Mark Fischenich: Ask Us: State surplus similar in size to state debt

May 15—Q: Perhaps you can help me to understand the state of Minnesota finances. I have three questions. How much money does the state owe on past bonding projects? What is the current dollar amount that the state is paying in interest on this amount? Why in the world, when there is a surplus for the current fiscal year, aren't they paying off the debt, getting rid of any interest they are paying and living within the state's income each year?

A: Ask Us Guy, considering the available space and his available brainpower, won't attempt to explain "the state of Minnesota finances," but he was able to get responses to the reader's three specific questions from the Minnesota Department of Management and Budget.

First, a little bit of background for readers who don't pay a lot of attention to the state budget. In late February, Minnesota's economists projected the state would take in $9.25 billion more in taxes and other revenue than it was slated to spend in the current biennium — a two-year budget cycle that began July 1 of last year and continues through June 30, 2023.

With a week left in the current legislative session, Democrats controlling the state House of Representatives and the governor's office and Republicans controlling the Senate have agreed on how to use some of the surplus. About $500 million in bonuses will be given to front-line pandemic workers and even more money will be used to restore the state's unemployment fund, depleted by the COVID recession, so businesses won't have to bear that burden.

As for "bonding projects," that's a reference to the construction approved by the Legislature in past years that was financed through the sale of government bonds. That's allowed by Minnesota's Constitution for long-lasting infrastructure projects on government-owned property if 60% of the lawmakers in both the House and Senate approve of the borrowing.

OK. On to the questions.

How much is still owed on bonds sold for past projects?

"The State currently has $8.2 billion of outstanding debt, split between $6.6 billion in General Obligation bonds and $1.6 billion in annual appropriation debt," the MMB stated.

That second category of $1.6 billion, if Ask Us Guy is reading the documents correctly, involves a wide variety of projects funded with bonds that are being repaid with revenues other than general taxes — such as sports stadiums and affordable housing projects.

Next comes the question about how much interest the state will be paying on that existing debt.

"The state is obligated to pay $2.5 billion in interest through 2043 on the $8.2 billion in outstanding principal," according to MMB's most recent calculation.

As for the "why in the world" question — suggesting that lawmakers and Gov. Tim Walz should be using the surplus to pay down the debt — it's more of a matter for policymakers than budget-department employees.

MMB provided a bit of the rationale, though, for not simply using surpluses to erase debt. For one, elected officials felt obligated to replenish the unemployment insurance trust fund, finance the frontline worker bonuses and set aside funding for continued COVID response measures.

"These provisions used up $1.14 billion of our federal relief funds and another $2.1 billion of the state's projected balance."

The agency noted, too, that there is a traditional logic behind financing construction with bonds. Doing it that way means that both current and future taxpayers will pay the cost, which policymakers deem to be appropriate when both current and future taxpayers benefit from prisons, state college buildings, state park facilities, city water and sewer plants and the other things built with the bonds.

In addition, the approach allows construction to continue even when the economy is in a downturn because the costs are spread out over several decades.

"We use bonds to match the cost of long-lived capital projects with the benefits received over time," MMB stated. "This approach enables Minnesota to keep making investments in good budget years and lean budget years."

Finally, budgeting is all about priorities. While the reader who submitted the question clearly believes elimination of debt is the wisest use of the surplus, many lawmakers have other priorities.

A large percentage of Republicans prefer using the surplus to finance tax cuts for Minnesota residents and Minnesota businesses. Many Democrats would like to see a substantial share of the surplus targeted at spending for schools or day-care subsidies or nursing home workers or anti-poverty programs.

MMB said it's ready to pay off debt early if the Legislature decides "this is the highest and best use of remaining balances."

But even if lawmakers don't go that route, Minnesota will not be a particularly indebted place, according to the agency: "Know that even without any early payments for debt, Minnesota remains in the 'middle of the pack' for state debt."

Contact Ask Us at The Free Press, 418 S. Second St., Mankato, MN 56001. Call Mark Fischenich at 344-6321 or email your question to mfischenich@mankatofreepress.com; put Ask Us in the subject line.