The $1.9 billion package of publicly-financed construction projects approved Monday by the Minnesota House included $12.8 million to help Madelia improve roads and upgrade water infrastructure.
GOP Rep. Bjorn Olson of Fairmont said the cash would support the city of 2,400 people and help bring jobs to his rural district in southern Minnesota. “There’s a great company — Tony Downs Foods — down there, basically says ‘We’re busting at the seams. We would like to grow but we can’t,’” Olson told MinnPost before the vote. “There’s not enough water, there’s not enough capacity. This would get them the capacity.”
The promise of money for his district is partly why Olson sided with Democrats to help pave the way for the large infrastructure plan, contained within two bills, that would bankroll a wide range of projects such as college classrooms, ice rinks, water treatment plants, parks, trails and highway work.
Olson’s votes, along with a sizable chunk of other House Republicans, were notable in an era of gridlock on infrastructure. The Legislature has gone two years without a bonding bill because of political disagreements between Republicans and Democrats.
But disagreements continue, at least in the Senate. Top Senate Republicans have pledged to halt this new package of construction projects because they want Democrats who control the Legislature to quickly pass tax cuts first. The GOP has some leverage to stall because general obligation bonds need a 60% vote in the House and Senate, meaning the DFL needs some Republican votes to pass them.
Senate Minority Leader Mark Johnson, R-East Grand Forks, told reporters Monday the bonding proposal “is going to be dead on arrival” in his chamber, even though it later passed the House with some bipartisan support.
Why did a group of GOP lawmakers split from party leaders in the House?
Some GOPers said they feared Minnesota’s historically large surplus will allow Democrats to pay for the construction projects in cash, which requires only a simple majority and may lead to fewer projects in Republican areas.
Most of the Republicans were also from Greater Minnesota districts where local governments with smaller tax bases struggle to shoulder the full cost of expensive — and critical — infrastructure.
A bonding bill drought
It has been a rocky three years for bonding bills at the Minnesota Legislature.
In 2020, lawmakers passed a historically large $1.9 billion bill. But that came in an October special session, months after a long political standoff in which Republicans tried to make Gov. Tim Walz give up his pandemic-era emergency powers before approving the legislation.
Eventually, enough Republicans broke ranks for the bill to pass.
After that, legislators failed to adopt another bill for two years, which is a historically unusual drought. Even though party leaders agreed to a framework for a bonding bill last year, it never passed when louder arguments tanked a budget deal.
Meanwhile, state officials and local governments say needs for renovations and new construction have only grown — and become more expensive — amid rising inflation and interest rates.
“Unlike fine wine or cheese it doesn’t get better from delay,” said Jim Schowalter, commissioner of Minnesota Management and Budget, in a House hearing last month. “It gets more expensive, the project plans become more out of date.”
What’s in this DFL-led plan
House Democrats have pitched this bonding package as making up for last year. The legislation loosely follows the bipartisan framework from 2022 that was never passed. And the DFL reserved an equal amount of money for projects in Republican districts and Democratic ones.
The main bill is worth roughly $1.5 billion and includes the traditional general obligation bonds that need a supermajority to pass. Focused on state assets, a large slice of the money would pay for transportation projects like roads, bridges and bus rapid transit.
Another portion of the bill would fund projects at state colleges and universities, such as $92.6 million for an undergraduate chemistry teaching lab at the University of Minnesota’s Fraser Hall. There are also smaller projects like $3.6 million for classroom building design and renovations at Vermillion Community College in Ely.
The legislation also would pay for water treatment projects around the state. And the bill would fund upgrades for parks, trails and buildings at the Department of Natural Resources, child care construction grants and much more.
The second bill, which totals almost $400 million in cash, includes money for local city and county projects. The bill includes $13 million for work at the Spirit Mountain ski park in Duluth, for instance. There is $1.25 million for Champlin to buy parkland.
One reason for the smaller second bill, paid for by cash, is because traditional general obligation bonds are limited to government infrastructure. DFL legislators included grants for nonprofit organizations, many of which are aimed at helping people of color. There is $12 million in the legislation for the V3 sports center in North Minneapolis, for instance, which would bring athletic facilities to the neighborhood.
A political stalemate over how a bonding bill is paid for
There are a few political wrinkles to this year’s debate that makes it even more complicated than the last three years.
One is that Democrats — now fully in control of the Legislature — want to go big on infrastructure to meet what they say are huge needs. And that would entail passing another construction plan later on this legislative session on top of the $1.9 billion package.
