The state of Minnesota could pay more than $275 million in interest on a state office building renovation
Minnesota taxpayers could be on the hook for more than $275 million in benefits from the state Debts worth $454 million It took funding for a major renovation of the building that houses the offices of Minnesota House members.
The 4.39% interest rate over 20 years means the total cost of the loan will be $729.32 million, said the Minnesota Management and Budget Agency, the state budget agency.
The 90-year-old State Office Building houses the Secretary of State, offices for the 134 members of the Minnesota Assembly, hearing rooms and other main offices that facilitate the operations of the state Legislature. The building needs costly repairs, including renovations to fix flooding, mold, poor ventilation and safety hazards.
MMB spokesman Patrick Hogan said the $729 million is the maximum the state could pay and “in fact, the cost may be less,” suggesting the possibility of paying it off early or refinancing. He also criticized The reformer To report the interest cost of the project.
“That still bothers me The reformer “We are going to treat this project differently than all the other projects in the way we report the cost,” Hogan said.
On October 25, the state sold “participation certificates” – a form of borrowing at higher interest, because investors have no guarantee that they will receive all their money. MMB sold $454 million in debt to New York City-based investment banking firm Jefferies LLC.
Late last month, House Minority Leader Lisa Demuth, R-Cold Spring, requested a formal cost estimate from MMB following the House decision. The reformer I mentioned that MMB said they couldn’t calculate the total cost because there were too many unknown variables.
In a letter Monday, MMB Commissioner Erin Campbell told Demuth that Minnesota “at most” would pay $729.32 million through 2044, or about $36 million annually.
“As part of MMB’s continued responsible management of the state’s debt portfolio, we will look for opportunities to refinance (the debt) in the future and realize interest rate savings so that the ultimate cost is lower,” Campbell wrote.
The Ministry of Administration, the agency overseeing the project, estimates that the total cost of renovating the SOB will be $478 million. Jefferies LLC is responsible for paying a premium of about $25 million, meaning the state saved some money by borrowing just $454 million.
MMB says it received seven offers from financial entities to buy the state’s debt, and chose Jefferies LLC because it offered the lowest interest rate of 4.39%.
The unconventional borrowing and relatively high interest rate are the result of a 2021 legislative maneuver that sought to avoid the political challenge of spending big money on offices for politicians.
Normally, with the approval of a supermajority of lawmakers, the Legislature can sell more traditional bonds that provide security to lenders. The Senate at the time was controlled by Republicans, who were unlikely to support an expensive renewal. Then-House Majority Leader Ryan Winkler, DFL-Golden Valley, slid through a Little observation Allowing the House to create a Lease-Purchase Agreement Account to pay for renovation without Senate approval.
According to to the law, SOB renovation costs only need approval from the “primary tenant of the affected building.” The House is the main tenant of the SOB, so Democrats were able to obtain the required funding without interference from the then-GOP-controlled Senate.
Republicans criticized the high renovation costs, although they acknowledged that the dilapidated building needed repairs.