Earlier this month, Minnesota state agencies and local governments sent their requests for capital spending to Minnesota Management and Budget, the state’s budgeting agency, as required by law.
While the total amount presented to the 2020 session of the Legislature is likely be in the range of $1.5 to $3.2 billion, the total value of the submitted requests came in at $5.3 billion. Of that, $4 billion is from state agencies, including colleges and universities, while $1.3 billion is from local governments.
All of which means between now and Jan. 15, when Gov. Tim Walz is required by law to submit his own plan for capital projects to the Legislature, something’s got to give.
How it works
The state’s capital budget is funded mostly by borrowing, primarily via 20-year general obligation bonds that are tax exempt and come with low interest payments. The bonds are especially attractive given Minnesota’s highest possible AAA credit rating, and money can be spent on real estate, construction and renovation of facilities, everything from state buildings to bridges, parks and waste-water treatment plants. (The state constitution also permits bonds to be used “to repel invasion or suppress insurrection,” though that usually isn’t part of bonding bills these days.)
The Minnesota Constitution doesn’t cap borrowing, as some other states do, nor are there statutory caps, according to an analysis by Minnesota House Research. The state budget office does have guidelines that cap the amount of principal and interest the state can spend as a percentage of total state personal income, however.
According to Minnesota Management and Budget, the state has outstanding debt of $7.8 billion, including $6.3 billion in principal owed on general obligation bonds. It will owe $955 million in principal and interest payments in 2020.
Rep. Mary Murphy, the Hermantown DFLer who chairs the House Capital Investment subcommittee, said the total amount borrowed will be less than the maximum the state could safely borrow, largely because of the divided Legislature, with the DFL in control of the House and the GOP in control of the Senate.
“I think we could safely, without jeopardizing our AAA rating on Wall Street, go past $3 billion,” Murphy said. The Senate, however, might not be willing to go that high.
The two-year state operating budget approved in May spends $48.3 billion.
The requests submitted by state agencies and local governments trigger a countdown to the session, during which the state Office of Management and Budget will refine the cost estimates and ultimately recommend to Walz which projects make the cut — and which don’t. A lot more will lose out than will be included.
Total may reflect pent-up demand
Though 2019 wasn’t what is considered a “bonding” session — by practice, odd-year sessions are for the state operating budget and even-year sessions for bonding — the 2019 session did consider a borrowing and construction package. Walz proposed a $1.2 billion capital budget package, while DFL-controlled House floated a $1.6 billion plan, which included many local projects not in the Walz plan.
The GOP-controlled Senate proposed a plan that spent zero dollars (a $102 million clean water resources funding bill did pass early in session — a response to litigation that argued a 2018 bill illegally tapped into voter-approved Environment and Natural Resources Trust Fund money).
The eventual deal struck by Walz, House Speaker Melissa Hortman and Senate Majority Leader Paul Gazelka called for spending $500 million. But because bonding bills require a 60 percent majority, the House GOP minority was able to exert its influence on the legislation, and the bill failed. (A separate $60 million housing finance bill — which used a different type of borrowing requiring only a simple majority — did pass.)
That left most of the bonding requests to be considered in 2020. The total of $5.3 billion might reflect some pent-up demand for project spending; total requests from state and local agencies in 2018 was $2 billion less, with $2.5 billion from state agencies and $827 million from local governments.
For those making the requests, the state money is attractive, but it isn’t without conditions; the state requires local governments, as well as colleges and universities, to match any bonding money.
Among the larger state government requests are:
- $195 million to replace the Centennial Office Building, and another $32.8 million to renovate the State Office Building, both on the Capitol campus in St. Paul.
- $180 million in Housing Infrastructure Bonds and $60 million in public housing construction bonds, both for affordable housing projects.
- $150 million for repairs and replacement of facilities across the Minnesota State system.
- $50 million for the Metropolitan Council to continue building out the bus rapid transit system, including the D Line between Bloomington and Brooklyn Center via downtown Minneapolis.
- $11 million to develop the Tree Top Trail on the Minnesota Zoo’s former monorail tracks.
- $21 million for a State Emergency Operations Center in Blaine for the Department of Public Safety.
Among the local government project requests are:
- $20 million to pay a bit less than half the cost of the proposed Upper Harbor Terminal music venue in North Minneapolis.
- $5 million to the Minneapolis Parks and Recreation Board for development of Waterworks Park.
- $50 million for a multiyear project to expand Highway 252 between Highway 610 and I-694 in Hennepin County.
- $40 million to help Ramsey County redevelop the Riverfront properties. The money would cover just under half the cost of a land lid between Kellogg Boulevard and Shepard Road as part of the project at the former county building and jail.
- $55 million for St. Paul projects to replace the 3rd Street and Kellogg Avenue bridges.
Not all projects are in the Twin Cities, nor do they all have large price tags. Alexandria wants $5.6 million to expand the Runestone Community Center; Carver is asking for $11 million to repair a levy that protects downtown; Deer River needs $5 million for sewer and water improvements; Hibbing is requesting $1.5 million to relocate its “Windows to the World” mine overlook; Rochester would like $9 million worth of help to improve a runway at the airport; and Mendota needs $50,000 to install a water-pressure reducing valve for its water system.
‘It’s like going to camp’
The July 15 deadline for MMB to release the lists also sets up a tradition in Minnesota legislative and local government circles: the bonding tour. Dozens of legislators and staff ride around in buses and stay in motels around the state while getting a look at actual problems that state bond revenue might help solve.
Murphy, of the Capital Investment subcommittee, has tentatively set up five different tours: Sept. 4 through 6 in northwest Minnesota; Sept. 17 through 19 in northeast Minnesota; Oct. 8 through 10 in southwest and central Minnesota; Oct. 21 through 22 in southeast Minnesota; and Nov. 12 through 14 in the Twin Cities.
Murphy said the purpose is to meet with people in their communities rather than having them come to the State Capitol. She said the bonding tour is one of the highlights of serving on the committee.
“It’s like going to camp or going to a retreat,” she said. “After I became bonding chair, almost every single person that said they signed up for the committee said ‘I hope I get it because I really want to go on the bonding tour.’”
The House and the Senate take separate tours, and Sen. David Senjem, R-Rochester, the chair of the Senate Capital Investment Committee, was not available to talk about his committee’s plans.
Correction: the Met Council is asking for funds to build the D Line. This article originally said the money was for the C Line which is already completed.