How much borrowing can state government afford? That’s a question each Legislature must answer anew. But legislators do so with the aid of several guidelines about debt capacity that have their origin in the Perpich administration and were revised with bipartisan agreement during the Pawlenty administration.
Those guidelines indicate that a hefty bonding bill — up to $3.3 billion — is affordable this year. No one at the State Capitol is proposing anything that large. But in that light, Gov. Mark Dayton’s $1.4 billion proposal and the Senate majority’s $1.5 billion version are not budget-busters. Adjust for inflation, and those DFL proposals are smaller than the $1 billion bonding bill proposed by Republican Gov. Arne Carlson in 1998.
That light does not suit the Legislature’s Republicans. They’re angling for a much smaller bill, arguing that debt service consumes too much of the state budget. Their argument put the Senate’s bill in limbo last week. It fell one GOP vote shy of the supermajority needed to move it to a conference committee. The House GOP majority says it intends to put a skinny $600 million bonding bill on the table — though with a May 23 adjournment deadline, it is very tardy in doing so.
GOP legislators also propose a new, potentially problematic way to answer the perennial question about bonding bill affordability. They would go beyond guidelines to set a statutory limit on total debt service. No bonding bill could be enacted that would boost total debt service above 3.5 percent of forecast general fund revenues in a given budget period. (It was at 3.7 percent in 2015, according to a Moody’s analysis, ranking Minnesota 30th among the states. The national average among states is 4.3 percent.)
If such a limit were in force this year, the bonding bill could be no larger than about $750 million. It would not stretch far enough to meet Minnesota’s needs for water infrastructure upgrades, local bridge and transit improvements, college campus renewal, and more.
What’s more, setting a limit in statute is risky, at any level. It could deny future lawmakers the opportunity to use what is sometimes called a “jobs bill” to spur the state’s economy during a recession. Bonding bills would need to shrink when state revenues fall. A limit could complicate the state’s response to a disaster that destroys public infrastructure. It would block strategic moves to accelerate building projects when interest rates are low, as they have been since the Great Recession. And it would squeeze investments needed to either avert higher costs in the future or leverage funds from other sources.
Investments in the latter category comprise a goodly share of the Senate’s bonding bill. By Senate bonding chair LeRoy Stumpf’s count, it would provide the requisite state matches for $917 million from federal, local and/or private sources. Some of that matching money will evaporate if the state fails to act this year. For example, the cleanup of contaminated sediment in the St. Louis River estuary is ready to proceed as a four-year, state-federal project with the feds bearing two-thirds of the $72 million cost. But the federal money is likely to go elsewhere if the state does not make a first payment of $12.7 million this year.
GOP advocates for a statutory debt limit decry a rapid increase in state borrowing costs in the last five years. They seldom acknowledge the reasons for the spike. Among them: GOP-backed borrowing in 2011 against future tobacco lawsuit settlement proceeds, the Vikings stadium, the restoration of the Capitol and the Biomedical Discovery District at the University of Minnesota.
Those projects are not evidence of an out-of-control Legislature gorging on debt. With the exception of the ill-advised tobacco borrowing, each is a one-time investment in a long-term asset for this state. Each is the sort of project that would be hard to accomplish in the future if state law puts an arbitrarily low ceiling on bonding bills. The Legislature should reject a statutory debt limit and embrace this year’s opportunity to meet Minnesota’s very real infrastructure needs.