Gov. Mark Dayton released his proposed bonding bill in January asking for $1.5 billion. On the same day of the release, legislators suggested the amount was too high and a bill closer to $800 million was more realistic.
Our question to Gov. Dayton and the Legislature: Based on what?
There are several ways to judge the appropriate amount for a public bond, one of which is affordability based on risk and ability to pay. We think the public would be better served if the amount of bonding was first based on the proposed projects and the consequences of either initiating or postponing the projects and then followed by affordability.
We also think long-range planning for bonding and management of bonding debt is needed. The Minnesota Management and Budget (MMB) website provides information on current bonding proposals and previous bonds: (https://mn.gov/mmb/).
MN Management and Budget ... - index / Minnesota.gov.mn.gov.
Programs and services that support the employees and stakeholders in state government enterprise.
In recent years, a lack of concern about bonded debt has become prevalent in the political class, particularly at the federal level. The national debt was $5.6 trillion on Sept. 30, 2000, (the end of the government’s fiscal year) and now is estimated to be $21 trillion and increasing $1 trillion per year. In Minnesota the numbers are much smaller but show the same disturbing trend. In 2000 the state spent $271.3 million to service the debt on general obligation bonds. In 2017 it was estimated to have spent $896.7 million on debt service.
Dayton’s bonding proposal was transmitted to the House and Senate bonding committees by MMB Commissioner Myron Frans, noting that requests from state agencies and local governments totaled “$3.3 billion, including $2.5 billion in state agency requests and $831 million in requests from local units of government.”
These submissions were reviewed, resulting in the governor’s proposal of $1.5 billion. The $1.5 billion would be enhanced by $570 million in additional federal, local and private funds. Dayton’s plan includes $542 million for the University of Minnesota and Minnesota State Colleges and Universities, and $998 million for maintaining and improving state and local infrastructure.
As the Legislature moves closer to its mandated May 21 adjournment, detailed bonding proposals from the Republican-controlled House and Senate are yet to come.
State bonding dollars are a major source for maintenance and repair of all state facilities, coupled with dollars from each service area or agency’s general fund. However, while MMB keeps a list indicating the condition of its buildings, it has no long-range plan to maintain or replace them. Deferred maintenance then becomes an issue, and can waste tax dollars if delayed until major structural damage is done.
The needs for facility maintenance should be predictable and, with some flexibility, a revenue plan for paying for the expenditure should be predicted. A state facilities maintenance plan should be part of long-range bonding. The replacement of a roof at a college or university should be anticipated. Worn-out roofs have to be replaced; the question isn’t why but when. Roof replacement for a technical college, for example, is included in the current proposal. How many roof replacements will be needed in each of the next 10 years? Will they require state bonding?
Apply this logic to all areas of maintenance of state facilities not to be covered by operating costs and then project the future bonding needs. Do the same with new facilities, emerging health and safety concerns, transportation and an estimate of future biennial bonding should be possible. There will always be new projects for enhancement of the state and unexpected projects for the not yet obvious. Provisions for these needs can be anticipated in a cost for contingency bonding.
Why a projected and planned bonding process? Consider some of the discussion concerning the proposal now in front of us. Commissioner Frans recently referenced a projected increase in the budget surplus of $329 million as an indication of the affordability of the $1.5 billion bond, noting that the interest in the current budget cycle would be $10 to $15 million. Revenue projections are made quarterly; bonded debt covers decades. Affordability needs to be discussed in terms of future needs for bonds and revenues to pay them back.
State legislators visit sites targeted by bonding proposals. Site visits add to the understanding of the needs. However, those visits would be aided by a plan on future needs and an understanding of bonding needs up to 10 years from now. Perhaps the visits to proposed state bonding sites should occur two or more years in advance of the proposals.
The debate on state bonding would be greatly enhanced by asking three questions:
1. What will be the needs for bonded debt over the next 10 years and what are the projected annual costs?
2. What portion of the state’s general revenue should be anticipated for current and future bond payments?
3. If projects are delayed and/or abandoned what will be future state costs for failed facilities and systems?
The public should be made aware of the specific projects excluded in the review process by MMB and the criteria used. Delayed projects come with a cost as well. – An opinion of the Adams Publishing – ECM Editorial Board