Our View: Billion-dollar bonding cap is outdated
DFL legislators want to go big on bonding projects this year, but they're hamstrung by an earlier agreement with Republicans to cap construction spending at $850 million.
Gov. Mark Dayton reiterated his support for a broader $1.2 billion bonding package during his State of the State address on Wednesday. Highlighting the Lewis & Clark water pipeline in southwestern Minnesota — an important project that needs $71 million to be completed — Dayton said there probably isn't room for the project if the bonding bill isn't expanded.
The governor laid out a compelling case on the need for more public works projects, one that should be heeded by the Legislature because the timing is right to pass the largest bonding bill in Minnesota history.
The Senate has yet to announce its bonding proposal, while the House has introduced an $850 million bonding bill, plus an obvious "workaround" — a proposal to use $125 million from the budget surplus to pay for construction projects that normally would be funded through bonding. By paying cash, the Democrats can technically say they are keeping their word on an agreement to spend no more than $1 billion for the current biennium. This year, the spending threshold is $850 million after a $150 million bonding package passed last year for Capitol restoration and smaller projects.
We agree with tapping the cash reserve for some of the projects, but it's time for the Legislature to move past the $1 billion bonding cap. It's a psychological barrier that has caused the state to neglect long-needed infrastructure projects.
Republican Gov. Arne Carlson proposed Minnesota's first $1 billion bonding bill in 1998. Since then, legislators have been averse to borrowing beyond that level, even though inflation has risen more than 40 percent since then. By holding to the $1 billion cap, legislators are missing an opportunity to inexpensively finance a backlog of construction projects throughout the state.
Today's interest rates are at a near-historic lows, meaning it's a smart time to borrow money, as evidenced by the recent Byron school bond issue.
When voters in the Byron School District approved a $25 million bond issue on March 11 to build a preschool-grade 2 building, the estimate on the interest rate was 4.45 percent. However, the district was able to obtain an interest rate of 3.45 percent, lowering the amount of interest taxpayers will pay on the bond issue from $17.6 million to $13.9 million, a long-term savings of $3.7 million.
Critics will call for restraint, saying government, like most households, should refrain from borrowing. However, that's a specious argument — comparing public-sector spending to the private-sector spending is a false analogy. Good government spends against the grain of the private business cycle. When times are lean, the government spends money to stimulate growth during a recession. When the economy is booming, government should save cash for future downturns.
We believe our legislators already have shown restraint by adhering to the $1 billion bonding cap for 16 years. With a projected $1.2 billion revenue surplus, the state is in a win-win situation of being able to replenish budget reserves and borrow at low interest rates to finance construction projects, such as the Mayo Civic Center expansion and the replacement of Plaza Hall and Memorial Hall on the Rochester Community and Technical College campus.
Earlier this session, we editorialized this is a "go big or go home" moment for the Legislature, and we stand by that statement. The $1 billion threshold isn't a magic number that can't be surpassed.
Our bonding decisions should be made looking to the future and not tied to a spending threshold set 16 years ago.