Another day older and deeper in debt
With another legislative session about to start Feb. 4, the prospect of state lawmakers putting Minnesota deeper in debt looms large.
The politicians will tell you the state constitution requires a balanced budget, that revenues must match expenditures. But like the Hertz rental car commercials: "Not exactly."
What the politicians won't tell you is that this provision is to prevent short-term borrowing, the "pay-day" loan variety of financing. The constitution doesn't prevent state lawmakers from racking up billions of dollars in long-term debt to finance state construction projects.
When the state wants to build buildings, pave trails or acquire more land, it sells general obligation bonds (i.e., a long-term loan paid back with interest over 20 years).
Every year lawmakers consider which projects to fund with long-term debt. But 2010 is shaping up to be unique in Minnesota history. In the past, state legislators have adhered to a strict guideline, that no more than 3 percent of general revenues can be used for debt-service payments.
The issue for the upcoming session is that this three percent debt-service guideline has already been exceeded due to the decline in tax revenues. But legislators seem undaunted by history or fiscal facts. The quest is to bolster their re-election opportunities by passing a bloated bonding bill.
They seem determined to place an even greater debt load onto the taxpayer.
Like President Obama, they claim that government construction projects will help stimulate the economy. However, an analysis by the Associated Press released last week found that no matter how much stimulus money Washington poured out for road projects, the effort has had no effect on local unemployment numbers and has "only barely helped the beleaguered construction industry."
With Minnesota facing a billion-dollar budget deficit this year and a $5 billion projected budget shortfall next year-and with current debt payment totaling more than $4 billion-now is not the time to dig the state into a deeper fiscal hole.
Like a family that can't make their mortgage payment, it's not the right time to put an addition on the house. Yet, some lawmakers are advocating for another $1.5 billion in borrowing. Like pouring gasoline on a fire, these lawmakers treat the state credit card like free money. Spend today because it won't have to be paid back until later.
The state's credit card is maxed out, and every state legislator is aware of that fact. The fiscally responsible approach is not to up the credit card limit, but rather work on paying off the state's current credit card debt, which helps to keep Minnesota's excellent credit rating.
Here's a sobering fact: Every time lawmakers put a dollar on the "bonding" credit card, it costs about 50 cents in finance charges over the long term.
So let's consider that in aggregate: A billion-dollar bonding bill for state construction projects this year will cost taxpayers not only the billion dollars to repay the principal, but also an additional half a billion in financing costs over the 20-year term of the general obligation bond.
As a former chair of the House Capital Investment Committee (bonding committee), I came to have a greater appreciation for hog farmers, because I learned firsthand about that old saying, "The most dangerous place to stand is between the hogs and the trough."
This saying is certainly true when looking at the overwhelming desire on the part of lawmakers to pay for new state construction projects with more debt.
In 2010, the temptation will be to forget about the 30-year historical guideline for debt-service payments, and fabricate stories about job creation.
The commonsense approach is to manage our state's financial resources the same way Minnesotan's expect elected officials to manage the state's natural resources-wisely, and with an eye on the future.
Phil Krinkie is a former Republican state representative from Lino Lakes and the president of the Taxpayers League of Minnesota. The eight-term lawmaker chaired the House Tax Committee and two other House panels. You can contact Krinkie via e-mail at: email@example.com. This column originally appeared in the St. Paul Legal Ledger Capitol Report.