Big bonding bill will be tough sell next session

Minnesota Management and Budget says that the state has enough resources to allow for a $775 million bonding bill in the regular 2012 session.
REUTERS/Andy King
Minnesota Management and Budget says that the state has enough resources to allow for a $775 million bonding bill in the regular 2012 session.

As Minnesota’s government bonds are prepared to be sold and repairs on roads, universities and public buildings get underway as early as August, a question lingers: What happens next year?

A bonding bill in Minnesota’s 2012 legislative session seems as uncertain as the one that came out of extended negotiations between lawmakers at the end of July, despite the tradition that large borrowing legislation comes during even-numbered years.

Gov. Mark Dayton bucked the so-called convention in January when he proposed a $1 billion bonding bill, all in the name of “getting Minnesotan’s back to work” as quickly as possible. But the GOP legislative majority stonewalled the measure and said 2012 was the time and the place.

But when lawmakers walked out of the Capitol and Minnesota’s three-week government shutdown ended in late July, a $497 million bonding bill came with them.

So, what now? Do we scrap a bonding bill in 2012 and twiddle our thumbs till the next one rolls around? Turns out, it’s more complicated than that.

In a March roundtable that touted this session’s bonding bill (at a time when the legislation appeared to be going nowhere), Dayton hinted that two large, consecutive bonding bills in 2011 and 2012 could be just what Minnesota needs. “We have a lot of catching up to do,” he said.

Dayton then was tight lipped about the chances he would propose an additional bill for 2012, and his administration is equally quiet on the matter now.

Gov. Mark Dayton
Gov. Dayton’s office
Gov. Mark Dayton

Some Republicans in the Legislature have been slightly more direct. “Next year… I think it’s fair to say won’t be the big bonding year that we would typically anticipate for an even numbered year,” said Sen. Dave Senjem, chairman of the Senate Capitol Investment Committee.

The weightiest bonding bills over the past decade have topped out at about $1 billion — except for one instance of transportation borrowing in 2008 — and what can be considered a large bill usually begins at $700 million.

Republican flavor
This session’s borrowing has more of a Republican flavor to it. In 2010, former Gov. Tim Pawlenty whittled down a $1 billion DFL proposal to $680 million through line-item vetoes.

That sort of partisanship was easily more apparent this session than during the Pawlenty era. Republicans remained steadfast that 2011 wasn’t the year to let loose the state government credit card and consistently deflected any attempts at lofty legislation toward 2012. They did — to be fair — propose a smaller bill to help with flood mitigation efforts, however.

On top of the partisanship, math gets in the way of things. The state does a forecast on the amount of money that will be available to pay “debt service” on future bonds, which determines how much bonding can be done. More money could be allocated from another area to pay interest on the borrowing, but that’s something Republicans have proven they’re against.

Minnesota Management and Budget says that the state has enough resources to allow for a $775 million bonding bill in the regular 2012 session, not accounting for the $497 million in borrowing passed during last month’s special session.

But the GOP lawmakers in charge of the Legislature’s two Capital Investment committees disagree. In calculating the total amount of bonding available next session, Senjem and Rep. Larry Howes added the forecasts for 2011 and 2012 and then subtracted $497 million from the most recent bill. So, for them, a possible bonding bill sits in the realm of about $400 million to $450 million.

“I’m not aware that we have that much debt-service capacity left within the framework of this budget,” Senjem said.

That number could change with the economy, he noted. Senjem said the next session is still too far out to predict how the national economic environment will look, using the recent federal debt-ceiling scare as an example.

“We are certainly open to [a bill],” he said. “We’re just going to have to look at how this economy moves forward.

Sen. Dave Senjem
Sen. Dave Senjem

“If there’s an uptick, maybe we’ve got some room where we can do a few more things,” Senjem said. “Time will have to be the guide on that.”

Financial factors
But many financial factors unique to the state of Minnesota point in the opposite direction.

Interest rates on government bonds could spike with changes in Minnesota’s bond rating, which took a hit in July when Fitch Ratings — one of three agencies that reviews the state’s finances — downgraded $5.7 billion in state general obligation bonds. Another agency, Moody’s Investor Service, placed Minnesota on a negative outlook Wednesday. Higher interest rates mean more debt service funding is required to be set aside in order to borrow the same amount of money.

Using stopgap fixes and “smoke and mirror” budget tactics like postponing state aid to schools and front-loading money received from tobacco settlement payments through other bonding won’t help matters. Starting with Pawlenty, Minnesota shifted more than $1 billion in payments to schools. On top of continuing that shift as part of this session’s budget deal, Dayton and lawmakers postponed an additional $700 million in state aid.

“This is a reminder that having a strong, balanced economy is not enough to keep high credit ratings. Sooner or later, we need to fix the state’s budget so that it does not rely on one-time solutions,” MMB Commissioner Jim Schowalter said in a statement about the Moody’s negative outlook announcement.

From the governor’s end, all the variability makes any bonding bill difficult to plan.

“[Bonding] will depend on the state’s ability to borrow,” Dayton spokeswoman Katharine Tinucci said in an e-mail. “[W]e are not sure yet how our ability to borrow will be affected by the tobacco bonds. Because of that uncertainty, we will have to wait and see what conditions are like next year.”

And even if there’s eventual agreement on a number — big or small — you still need the votes to pass the legislation.

“I’m sure there will be some who say that we already had the bonding bill, we don’t need one right now, so I would expect it probably to go through a vote of the caucus to see what we would do,” Howes said. “I think, realistically, the votes are there to pass one if it’s allowed to go to the floor.”

This year’s bill positive
Despite all the uncertainty and acrimony that surrounds bonding, most lawmakers point to this year’s bill as a success.

It focused mainly on state asset preservation and maintenance, rather than large building projects (except for some building construction at Minnesota’s colleges and universities).

Senjem referred to it as a “good bread-and-butter bill” and Howes said he’s pleased it wasn’t “too local or too porky.” All in all, he said, the projects included in the bill are 75 to 80 percent ready to begin construction.

“The overall bill, we’ve been getting nothing but compliments on, honestly,” Howes said. “It focused mainly on state assets. It was not full of pork, as some people like to call it.”

Senjem said he would have liked to take a “bonding tour” across the state, which committee members typically do before a bonding year to assess projects that could appear in the bill, but praised the legislation overall.

“My intention, at least at this point, if leadership allows, would be to do a very similar bonding bill focused on state assets [next year],” Howes said. “I’m still opposed to doing civic centers and hockey rinks and local libraries.”

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