Friday, May 4, 2012

Minnesota capital investment & the nonstate match requirement

     Each year, the Minnesota Legislature reviews capital investment projects put forth by state agencies and other public entities. The Minnesota Constitution states that the sale of capital investment (general obligation) bonds must be used to "to acquire and to better public lands and buildings and other public improvements of a capital nature, and to provide money to be appropriated or loaned to any agency or political subdivision of the state for such purposes."
  State agencies often facilitate and filter many of the requests from local governments by proposing ranked project lists to the legislature. Historically, the legislature passes a capital investment bill in even-numbered years that funds over $1 billion of projects. Currently the Minnesota Legislature is proposing a $496 million bonding bill. This proposal includes a plethora of projects such as flood hazard mitigation, higher education asset preservation and replacement, civic centers, and wastewater infrastructure.
Minnesota sells general obligation bonds to pay for capital investment projects that have statewide significance and are approved by the legislature. State officials use debt management guidelines to determine the size and number of projects to fund. 
The U of M and MnSCU are unique in that they have been required to provide a 1/3 financial match since 1992 for new buildings funded by the state.  This nonstate match requirement may not be paid for by state appropriations, which composes a large part of these institutions’ total revenue. In general, the U of M funds their nonstate match requirement through their own sale of bonds or through private donations. MnSCU does not have bonding authority and generally funds their nonstate match with tuition revenue. This is somewhat confusing since tuition revenue is technically considered state revenue.  
     There is one exception to the nonstate match requirement for the U of M and MnSCU: higher education asset preservation and replacement (HEAPR) projects. State statute requires that HEAPR projects be limited to the preservation and replacement of existing campus facilities. This exception was a strategic decisions by the legislature to encourage the U of M and MnSCU to extend the life of existing building and be stewards of existing resources, rather than requesting that new projects be funded. 
          The U of M and MnSCU have the largest inventory of buildings compared to any other public entity.  Because of this inventory, these higher education institutions often have the largest state capital investment requests. The nonstate match helps prioritize these requests. See the breakdown of the U of M's current capital investment request.

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