State bonding decisions have
major implications for Minnesota’s competitiveness
A Civic Caucus Focus on Competitiveness
Interview March 7, 2014
Dave Broden (vice chair), Paul Gilje
(coordinator), Alice Hausman, Dan Loritz (chair), Tim McDonald, Jenny
Nash, Paul Ostrow, Dana Schroeder, Clarence Shallbetter. By phone:
According to Minnesota State
Rep. Alice Hausman, the House Capital Investment Committee gets $3
billion to $4 billion in bonding requests each year, from state higher
education institutions, local governments and state agencies. The
state's debt capacity policy requires that all types of state debt
must not exceed 3.25 percent of the state's personal income.
Hausman contends that as the economy has
changed, what Minnesota has to invest in has changed. She says we can
no longer think of arts and culture and parks and trails as amenities
and frills, because those things attract workers, keep workers and
help the state stay economically competitive.
Stressing the costs of homelessness to the
state and its role in the achievement gap in preK-12 education,
Hausman says this year's bonding bill will include $100 million for
permanent housing for people who are homeless. And noting that the
state's higher education systems currently have an incentive to get
the state to bond for repair and renovation of their buildings, she
says the state should, instead, pay up-front for higher education
buildings and the systems should pay to maintain and operate them.
State Rep. Alice Hausman (DFL-St.
Paul) was first elected to the Minnesota House of Representatives in
1989 and is currently serving her 13th term. She is chair
of the House Capital Investment Committee and also serves on the
following committees: Legacy, Transportation Finance, Ways and Means,
and the Select Committee on Veterans' Housing. She has a B.S. degree
in education from Concordia College in Seward, Neb., and an M.A.
degree in education from Concordia College in River Forest, Ill.
Issues to address:
Prior to the meeting, Hausman
was asked to prepare to address the following issues: how
infrastructure investments affect the state's economy and
competitiveness, how states' bonding processes differ, who should pay
for maintenance and operation of higher education buildings and how
priorities are determined among bonding proposals.
In any given year the Minnesota House Capital Investment Committee
gets $3 billion to $4 billion in bonding requests.
"We say 'no' to more proposals than we
fund," State Rep. Alice Hausman, chair of the committee, said.
A bonding bill is harder to pass than
anything else. "It's easy to play politics with bonding," Hausman
said. "Every other budget bill requires just a simple majority, but
the bonding bill requires a super majority: 81 votes out of 134
members in the House."
Appropriation bonds are high-cost debt.
Hausman noted that general obligation bonds are backed by the full
faith and credit of the state. Trunk highway bonds, she said, are "a
good investment," because they're backed by revenue from the gas,
motor vehicle sales and auto license taxes. But appropriation bonds
are not backed by the full faith and credit of the state, because they
require that the Legislature appropriate money every year to pay the
debt service. The $468 million in bonds issued by the state for the
new Vikings stadium are appropriation bonds.
"It's higher-cost debt," Hausman said,
"because there's a risk: what if the Legislature doesn't appropriate
it? Then we default and the state has a bad credit rating. I think we
should severely limit appropriation bonds. I think we should say that
no more than 1.5 percent of our debt should come from them."
She said the state began using appropriation
bonds when Tim Pawlenty was governor. He wanted to use Tobacco
Securitization Bonds to balance the budget by bonding $1 billion and
using the future revenue streams of the tobacco lawsuit to pay for it.
"We succeeded in saying 'no' to that at the time," she said. "But in
2011-2012, the Legislature passed it as a way of balancing the budget
and the Minnesota Department of Management and Budget (MMB) converted
those bonds to appropriation bonds."
The state's current debt capacity policy is
3.25 percent of the state's personal income. "When Rudy Perpich
was governor, he said the state's total debt should not exceed three
percent of the general fund, which we lived with for a number of
years," Hausman said. "But that's not terribly helpful for ratings
agencies and bond houses, because states are different in what they
include in the general fund. So when Pawlenty was governor, he changed
the debt capacity policy to 3.25 percent of personal income. That's
something you can compare from state to state."
All types of debt are included in this
measurement, not just general obligation bond debt. "So now the
higher-risk types of debt compete with general obligation bonding,"
she said, "even though the general obligation bonding bill does all
the core-value stuff: higher education, wastewater infrastructure,
local roads and bridges, ports, public safety and corrections, natural
resources, all of the agency stuff and what builds our state."
"We are a responsible state in terms of the
level of our debt," she said. As of November 2012, the state's total
tax-supported debt of $6.9 billion was 2.74 percent of state personal
The economy has changed and what Minnesota
has to invest in has changed. "The bonding bill in 2014 should
look different from the one we wrote in 1972," Hausman said, "because
the economy has changed and what we have to invest in has changed. In
the old economy, the knowledge worker, often the demographic from age
24 to 36 that business and industry desperately need and want, used to
move to where the jobs were. Today young people decide first where
they want to live based on amenities, such as arts and culture,
natural resources, parks and trails, and transit corridors. Then they
figure out how they're going to make a living. It's a different way of
thinking about where you live and work."
