The record-breaking size of Minnesota’s projected budget surplus has inspired an unusual idea among some DFL lawmakers that would likely be unprecedented: Why not pay for all big public construction projects using cash rather than borrowing money through bonding?
The bonding bill is the traditional way the state pays for things like wastewater treatment plants and park infrastructure. Borrowing money helps the state stretch out the cost of public projects over decades and is often a lifeline for local governments that need expensive construction. But in order to pass a bill with standard general obligation bonds — which in 2020 was $1.9 billion — lawmakers need a supermajority of 60% in both the state House and Senate, whereas regular state budgeting needs only a simple majority.
That’s why the notion of a cash bonding bill this year is driven less by any financial reason than by politics, because the method of payment will determine how much influence Republicans have to decide what projects to fund.
A politically divided state House and Senate in recent years likely contributed to the lack of any bonding bill in 2021 and 2022, but in 2023 with a DFL-controlled Legislature, there is already a burgeoning debate over whether DFL leaders should avoid potential gridlock by committing cash to projects that would normally have landed on the state’s credit card bill.
“Now that we have the ability to do it in cash, we don’t have to worry about any one particular caucus being an obstacle and we can get the job done,” DFL House Speaker Melissa Hortman of Brooklyn Park said at a legislative panel last Wednesday hosted by a lobbying firm.
It would be an unprecedented gambit made possible largely by Minnesota’s record-breaking $17.6 billion surplus, underscoring just how much money lawmakers have to work with this year. But it has drawn some skepticism from Republicans, who say avoiding debt can be a good thing — especially since interest rates are higher than in recent years — but want input on what is built. And even Gov. Tim Walz said he favors working with Republicans on a more traditional bonding bill.
“I would be concerned that the bill would be one that would reflect the entire state of Minnesota,” said Rep. Dean Urdahl, a Republican from Grove City who leads minority House Republicans on capital investment. “In other words, districts that are represented by Republicans as well.”
Why Hortman wants to use cash for a bonding bill
The Legislature last passed a bonding bill in 2020 and it was a big one — $1.9 billion. Like most bonding bills, it paid for a wide variety of infrastructure, like roads and bridges, affordable housing, arts and economic development projects and bus rapid transit.
But lawmakers didn’t pass another one in the last two-year budget cycle, which was notably the first time since at least 1983 that the Legislature went 0-for-2 in a biennium.
That drew frustration from local government officials who say the projects are necessary to spread out the costs of large projects without burdening smaller cities and counties. Labor unions, who benefit from the jobs created by bonding bills, were also frustrated with the legislative stalemate.
Bonding bills can be politically popular. But the supermajority requirement can also make them tough to pass because it’s the only opportunity the party in the largely ignored political minority has significant leverage to negotiate. The minority lawmakers sometimes will try to hold up a bonding bill as a negotiation tactic to get its way on other priorities, like when GOP Rep. Kurt Daudt in 2020 said he wouldn’t agree to construction funding unless Walz relinquished pandemic emergency powers.
Democrats held a House majority and Republicans had a Senate majority until the November election, which meant the two parties had to negotiate on a bonding bill either way. But even after the DFL won full control of state government in November elections, the GOP would theoretically still have a large say over what’s in a bonding bill.
Not, however, if the bill substitutes general obligation bonds for cash.
There is often some cash in bonding bills, but since lawmakers almost never have massive surpluses to draw from — and have never had this large of a surplus — they typically opt for borrowing to stretch a smaller amount of money much farther. The current two-year state budget is $52 billion.
Hortman said she hopes to do one cash bonding bill this year and another next year. And she blamed Republicans in the Senate for the Legislature failing to pass a spending agreement last year that included a $1.4 billion bonding bill. She also argued House Republicans shared in the blame and did not properly negotiate a bonding bill. (GOP lawmakers have blamed Democrats for the impasse.)
Another potential argument for using cash is the makeup of Minnesota’s surplus. Much of it is considered “one time” money, meaning the Legislature can’t count on the higher level of tax collections to continue. So the DFL is looking to use up some of the surplus in ways that won’t cost money down the road when the state’s financial picture may be less rosy.
Some frequently used bonds don’t need a supermajority and could be part of a bill otherwise made up of cash. And most bonding bills have at least some cash for projects.
