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Bonding
Bonding 101 shared with capital investment committee
Bonding is important to help build a healthy state.
That was the message from Chairwoman Alice Hausman (DFL-St. Paul) to members of the House Capital Investment Committee at its inaugural meeting.
“There are two things that government can do for a healthy economy,” she said. “One is education … and the other is infrastructure.”
Before dollars are allocated this session, members received a state bonding basics overview.
According to an information brief from the nonpartisan House Research Department, “One of the ways the state pays for projects is to borrow money by issuing bonds, which are promises to repay the money borrowed at a specified time and interest rate.”
Two types of bonds are used: general obligation bonds that are backed by the full faith, credit and taxing powers of the state, and revenue bonds that are backed by revenues other than a statewide tax.
Per the state constitution, general obligation bonds must be for a public purpose. Bonds cannot be used for exploratory project planning, but their use is permissible for project pre-design, or a preliminary look at total costs once it is determined a project will go forward; nor can bonds be used to reimburse for completed projects.
General obligation bonds must mature in no more than 20 years and, like a tax bill, a bill to use them must originate in the House. A three-fifths vote of the House (81) and Senate (41) is required to pass a bonding bill.
A bond sale typically does not occur during the legislative session; however, Hausman said now is a good time to issue more because the interest rate on the bulk of the bonds recently sold was 2.05 percent.
The state cannot invest in capital projects as if it has an unlimited checkbook.
According to guidelines set forth by
Minnesota Management & Budget, outstanding total tax-supported principal shall be no greater than 3.25 percent of total state personal income. A debt capacity forecast is prepared annually in February and November.
MMB representatives are scheduled to present a debt service guidelines update and cancellation report at the committee’s Jan. 17 meeting. According to
statute, MMB must report at the beginning of each odd-numbered year on the cancellation of General Fund and bond-financed projects authorized more than four years prior. Such monies will be cancelled on July 1 unless reauthorized by law.
- Mike Cook
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