"That means we have to change how we
invest," she continued. "We used to think of arts and culture and
parks and trails as amenities and frills. But today everybody
understands that's how we attract workers, keep workers and stay
There's a regional debate between the metro
area and Greater Minnesota. "There's somehow a belief in Greater
Minnesota that they shouldn't pay for anything in the metro area,"
Hausman said. "But the metro area is the economic engine of the
state's economy." It represents two-thirds of the state's Gross
Domestic Product (GDP) and has a Gross Metro Product of $200 billion,
making it the 13th largest metropolitan economy in the nation. "If the
metro area stays economically competitive and healthy, we do all sorts
of good things for the rest of the state," she said. "We're
Chambers of Commerce from around the state
know that the kinds of investments in the bonding bill are a central
part of their economies. Hausman said communities believe bonding
for things like a convention center or an amateur sports facility
keeps them economically healthy. "Everyone makes the economic
argument," she said.
In Lanesboro, she said, the Root River bike
trail has changed the local economy. Towns around the state support
bike and walking trails both for health and for their economic impact
on communities on and near the trails. In Chatfield, the performing
arts center is part of the new way that city operates, she said. "We
hear that all over the state," she said, "that the arts draw tourists.
All of these cultural entities have an economic impact."
This year's bonding bill will include $100
million for housing for people who are homeless. Of that amount,
$20 million is for traditional public housing and $80 million is for
Housing Infrastructure Bonds for permanent supportive housing that the
Minnesota Housing Finance Agency (MHFA) asked for. "Now they can do
their own bonding," she said. General obligation bonding can only be
used for public infrastructure, but when MHFA bonds, it can partner
with nonprofits, like Catholic Charities and Lutheran Social Services,
which leverage huge amounts of private dollars. The state pays the
"We're interested in ending homelessness,"
she said. "There is University of Minnesota (U of M) research that
shows the connection between homelessness and the achievement gap. It
shows that fifth graders who have been homeless or highly mobile
achieve at the level of second graders who have been in stable
housing. That's the achievement gap. It's an expensive problem for us.
We spend billions of dollars on education, half the budget. We can
spend a small amount assuring housing for homeless people, half of
whom are less than 20 years old.
She said Utah realized that it costs more to
pay for homelessness than to move chronically homeless people off the
street into permanent housing. Utah cut homelessness by 78 percent
over eight years, she said, and wants to end it by 2015.
"We insist on permanent supportive services
with housing for homeless people, because we don't want to just house
them overnight," she said. "We want to help them move out of poverty
with all of the services for things such as mental health, alcohol
dependency and runaway youth." She mentioned the example of a
high-rise building in St. Paul with a new building out front, where
early childhood education and after-school tutoring are offered. "Now
100 percent of the kids in that building graduate from high school,"
Legislators must prove that capital
investments are fair to everyone.
Those investments, such as Minnesota State Colleges and Universities (MnSCU),
public housing, water projects, local bridge replacements, etc., take
place all over the state, Hausman said. "When they look at my bill,
people should say, 'She was fair to everyone.'"
The state should pay for new higher
education buildings, but the systems should maintain them. Hausman
said there is a backlog of higher education projects around the state
that MnSCU keeps bringing back to the bonding committee, "because
we're never aggressive enough. None of these regions give up on these
projects." An interviewer commented that perhaps the state could pay
for higher education buildings up front and then the systems would
maintain them. Hausman agreed. "That's a new idea I'm floating," she
She said every year the U of M's and MnSCU's
asset preservation lists (that is, buildings that need repair or major
renovations) get bigger and bigger. It's now $100 million. "They say
the state isn't maintaining its assets," she said. "When we build
buildings, the state pays for two-thirds and the institution pays for
one-third. But for asset preservation, the state pays 100 percent.
They have an incentive to move more of their needs to asset
"I have started to say higher education
systems have to be really careful about building new buildings or
renovating them," she continued. "Then they should have a business
plan to operate and maintain them. It's a different way of thinking,"
An interviewer asked if the Legislature
requires that anyone with a capital bonding request show a budget for
maintaining and operating the investment. Hausman replied that the
Department of Management and Budget does ask that for all bonding
requests. And, she said, the MHFA must prove they have the services to
go with their housing requests.
The governor wants to treat the U of M and
MnSCU equally in bonding. "The problem," Hausman said, "is that
MnSCU has 400,000 students vs. 50,000 for the U of M."
