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MMB reports Minnesota within capital-guideline limits but flags sensitivity to interest rates, trunk-highway trade-offs and cancelled balances
Summary
Minnesota Management and Budget reported that the state remains below its capital-investment guideline thresholds but warned the limits are sensitive to interest rates, project spending timing and the mix of trunk-highway versus general obligation borrowing; MMB also published its annual cancellation report identifying roughly $34 million subject
Minnesota Management and Budget Assistant Commissioner Jennifer Hassimer told the Senate Capital Investment Committee on Jan. 21 that the state’s capital investment guidelines show Minnesota remains below published thresholds but that capacity calculations are sensitive to market conditions, prior-year bonding activity and assumptions about future bond sales.
Hassimer reviewed three long‑standing administrative capital-investment guidelines and the state’s current measurements under each one and described the department’s debt-capacity forecast and the statutory cancellation report required under Minnesota statute 16A.642.
Under guideline 1 (total outstanding tax‑supported debt as a percentage of state personal income), the state’s November measurement was about 1.89% compared with a 3.25% threshold. Under guideline 2 (total authorized state debt compared with personal income), the November measurement was about 3.52% versus a 6% limit. Guideline 3 measures the pace of scheduled repayment (no less than 40% of general obligation principal retired within five years and 70% within 10 years); MMB reported 42% and 73%, respectively, in the November snapshot.
Hassimer provided a current statement of indebtedness showing roughly $8.4 billion in outstanding state debt, comprising about $4.4 billion in general‑fund‑backed general obligation debt, $2.5 billion in trunk‑highway bonds and $1.5 billion in appropriation‑backed debt. She said roughly $2.5 billion of debt had been authorized by the legislature but not yet sold. MMB’s November forecast used capital‑budget assumptions of $790 million for 2025, $1.01 billion for future even years and $165 million for future odd years (the forecast assumes phased bond sales rather than immediate full sales of authorized amounts).
Hassimer said the guideline‑based capacity calculations are sensitive to three inputs: market interest rates (which have risen since 2022 and reduce bond sale proceeds), the timing of project expenditures (faster or slower spending alters when bonds must be sold) and previously authorized but unsold debt. She noted the state’s long‑term AAA credit ratings help lower borrowing costs despite higher market rates.
On trunk‑highway bonds, senators asked why MnDOT trunk‑highway borrowing reduces apparent GO capacity; Hassimer explained that Article XIV (trunk highway) bonds are nevertheless general obligations of the state and therefore are included when MMB tests guideline 3, because the ultimate pledge is a state obligation if trunk‑highway revenues were unavailable. That interrelationship means higher trunk‑highway borrowing can affect the state’s overall GO capacity under the guideline framework.
Hassimer also briefed the committee on the cancellation report MMB is required to publish under Minnesota Statutes §16A.642. The 2025 report lists projects authorized in 2020 and earlier with unspent, unencumbered balances subject to cancellation on July 1 unless reauthorized. The report identifies just over $30 million in general obligation bond balances and roughly $4 million in cash capital balances that will cancel in July without legislative action.
Committee members asked whether the state could prudently increase bonding in the near term without affecting credit ratings. Hassimer said the rating agencies review multiple factors, including debt levels, the pace of repayment and overall state finances; she offered to follow up with more specific comparisons of Minnesota versus peer states and on the dollar impact of AAA ratings on borrowing costs. Senators also discussed the budgeting effects of not passing a 2024 bonding bill, which compressed the forecast baseline and helped drive the reduced 2025 assumption.
MMB concluded by offering to return with more detail about trunk‑highway cash management, the mechanics of possible bridge financing, and scenario work showing the rating and guideline impacts of different bonding paths.
