Can the state afford Dayton's $1 billion bonding bill?

Dayton unveils bonding bill
Gov. Mark Dayton rolled out about 200 bonding projects at the State Capitol on Monday, Jan. 31, 2011. The $531 million in projects are part of a larger $1 billion bonding bill. He displayed a map showing the locations of the projects he was proposing.
MPR Photo/Tim Nelson

In spite of concerns raised by Republicans, state finance officials are insisting that Minnesota can afford Gov. Mark Dayton's proposal for a $1 billion bonding bill.

Some GOP legislators are also questioning whether bonding is the right thing to do, given the state's budget problems.

When Dayton released his bonding bill proposal earlier this week, he said this was a good time for such a measure, because construction jobs are needed and interest rates are low.

He also cited a Minnesota Taxpayers Association report from last year that showed Minnesota ranked 16th lowest among all states in interest on general debt in fiscal year 2008.

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The association's executive director Mark Haveman confirmed the ranking, but he declined to weigh in on whether it means the state can afford more bonding.

"Well, an argument can be made that it's a good time for bonding from a standpoint of interest rates, but you don't do bonding for the sake of doing bonding," he said. "Presumably you want projects that contribute to the long term health and welfare of the state economy, and that becomes a political issue. It looks like Republicans don't think that that portfolio passes that test, and the governor does."

In about a month, the commissioner of Minnesota Management and Budget will address the affordability question when he issues a debt capacity forecast to the governor and Legislature.

The twice-a-year report provides a snapshot of the state's bonding debt and the cost of that debt.

In last last November's forecast, the projected 2011 costs of debt service on bonds was $478 million. That's the money it will take this year to make payments on the state's total debt from bonding, which is about $6 billion dollars.

If Dayton were to succeed in passing a billion-dollar bonding bill, it would add about another $18 million dollars to debt service in the next two-year budget. Those interest costs would escalate in subsequent budgets.

Part of the reason Minnesota is able to borrow at low interest rates is consistently high assessments from national rating agencies. State officials announced this week that Standard and Poor's will continue its AAA rating for Minnesota.

Still, Republicans aren't convinced. House Majority Leader Matt Dean said his party has great concerns about racking up more debt. He used a familiar analogy to make the point.

"It is the wrong time to take out the credit card to get the state moving," he said. "We need need to talk to job creators across the state of Minnesota in the private sector."

DFL Rep. Alice Hausman of St. Paul bristles when she hears that comparison. Hausman said bonding is much more like a home mortgage than a credit card.

"So the credit card, I would argue, in difficult economic times is not a good use of debt," she said, "but a mortgage is a responsible use of debt, to pay for your house over the long term. And that's what bonding is, it is the public infrastructure that we pay for over the long term."

In this debate, perceptions appear to be as important as numbers. Republican Sen. David Senjem, of Rochester, said he understands that interest rates are low. He doesn't argue about debt capacity either. But Senjem said with a projected $6.2 billion state budget deficit looming, a bonding bill just doesn't look right.

"If they're seeing teachers being laid off, if they're seeing police and fire people being laid off, if we don't have enough judges, they're not going to understand that on one side and watching us go further into debt building various facilities which probably don't reach the priority level that some of these services do in terms of importance to them," Senjem said. "So, I think it's just trying to maintain some consistency of approach here."

If lawmakers don't agree to a big bonding bill this year, they might next year. The non-budget year of the two year session is when the Legislature typically passes a bonding bill, sending money for projects back to their districts just before they stand for re-election.