Still, a cash-focused bonding bill appears to be unprecedented. Patrick Hogan, a spokesman for the Minnesota Management and Budget agency, said officials aren’t aware of any year where lawmakers approved only a cash bill to fund capital projects.
In 1998, lawmakers approved $501 million in cash for construction projects and another $484 million in new bonds. In 2000, there was $187 million in cash along with $567 million in bonds. And in 2014, lawmakers passed a bill with $207 million in cash along with $857 million in new bonds.
What Walz and Republicans think
Hortman’s idea hasn’t entirely caught on at the State Capitol.
Walz often complains about the lack of a construction bill in the last budget cycle. But he said he’s still interested in typical bonding that requires a supermajority vote because he cares “deeply whatever minority members in the House and Senate need.”
If lawmakers use cash “you may leave out some of these projects,” he said.
Walz also said listening to Republicans on the issue would fit with his “One Minnesota” slogan, acknowledging that he is not universally popular in Greater Minnesota by saying he won fewer counties across the state against Republican Scott Jensen compared to his 2018 election victory.
“If there is a true desire to work bipartisanly, I think it serves Minnesota so much better that we do that in the traditional way,” Walz said. “I would like to get the number of votes it takes to pass a bonding bill with Republican support to do that. I think that’s the place where we need to start.”
The governor said there is still leverage for Democrats in negotiating with Republicans because they don’t need GOP votes if they use cash. But he said if lawmakers do that “there’s a large number of Minnesotans (who) would say they’re not being heard.”
The Walz administration has also argued in the past that bonding is financially responsible. When rolling out a bonding proposal in January, Minnesota Management and Budget Commissioner Jim Schowalter told reporters that even with a good fiscal outlook, it’s important to spread out the cost of public construction costs.
“These are long-lived assets, these are things we expect to provide benefits next year and the year after and for years and decades to come,” Schowalter said.
Meanwhile, Urdahl, the Republican from Grove City, said his “options are open” on how to pay for a construction bill. And he even said some in the GOP would rather pay with cash, though for different reasons than Democrats.
“There are Republicans who would say, ‘Why should we borrow any money when we have an almost $18 billion surplus?’” Urdahl said.
But Urdahl nevertheless said he’d be concerned that if Democrats avoid the supermajority requirement, the bill wouldn’t reflect Republican priorities. The House GOP has pushed for a bill that is heavier on basic state infrastructure like roads and bridges and higher education maintenance projects and lighter on a smattering of local projects that often attract votes from lawmakers who want shiny new construction in their districts.
More than anything, Urdahl said he wants a “fair bill that recognizes the needs of all of Minnesota.”
“However that can be best done, I can be supportive of it,” Urdahl said.
At the leadership panel on Wednesday, Sen. Zach Duckworth, a Republican from Lakeville, said he’d rather use cash on hand for a bonding bill that has “good, wise, smart investments” than borrow more.
“One of the reasons why it was such a huge missed opportunity last session is because rates were unbelievably still low and now we’ve seen them continue to grow,” Duckworth said.
Interest groups chime in
One interest group staunchly in support of a construction bill is the Coalition of Greater Minnesota Cities, whose members often rely on bonding to help share the cost of expensive infrastructure like wastewater treatment plants.
Bradley Peterson, executive director of the coalition, said they’re “probably agnostic” on how a construction bill is paid for as long as it includes Greater Minnesota projects and key priorities of cities around the state. In the past, the group has chided House Democrats for bonding proposals that leaned heavily toward the metro area. But Peterson said he has no reason so far to be concerned that the DFL would leave out Greater Minnesota.
“I guess it’s maybe a little bit dispiriting if we’re already talking about wanting to circumvent the normal process in terms of capital investment,” Peterson said. “Because it’s a big state, there are needs all around the state and the way the bonding bill is put together, frustrating as it is for everyone involved, I think does produce a pretty good product.”
The Laborers International Union of North America also backs construction bills, which create jobs for their members. Kris Fredson, public affairs director for the LIUNA chapter in Minnesota and North Dakota, said there’s a huge need to fix aging infrastructure in the state. And it makes sense to use at least some cash because general obligation bonding is not allowed for fixing certain infrastructure, like lead service lines on private property.
He said lawmakers could consider using bonding to make even more use of their large surplus and go big in spending on infrastructure, especially after the failure to pass a construction bill last year. “That was unacceptable and we expect the Legislature to pass a large construction jobs bill in 2023,” Fredson said.