Borrowing and Building:
In these days of sovereign debt crises stretching from Athens to Washington, some may consider more public borrowing a fast road to ruin. But it ain't necessarily so.
Boasting one of the nation's lightest debt loads, Minnesota is ideally positioned to pump up its economic recovery with long-term capital investment in public facilities. With nearly $2 billion in general obligation borrowing capacity and record low bond interest rates below 3 percent, the state has an unprecedented opportunity to repair aging infrastructure, increase productive capacity and get thousands of construction workers off the jobless rolls.
It should be the Legislature's top priority this year, enacted early in the session that begins Jan. 24. That way, many of the projects could get underway during the 2012 construction season, helping to restore the more than 40,000 Minnesota construction jobs that have dried up since 2006.
"We're by far the most depressed industry sector," said Kyle Makarios of the North Central States Regional Council of Carpenters. "We have 3 percent of the employment, but one-quarter of the unemployment. You can't focus on jobs without focusing on the construction industry."
Once upon a time, borrowing for infrastructure wasn't a partisan issue. Conservatives and progressives alike proclaimed the economic and quality-of-life benefits of excellent public facilities from Interstate highways to state college campuses.
Over the past 20 years or so, these investments suffered collateral damage in right-wing antigovernment campaigns. But now there are signs of a change for the better.
Congressional conservatives have backed off from their former resolve to cut federal transportation funding by one-third. New Jersey Gov. Chris Christie, who famously scuttled a Hudson River transit tunnel project, recently called for several billion dollars in borrowing for transportation projects, even though his state ranks third highest in the nation in total debt.
Another conservative icon, Indiana Gov. Mitch Daniels, turbocharged public infrastructure spending with the help of a $3.8 billion lease of the Indiana Toll Road to private investors. "The provision and upkeep of first-rate public infrastructure is a core duty of any responsible government, clearly within the sphere of government's legitimate purposes," he wrote in "Keeping the Republic," his book published in September.
Virginia's conservative Gov. Bob McDonnell has proclaimed that in 2011 he "put the most new funding into roads and rail in the state in 25 years" - a $4 billion program enacted "with broad bipartisan support." It featured $2.9 billion in bonding. "Transportation and economic development and prosperity are inextricably linked," he said.
Even in deep-red Wyoming, Gov. Matt Mead urged more than doubling state capital construction projects next year. "This budget recommends investment in the programs that create opportunities -- education, construction, highways, cities, towns and counties," he told the Legislature last month.
You don't have to take these conservatives' word for the benefits of public capital investment. Economists at Moody's have estimated that each dollar of new government infrastructure spending generates $1.59 of increased gross output.
This is a greater return on investment than for any other economic stimulus effort except extended unemployment benefits and increased food stamps. It even beats payroll tax holidays, and it's five times more effective than wasteful strategies like cutting corporate taxes, accelerating business depreciation or making the Bush income tax cuts permanent, Moody's says.
Minnesota can no longer expect economic stimulus from Washington. We also have the second-lowest rate of regular federal spending among the states, 20 percent below the national average. Since tax and user fee increases are off the table for the foreseeable future in Minnesota, prudent borrowing for durable public goods will point our way forward. Fortunately, we have the stellar credit rating and fiscal strength to do this.
Minnesota's state bonding debt of $6 billion--not to be confused with our biennial deficit--is well within stringent borrowing guidelines adopted under former Gov. Tim Pawlenty. It's proportionally one-third that of New Jersey, half that of Indiana, Virginia and the U.S. average, less even than Wyoming's, according to the Congressional Research Service's March 2011 report.
Along with its enviable borrowing capacity, Minnesota has strong standards to ensure that state borrowing isn't wasted. The state constitution limits bonding to publicly-owned construction projects with a public purpose clearly set forth in law.
In fact, as the conservative political leaders quoted above know, the public and private sectors are indispensable partners in the creation of prosperity. In the current economic environment of a lagging jobs recovery, historically cheap borrowing and chronic infrastructure maintenance deficits, it's time for frugal Minnesota to stick with the job of building what Gov. Daniels called "the backbone to which men and women of enterprise can attach their investments."