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Senate counsel briefs panel on appropriation bonds and certificates of participation
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Summary
Senate counsel provided a primer distinguishing appropriation bonds, certificates of participation and general obligation bonds, and discussed how appropriation bonds have been used in Minnesota since 2011.
Senate counsel provided the committee a high-level primer on appropriation bonds, certificates of participation and how those instruments differ from general obligation bonds.
“Appropriation bonds are debt instruments just like general obligation bonds in that respect, but they are payable contingent on the legislature appropriating money to pay the debt service on them,” the counsel said in a written memo and verbal briefing to the committee.
The counsel explained that general obligation (G.O.) bonds are backed by the state’s constitutional pledge to levy taxes as necessary and typically require a three-fifths vote in the legislature; by contrast, appropriation bonds are payable from statutory appropriations and generally require only a majority vote. The counsel said appropriation bonds count toward debt measured in guideline 1 and guideline 2 (debt-to-personal income measures), but not toward guideline 3 because guideline 3 is focused on general obligation debt repayment schedules.
Ms. James, identified as Senate counsel in the transcript, summarized prior Minnesota uses of appropriation bonds: authorizations dating to 2011 for pay-for-performance programs (later repealed), refunding tobacco settlement revenue bonds in 2011, financing the Vikings stadium (2012), Lewis and Clark Regional Water System (2015 and 2017), Duluth infrastructure authorizations (2019) and multiple 2020 issuances for electric vehicle charging, public television equipment, contaminated-site remediation and later refinancing actions. She said appropriation bonds offer flexibility for purposes that need not be capital or publicly owned assets, but they generally carry higher borrowing costs than G.O. bonds.
The counsel and MMB staff also discussed certificates of participation (COPs). Ms. James described certificates of participation as an annual-appropriation debt instrument often structured with a lease-purchase agreement; Assistant Commissioner Jennifer Hassimer added that certificates of participation were sold in 2023 to finance the State Office Building expansion and that those obligations are included in the state’s $1.5 billion appropriation-debt tally.
Senators asked about recourse for investors and credit-market implications. Hassimer cautioned that non-appropriation would not only affect the willingness of investors to buy appropriation bonds but could also affect the state’s ability to access capital markets generally and damage credit standing.
Committee members also sought practical figures: MMB staff pointed senators to the debt capacity forecast, which shows annual payments for “other tax‑supported bonds” (annual appropriation debt) at about $179,000,000 in fiscal year 2025 and noted a fiscal-year 2023 peak near $500,000,000 tied to stadium debt payoffs.
No committee action or vote occurred during the briefing; the presentation was informational and aimed to help senators weigh financing options for projects that may not fit constitutional G.O. requirements.