Many local government requests are never
going to get funded. Hausman said higher education is usually 30
percent of the bonding bill, natural resources are about 23 percent,
public safety and corrections are a big area and local government
requests are about half the size of state agency requests. But, she
said, many local government requests are never going to get funded.
"We are not going to save all the dying towns," she said. "We get lots
of requests and it's very painful, but I say 'no' more than I say
The bonding bill funds early childhood
centers all over the state. This year's bonding bill will include
$10 million for early childhood centers, Hausman said. Of that amount,
$5 million will go to Minneapolis for the downtown YWCA early
childhood center, because it serves kids from Elk River to
Funding K-12 facilities would be "daunting."
Hausman said higher education facilities are somewhat limited. "But
we've been very hesitant to do K-12, because that's huge. It would be
endless. There is a push because facilities are deteriorating. It's so
big that it would be daunting."
Local governments must prove statewide or
regional significance in their bonding requests. An interviewer
asked if there are one or two major principles that Hausman would like
to follow in deciding whether a local government proposal would be
considered. "Local governments must have economic studies that show
the impact of a project," she responded. "Right now, people want to
live in cities. The economic vitality of its cities is what is making
Minnesota strong and competitive. Our decisions are based on knowing
what impact a project is going to have. The most important criterion a
city has to fulfill when making a request is to tell us why it has a
statewide or regional impact."
Lack of progress in mass transit is hurting
Minnesota economically. An interviewer asked how the vision of the
changing economy is factored into the bonding process. Speaking of
mass transit, Hausman said, "Something's wrong with us. We plan badly,
we execute badly. It is hurting us economically. Denver has figured it
out and that's where the young demographic is moving. Our business
community knows it. We haven't figured it out yet in Minnesota. Other
states and other countries are moving more aggressively. They want the
businesses that we ought to be figuring out how to get. One failure is
that we don't have visionary leaders right now."
Build infrastructure only when there's a
plan for economic development and developers are ready to act on it.
An interviewer commented that twelve of the governor's projects,
some of which are quite local, were for economic development. Pointing
to a request for the former Twin Cities Arsenal property, the
interviewer asked how we end up with all these little projects for
specific cities in the state bonding bill.
Hausman replied that Ramsey County is asking
for $29 million for infrastructure for the Arsenal property. "It's
partly about equity," she said. But she feels strongly that "when
there's a plan for the area and there are developers, then we should
build the infrastructure, but not in anticipation." She noted that the
state built infrastructure at Elk Run near Rochester to attract
high-tech companies. "It's like a road to nowhere," she said. "There's
infrastructure, but nobody came."
The state does not have the funds to pay for
the Minnesota Department of Transportation (MnDOT) 20-year highway
investment plan. Hausman pointed out that trunk highway roads and
bridges can only be paid for with gas, license and motor vehicle
taxes, not with general obligation bonds. She said both at the state
and national levels, people hate to raise the gas tax. "We haven't
raised those revenues and our infrastructure is showing that," she
said. "We build our roads to a very low standard, so they fall apart
and get potholes. If we built to European standards, the roads
wouldn't fall apart so quickly, but the gas tax would have to be
higher. MnDOT has a plan, but we have no funding for it, so the plan
The state can't pay for everything the
federal government is unable to fund anymore. An interviewer
commented that states can't look to the federal government for
transportation funding anymore. He asked whether a major
transportation investment should be made through borrowing and, if so,
what kind of borrowing should be used.
"The federal government can't be depended on
in the foreseeable future for transportation or for veterans'
housing," Hausman replied. "We can't bail the federal government out.
When the federal government systems aren't working, what still makes
sense for the states to do? We know there's a direct cost to the state
for homelessness, so we have a vested interest in making sure there's
housing. In the case of transportation, the needs are so great that
what we've done in the bonding bill is a pittance."
State agencies make their requests to the
governor. An interviewer asked how the state agencies put together
their requests for bonding. They make their requests to the governor,
Hausman said, and see what he puts into his bonding proposal. This
year he has told the agencies they could plead directly to the bonding
committee, if he did not include their requests in his proposal. "We
take pretty seriously what the governor has put in, because all of
those agencies work for him," she said.
The Civic Caucus
is a non-partisan,
tax-exempt educational organization. The Interview Group
includes persons of varying political persuasions,
reflecting years of leadership in politics and
business. Click here
to see a short personal background of each.
S. Adams, David Broden, Audrey Clay, Janis Clay, Pat Davies, Bill
Frenzel, Paul Gilje (coordinator), Randy Johnson, Sallie Kemper, Ted
Kolderie, Dan Loritz (chair),
Tim McDonald, Bruce Mooty, John Mooty, Jim Olson, Paul Ostrow, Wayne
Popham, Dana Schroeder, Clarence Shallbetter, and Fred Zimmerman