Prudent, or inflexible? House committee splits on placing debt limit in law

On a day when House Republicans set budget targets that include plans for a $600 million bonding package, a measure that could limit how much future Legislatures could borrow for capital investment bills passed its first House committee test.

The House Capital Investment Committee on Thursday approved HF2970, sponsored by Rep. Bob Vogel (R-Elko New Market), on a split-voice vote. It would cap how much the state could borrow by limiting total outstanding debt to 3.5 percent of estimated non-dedicated General Fund revenues.

It is a move supporters said would put in place a prudent rule for lawmakers and budget officials to follow when considering how much to borrow and help the state more carefully manage its debt.

Rep. Bob Vogel

Opponents, though, painted it as a bill that would limit the state’s flexibility and could hurt Minnesota’s standing in the eyes of bond rating agencies.

“This is just adding another test so we’re being responsible and prudent,” Vogel said.

He likened the proposal to that of a prospective homeowner seeking a mortgage, but who is also burdened with additional obligations.

“Just because they can qualify for (a $400,000 loan) doesn't mean that's what they should borrow,” Vogel said.

The bill’s next stop is the House Ways and Means Committee; a companion, SF3343, sponsored by Sen. Eric Pratt (R-Prior Lake), awaits action by the Senate Finance Committee.

Currently, state lawmakers and budget officials have guidelines in place for managing how much of the state’s income is used to pay off debt. Vogel’s proposal would put such guidelines in law, and restrict the size of future bonding bills lest they violate state law.

‘Debt guidelines have served us well’

State Budget Director Margaret Kelly opposes the bill, saying the percentage of existing outstanding debt compared to non-dedicated General Fund revenues would be better brought forward as another piece of information for lawmakers to consider rather than a codified rule.

A 3.5 percent debt cap in law “would, at times, put us out of compliance with state law,” she said. “And I’m not sure how ratings agencies would view that.”

Under guidelines in place since 2009, the largest bonding bill that could be passed this session while still meeting the state’s current debt ceiling would be $3.2 billion, a nonpartisan House Fiscal Analysis Department estimate calculated. (Gov. Mark Dayton’s bonding proposal released in January checks in at $1.4 billion.)

That figure would drop to $1.2 billion under the cap that would be put in place under HF2970.

“A reasonable limit on borrowing is absolutely prudent,” said Rep. Paul Torkelson (R-Hanska), the committee chair.

Kelly and committee members opposed to the legislation warned, however, that the state’s debt total is just one component of its fiscal health that ratings agencies consider when they grade the state.

Rep. Alice Hausman (DFL-St. Paul), a former bonding committee chair, said adding a stricter debt test for lawmakers to adhere to — and making it a law, rather than a guide post — would limit the state’s flexibility to act as economic conditions change.

“Debt guidelines have served us well,” Hausman said. “We respect them. We follow them.”