


Yep this is a bonding year but basic disagreements between the governor and the legislature have turned this into a hot potato year after year. 

Bonding, borrowing, or “the state’s credit card” has been used to fund long-term projects of various kinds that will be used over a period of 20 years or more. Increasingly, it’s also been used to fund significant ongoing maintenance and repair of buildings and other similar public owned assets. In some cases, the state will be paying the debt service on the borrowing, in others, local units of government are using the power of the state to borrow but will be contributing to the debt service, with matching funds or another arrangement.  There are also dedicated revenue bonds, like Trunk Highway bonds where the money to pay for the bonds comes from the Trunk Highway fund (a combination of Federal money and dedicated tax money, like the gas tax and vehicle registration fees and taxes).

Governor Dayton released his Bonding proposal in January.  Yes, that long ago! It was chock full of projects across the state and clocked in at $1.5 Billion.  

The House Republicans released their bill a few weeks ago and it came in at $850. As the bill traveled through committee it acquired some additional transportation funding proposals that brought the total up to $1 Billion.  Today the Senate is hearing their proposal which is at $850 Million which the Bonding Chair, Senator Dave Senjem swears won’t be over a "nickel more" than $850. That's $850 if you don't count the Trunk Highway Bonds, then it's really about $1 Billion, like the House.

Dayton’s reaction to the House proposal was “Where’s the other half?”  This seems to indicate that he finds $850 too low a number and even a billion might not be enough.  Right now, the prospects look dim for passage if they are that far apart.

Governor Dayton and MMB commissioner Myron Franz believe that the state could and SHOULD be borrowing a lot more.  Franz has published memos indicating that his agency thinks the debt ratio that past governors have been using is too low and that with Minnesota’s high credit rating and low-interest rates, the state could be borrowing about four times the amount that it currently is. The statutory requirement report that Franz's agency provided shows the maximum amount of borrowing that the state could do is $3.5M.  (Note: not that they were recommending that this was the amount that should be borrowed, but that is their view of an upper limit, which makes the Governor's proposal seem "reasonable.")

The legislature disagrees and is alarmed by the fact that debt service, which for decades was around 1% of the general fund has climbed in recent years to about 3% of the general fund. 3% may not seem like a lot but this is a fixed cost which will have to be budgeted around no matter what else has to be cut.  Not to mention the fact that we may have seen the last of the “great rates” as the bond market seems to have already hit bottom after its historic 20-year lows and now may be on the way back up.  If we are borrowing for zoo enhancements, recreational trails, and other popular but not necessary items now, how will we be paying for roads, bridges, and hospitals later? 

One more item is in contention for being added to the bonding bill.  For years a handful of cities have been in contention for building a new veterans' home in Minnesota.  Montevideo, Bemidji and now Preston, in Fillmore County are all vying for it.  The Federal process for siting a veterans’ home is complex and requires a serious commitment for funding from the state, including matching money to build it and then to operate it.  It’s not a small thing and the ongoing costs are significant to even build one Veterans Home.  Rep. Sarah Anderson, Chair of the State Government Finance Committee has championed using excess revenue from the Vikings Stadium fund to put toward building the 3 homes. Governor Dayton directly and through commissioner Franz and his deputies have opposed this plan for various financial reasons but Chair Anderson is not backing down.  Now that these proposals are in the mix, it would seem that there is a commitment to helping them get built with or without stadium money and it would not be a surprise to see some funding for them wind up in the bonding bill or the spending bill.


Update: 5/14/2018 The House took up the bonding bill today.

There were numerous amendments including one to add the Vets Homes to the bonding bill by the DFL but these were undercut by GOP amendments to the amendment to use the stadium reserve fund.  

What's in the bill?  

Here is the spreadsheet on bonding projects.  While many of the projects sound like basic repair or asset preservation, the vagueness of some of the projects gives a lot of leeway to the recipients on how to use the money.  The University of Minnesota, in particular, gets a great deal of the bonding this year and it's not at all clear whether they have money in their building accounts that couldn't be put to use on some of the maintenance and repair of their facilities without having to resort to new bonds. 

Also, we can ask the question of why we are funding repair to assets like the Glensheen Mansion. It was willed to the University of Minnesota and so it is a "state asset" but it's not clear at all why the state hasn't just tried to sell off this white elephant. Instead, we all will be paying $4 million plus debt service to keep it up.  

Here is the spreadsheet on what the debt service on the additional amount we'll be paying: another $8.8M added to this biennium and other $5.9 M added to the 2020-2021 biennium.

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