Borrow now, save later.
That’s a foundational philosophy in Gov. Tim Walz’s recommendations for $2.73 billion in bonding projects, which were presented to the House Capital Investment Committee Tuesday.
Of that total, about $1 billion, or 38%, is earmarked for asset preservation. In other words, not as much for fancy new buildings or bridges, a lot more for fixing up what we already own. And, according to Jim Schowalter, commissioner of Minnesota Management and Budget, the longer the state waits, the more it’s going to cost.
“We have a backlog,” he said. “You’ve heard that over time from me and my predecessors, but we’re not making progress. State agencies currently have $1.8 billion in deferred maintenance. Minnesota State [colleges and universities] has $1.2 billion in deferred maintenance, and the University of Minnesota has an estimated $2.3 billion.
“So it’s really important that we put significant money into asset preservation now to prevent things from getting worse. … It costs about 59% more to repair a structure that’s in poor condition than one that’s in fair condition.
“This is an important strategy for fiscal management, minimizing taxpayer cost for our existing infrastructure. Rating agencies have talked about this, and commented on the importance of maintaining the existing infrastructure.”
Bonding is the process of issuing state-sponsored bonds to procure funds for facilities or other assets owned by state agencies or local units of government, allowing debt to be spread out over a number of years. Determining what those projects should be and how much they should get is traditionally the focus of even-numbered years at the Legislature.
Even when the state has gone big on bonding, Schowalter said asset preservation hasn’t been a major beneficiary.
“In the 2020 bonding bill – which was the largest bonding bill the state had ever passed – only $169 million in general obligation bonds went to asset preservation,” he said. “In this recommendation, general purpose asset preservation funding is $529 million.”
Rep. Dean Urdahl (R-Grove City) asked, “If we didn’t do a bonding bill, how would we pay for asset preservation?”
“My guess is we wouldn’t,” Schowalter answered. “I think we would habitually under-invest. These general obligation bonds are in the state constitution to make sure that the state invests in long-lived assets. If we had to put cash into our roads, if we had to put cash into our buildings, we would only do it when we had surpluses. Over time, this would lead to lower economic performance, communities that aren’t as prosperous, and a self-reinforcing cycle.”
Items in the governor’s bonding recommendation for asset preservation include $260.2 million to repair and replace buildings in the University of Minnesota and Minnesota State systems and $111 million for the Department of Natural Resources.
At Tuesday’s meeting, the commissioners of the Minnesota Housing Agency and the Departments of Administration and Corrections also made presentations on their bonding requests. Seven more state agencies will discuss their requests at Thursday’s meeting.