A record $1.9 billion capital package is headed to Minnesota Gov. Tim Walz’ desk after lawmakers signed off on the long-stalled package that had gotten caught up in House GOP opposition to Walz’ emergency pandemic powers.
“This bonding bill is a smart investment that will create thousands of good-paying jobs, deliver improvements to local projects throughout Minnesota, and make our state a better place to live,” Walz said in a statement after the package cleared the Senate Thursday. “It’s been a long journey.”
The package relies on nearly $1.4 billion of general obligation borrowing with additional GO-backed trunk highway and appropriation-backed bonding and cash financing the remainder. The legislation also extends the state’s ability to use negotiated sales on bond deals. The borrowing level exceeds the previous high of $1.1 billion in 2014, according to Minnesota Management and Budget spokesman Chris Kelly.
The package earmarks $700 million of spending for transportations with higher education receiving $150 million and water and sewer upgrades receiving $270 million.
The legislature typically passes a two-year operating budget in odd years with the capital plan, known as the “bonding bill,” taken up in even years. The Senate is controlled by the GOP and the House by the Democratic-Farmer-Labor Party. Walz is Democrat. Borrowing requires a three-fifths super majority so the threshold for passage is even tougher to reach as both sides of the aisle must support it.
Lawmakers failed to reach agreement on the size of a plan and other differences got in the way of approval during the regular spring session. The package again failed to get sufficient support during several special sessions.
Backers said passage of this year’s capital plan was made all the more urgent by the COVID-19 pandemic’s economic impact on the state and its local governments and would provide an infusion of economic activity.
Opponents worried over new spending while the state grapples with a $2.4 billion deficit in the current biennium due to revenue blows from the pandemic and a potential $4.7 billion hole in the next. Over the summer, the bill floundered with Walz blaming the GOP House minority’s efforts to force him to cede powers related to his emergency orders on measures to combat the spread of COVID-19 including the use of executive orders without legislative approval.
After a failed special session in July, Walz warned that the state couldn’t take up the package until the fall as it prepared to sell $1.2 billion of new-money and refunding bonds and that the election could then get in the way.
Passage came this week for the legislation that also includes tax relief and budget amendments during a special session with the House first passing it in a 100-34 vote that followed debate over whether the state could afford the spending with the deficit to solve. The Senate on Thursday then passed the legislation in a 64-3 vote.
The state has $6.4 billion of general obligation debt. The state achieved record low rates in August due to the current market environment and achieved $90 million in savings on the refunding piece.
Minnesota’s top rating from S&P Global Ratings is at risk over its COVID-19 budget hole and how the state might close the potential three-year, $7 billion gap. The rating agency moved its outlook to negative over the summer.
“The negative outlook reflects our view that there is at least a one-in-three chance we could lower our rating on Minnesota due to our view that the state will likely significantly rely on one-time measures and reserves, rather than structural adjustments, to address its structural deficit which we estimate to be $3.5 billion (8% of revenue) for the two-year 2020-2021 biennium,” S&P said.
The state has a $2.4 billion reserve. Ahead of the August sale, Fitch Ratings affirmed the state’s AAA GO rating and Moody’s Investors Service affirmed its Aa1 rating. Both assign a stable outlook. The state will release its formal November revenue forecast in early December, setting the state for budget amendments.
Some pressures are easing on revenues as the fiscal 2021 first quarter revenue results showed revenues had performed better by nearly $600 million.