Since DFL leaders say the infrastructure plan that just passed the House was in place of the 2022 bill, they argue the additional legislation would represent a 2023 bonding plan. Democrats haven’t said how much that hypothetical proposal would cost.
Another is that the DFL can bypass Republicans by paying for all the projects solely with cash if they can’t get enough GOP votes to borrow money through bonding. No matter what happens with the current bonding plan, the follow-up bill might be paid for in cash because it’s one way to spend “one-time” money in the large surplus that won’t obligate the state for costs down the road.
House Speaker Melissa Hortman called that legislation her “without or without you bill.”
Using cash to skip negotiations hasn’t been a possibility for Democrats in the past because lawmakers have never had this large of a surplus to work with. Republicans also previously controlled the state Senate, meaning the two parties still had to negotiate with each other just to get a simple majority in each chamber.
Now, Republicans would have little leverage to ensure a Democratic infrastructure package paid in cash includes projects in GOP districts.
Still, DFLers prefer to at least start with a traditional bonding plan, which would need Republican support. House Speaker Melissa Hortman said one reason why is that when lawmakers are paying for work that will last decades, they want future taxpayers to shoulder some of the cost.
“We buy things that last 30 years and we pay for them over 30 years, so this year’s road users and water system users are paying some and future users are also paying some,” Hortman said.
However another reason is that even with a massive, record-shattering $17.5 billion budget surplus, Democrats have lots of spending priorities to juggle. So borrowing money through bonding can help legislative leaders aim high on construction while preserving more of the surplus for other items on their agenda.
In a hearing in the House Ways and Means Committee last week, Rep. Fue Lee, a Minneapolis Democrat who leads the DFL on bonding, called it “stretching what we can do.”
But many Republicans don’t want to help DFLers accomplish that plan. And some prefer an all-cash bonding bill anyway, saying borrowing is not fiscally responsible with a large surplus.
“There’s no bigger form of wasteful government spending than interest on debt,” said Rep. Pat Garofalo, R-Farmington, in the Ways and Means Committee hearing. “It is insane that we are borrowing money with over $10 billion in cash in our state’s coffers. I understand that by borrowing for these projects it gives the opportunity for the DFL to spend even more money.”
Senate Republican leaders on Monday did not appear as concerned with traditional bonding. They just want progress toward tax relief first given the large surplus.
Those senators might be able to hold the line against a bonding plan. But a chunk of the House GOP on Monday effectively voted against the idea of linking a bonding plan to tax cuts.
The new $1.5 billion bonding bill passed 91-43 with 21 Republican votes. It only needed 11 GOP votes to meet the supermajority requirement. The $400 million cash bill passed with an even larger 98-36 margin.
During the House debate Monday night, Grove City Rep. Dean Urdahl, the lead Republican on Lee’s committee, said if Republicans ran the House, they might pass an all-cash bill to avoid debt with a large surplus. “But we don’t run the place, and so faced with the realities that we have, we’re trying to support the best possible bill we can,” he said.
Urdahl said without a bonding plan, property taxes would rise in some areas to pay the costs for needed projects. Some Republicans in Greater Minnesota said there’s urgency in rural areas where infrastructure is falling behind. While some Republicans who voted “yes” were from metro-area districts, most were from smaller cities and towns like Owatonna, Albert Lea, Ely and Browns Valley that have money for projects in the infrastructure package.
Rep. Spencer Igo, R-Wabana Township, said the bonding bill had bipartisan input and would significantly help colleges in Greater Minnesota. The smaller cash bill also includes $10 million in Igo’s district for a public safety center in Hibbing.
That cash plan has $14.5 million to help overhaul a wastewater treatment plant in Austin, home to state Rep. Patricia Mueller, a Republican who voted yes. City leaders there have long complained about the massive cost of the upgrades that have only grown from inflation.
Olson said it would be “unsustainable” for Watonwan County to pay for such huge infrastructure work in Madelia with its tax base. “The rates that you’re going to be asking, you’re going to see individuals receiving an extra $100 a month in their water rates,” he said.
Why not hold out for tax cuts? Olson said that no matter what the GOP does, he believes Democrats won’t fully eliminate a state tax on Social Security benefits, which is a top priority for Republicans.
Olson said a huge portion of the bonding plan actually is paid for with cash already. And he said if Democrats do go for a 100% cash bill, they might not spend 50% of the money on projects in GOP districts. “This is the best deal that we can possibly get,” he said. “Holding out for a better deal, it doesn’t make any sense.”