First the Governor and now the DFL-controlled Minnesota Senate are advocating for a borrowing bill of at least $1.4 billion this year.
Those large proposals garner most of the attention in discussing bonding, but increased emphasis should be placed on another set of numbers: The state's payments on debt, which have increased by nearly double over the last several years.
People should know that bonding isn’t free. Nonpartisan reports show our state's debt service payments soared from $409 million in 2008 to $752 million in 2015, a trend that started around the time the state's limit on debt payments was removed.
That is astronomical growth. And now, after Minnesota’s Management and Budget Office (MMB) announced lawmakers could borrow more than $3 billion, Democrats propose the largest capital investment bill ever.
It’s important to remember that we have bonding guidelines in place, but when they do not take into account the amount of payments, as well as how much outstanding debt the state owes, they are measuring only part of what is financially necessary. This makes them ineffective and outdated when it comes to prudent debt management.
A House bill offered this year would reinstitute a debt-service cap at 3.5 percent of projected General Fund revenue in order to contain that growth and protect taxpayers. The state included debt-service management in its borrowing guidelines for 30 years until the practice ended in 2009. The threshold for payments on debt during most of that span was three percent or less of state revenue.
It is crucial to remember that borrowing simply is spending tomorrow's money today. With that in mind, we should be taking a closer look at the amount we can reasonably dedicate to debt payments without handcuffing ourselves in the future, especially with the impacts of an aging society yet to be realized. Just because we can borrow more doesn’t mean we should.
The bill we in the House propose would help us be more prudent with taxpayer dollars by using a more accurate framework to capture our fiscal picture. To more carefully manage state debt, the House's proposal clearly states that "debt payable to from non-dedicated state General Fund revenues" is not to exceed 3.5 percent. It will give the legislature the information it needs to look out into the future, and the taxpayers the assurance they need that the debt will not become too burdensome for them to sustain.
This 3.5-percent cap on debt service still allows for a reasonable bonding bill to be crafted this year, which is something we both support after we approve our transportation and tax relief proposals. It is not intended to be a statement on state bonding as a practice in general, rather a way for the state to better manage its debt payments so future obligations do not overburden taxpayers today and in the future.
In that light, fiscal responsibility never shall become outdated.