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$348 million state contribution relies on appropriation bonds, which could be ruled unconstitutional
There has been no shortage of coverage relating to the Minnesota Viking stadium. Seemingly every aspect of the package that was signed into law by Gov. Mark Dayton last Monday has been hashed over by television, online and print outlets.
But one potentially problematic piece of the $975 million plan has received scant coverage: The funding scheme to pay for the stadium is contingent on approval from the Minnesota Supreme Court. If the court determines that issuing what are known as appropriation bonds is not constitutional, the funding mechanism for the state’s $348 million share of the project disappears.
“That’s going to take some time,” acknowledged Rep. Morrie Lanning, R-Moorhead, chief author of the stadium bill in the House. “We’re not going to be ready to sell the bonds any time soon, anyway. So we’re not worried about this delaying the whole thing, but it’s a hoop that we have to jump through.”
The debate over appropriation bonds is not new. It goes back to 2009, when then-Gov. Tim Pawlenty proposed borrowing $1 billion against future proceeds from the state’s 1998 settlement with tobacco companies to help solve the state’s budget deficit. At the time Senate Majority Leader Larry Pogemiller sought an opinion from Minnesota Attorney General Lori Swanson about whether such a funding mechanism would violate the state Constitution’s prohibition on deficit spending for general operating expenses.
AG warned of court loss
In an analysis of the question, Swanson described a tangled history of legal precedents. “A court would need to participate in a certain level of legal gymnastics to sustain the borrowing contemplated by the Tobacco Appropriation Bonds as constitutional in light of the balanced budget requirement in the Minnesota Constitution,” Swanson wrote at the time. “Under these facts and circ*mstances, I am not confident that a court would be willing to do so.”
That initial Pawlenty proposal didn’t move forward, so the question was rendered moot for a time. But in 2011, as part of the budget deal to end a three-week government shutdown, Dayton and the GOP-led Legislature agreed to raise roughly $750 million through bond sales to be paid off with the proceeds of future tobacco settlement payments. Those bonds were initially sold last year as “securitization bonds.” But the state would like to reissue them later this year as appropriation bonds. The reason? It would allow for a lower interest rate and cost the state less money.
Last month the Minnesota Management & Budget agency filed a brief with the Supreme Court seeking clearance to use appropriation bonds to refinance the tobacco borrowing. It’s unknown when a ruling on the matter could be forthcoming. It’s also unclear whether the court’s opinion will be written broadly enough to also permit the issuance of appropriation bonds for the stadium. If not, the state will have to seek judicial clearance through a separate court action before proceeding with any bond sale.
According to legal and finance experts, the court potentially could take two courses of action that would imperil the financing mechanism for the Vikings stadium: It could determine that the Supreme Court is not the right venue to initially consider the matter. That would kick the issue down to a lower court and potentially drag out the matter for an extended time period.
Or the court could determine that appropriation bonds are unconstitutional and rule them out completely. If that happens, it’s uncertain how the state would cover its share of the nearly $1 billion stadium. The Legislature would almost certainly have to take action to provide a different funding mechanism. “I don’t think there’s any way to make [the stadium bill] work if appropriation bonds are not the vehicle,” said one veteran budget watcher.
One possibility that’s been discussed is authorizing the Metropolitan Council to issue the bonds. The state would then appropriate the money to cover the debt service to the Metropolitan Council. A similar scheme was employed to pay for the University of Minnesota’s new football stadium, with the school issuing the bonds.
But stadium supporters are hoping that such a scenario proves unnecessary. “We’re reasonably confident that it will hold up and be possible for us to use that method,” Lanning said of the appropriation bonds. “We know that it has to go through that hoop. We’ve known that all along. So it didn’t come as any surprise.”
