Tool for 'extraordinary time'

As one solution to ease budget woes, Gov. Tim Pawlenty has a proposal to borrow against the state’s future tobacco settlement proceeds.

“This is a one-time budgeting tool in extraordinary times,” Tom Hanson, Minnesota Management and Budget commissioner, told the House Capital Investment Finance Division Feb. 3.

Hanson said sale of the state appropriation bonds would provide nearly $1 billion for the 2010-2011 biennium. The tobacco settlement money would be considered appropriation bonds, which differ from general obligation bonds in that there isn’t the same promise to repay the bonds. But the governor’s proposal would give the assurance that bond payments would be made regardless of what happened to tobacco settlement revenues. The proceeds from these bonds would be used directly for one-time, non-operating costs.

Because the state cannot constitutionally borrow long-term to pay today’s debts, the Legislature would have to vote for a special authorization to pass this measure, said Kathy Kardell, assistant commissioner at the agency.

And some members aren’t thrilled with the idea.

“This is a change in public policy to have the next generation pay for our debt,” said Rep. Jean Wagenius (DFL-Mpls). “We need to keep that foremost in our minds.”

Rep. Al Juhnke (DFL-Willmar) agreed, saying that he is troubled with the 20-year payback time.

“None of us are getting out of here without raising some revenue,” said Rep. Tom Rukavina (DFL-Virginia). “The question is are we gonna be honest about it. I think it’s shameful we are even sitting here today discussing this proposal.”

Although the payments for the appropriation bonds wouldn’t technically impact the state’s 3 percent debt service guideline, they may count toward broader measures of state indebtedness used by rating agencies, Kardell said.

“You can say this is revenue or an increase in tax,” said Rep. Larry Howes (R-Walker). “We’re borrowing money to keep from taking money from the people of Minnesota. This may not be the right measure, but it’s a starting point.”