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Minnesota's $1B Bond Package

CHICAGO — Nearly six months after the collapse of a downtown Minneapolis bridge, Minnesota Gov. Tim Pawlenty yesterday unveiled a $1 billion biennial capital bonding plan that includes a record $225 million for bridge construction.

The bill totals $1.09 billion and relies mostly on general obligation borrowing, although a small piece would be funded with cash and GO-backed bonds that would be repaid with transportation-related taxes and fees that flow into the state’s trunk highway fund.

The bill’s size is on par with the last biennial capital budget, proposed in 2006. The state adopts a capital budget, referred to as the bonding bill, in the annual legislative session that follows passage of a two-year operating budget.

Pawlenty faced intense bipartisan pressure from lawmakers to propose a large bill amid a struggling economy, uncertain revenue picture, and heightened scrutiny of the state’s bridges following the collapse of I-35W bridge in downtown Minneapolis last summer.

The eight-lane, 40-year-old steel truss arch bridge across the Mississippi River buckled and collapsed in early August killing 13, focusing both state and national attention on the condition of the country’s bridges and infrastructure.

The bonding bill includes a record level of spending for transportation — $416 million, or 38%, of the total package — and includes $225 million for local bridges alone. The state’s 2006 capital budget included just $52.5 million for bridges, according to Peter Sausen, assistant commissioner in the Department of Finance. The new funding would allow for between 600 to 700 bridges to be replaced.

“Positioning Minnesota for future success means making smart decisions about where we should invest,” Pawlenty said. “This proposal is fiscally responsible and it sets key priorities.”

The Republican governor sought the maximum amount of new general obligation borrowing allowed under a self-imposed debt cap that limits debt service to 3% of general fund revenues. “We review our debt capacity twice a year when the November and February revenue forecasts are released,” Sausen said.

Pawlenty said the bill further focuses on funding projects with state significance. About $258 million is earmarked for higher education, including $129 million for the University of Minnesota and another $129 million for the Minnesota State Colleges and Universities system. About $175 million would go to environmental and outdoors’ projects, $96 million for economic development initiatives and projects. Another $68 million would fund state building preservation, $50 million for veterans and military projects, and $41 million for public safety and corrections.

If approved, the state would begin borrowing toward some of the projects in its next GO sale, slated for early summer after the Legislature closes its 2008 session. Sausen said he expects the state’s annual spring-early summer sale to be sized at about $290 million and the state’s traditional second sale in the fall to be sized at about $340 million. Those figures could grow if refunding opportunities exist.

While Republicans generally favored the governor’s plan to devote more of the bonding bill to transportation, leaders of the state’s version of the Democratic Party — the Democrat Farmer-Labor Party — were critical of it, not for its size, but for its heavy focus on bridges and transportation.

Democrats, who control both chambers, plan to introduce after they convene Feb. 12. a separate multi-billion-dollar transportation package supported by various revenues, including a gasoline tax increase. Pawlenty vetoed a previous package that relied on such an increase.

“This bonding bill is political, not practical, and three times more than what local governments requested for bridges,” said a spokesman for the Senate Democrats. “The state needs a long-term solution to transportation funding, not a one-time infusion.”

Minnesota’s $4 billion of GOs are rated AAA by Fitch Ratings and Standard & Poor’s and Aa1 with a positive outlook from Moody’s Investors Service. In its annual November forecast the state announced a $373 million deficit in its current budget that runs through June 30, 2009, and a $1.2 billion deficit, when inflationary increases in spending are included.


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