The published House and Senate capital budget proposals each appropriate about $1.2 billion. Several changes have been made since the budget proposals were originally published. Most significant is the shift from mostly revenue bonds to general obligation bonds. This change came after some pressure was taken off the general fund by a favorable February forecast and lower-than-expected interest rate on the refinancing of some existing state debt. (In simple terms, general obligation bonds are paid off from the state general fund, while revenue bonds are paid off with revenues from a specific tax, fee, or other identified revenue stream.)
At this point, the capital budget cannot proceed until the operating budget is settled. This is especially true this year due to the interplay of the solid waste tax, hazardous substance tax (commonly known as MTCA), and philosophical differences on revenue bonds versus general obligation bonds.
On a positive note, all of the proposals that have been made public include funding for the supplemental Public Works Board list.
Hazardous Substance Tax Revenue Bond Proposal
($236 million Senate/$238 million House):
As a reminder, the annual debt service for this revenue bond proposal is $17.4 million, or only about 10% of the Hazardous Substance Tax revenues. The revenue bonds have been identified to fund brownfield sites, water pollution control, water resource, flood control, and stormwater projects. (At this time it’s unclear to us whether the funds for the brownfield site clean-ups are cash, bonds, or cash and bonds.) Proponents argue that leveraging the Hazardous Substance Tax would have an immediate benefit by funding projects that are ready to go now.
However, the Republicans have flagged the use of the Hazardous Substance Tax for revenue bonds as a non-starter. Presumably, the move is viewed as a “way around” the debt limit and takes away any flexibility for using these revenues for other purposes. (Republicans are also interested in lowering the Constitutional debt limit, a proposal on which AWC is neutral.) Some Republicans have also stated that they had originally recommended a Capital Budget in the $900-$950 million range, so eliminating this funding would still be within their parameters of a supplemental capital budget. If the $236 million is taken off the table, the reduced capital budget could very likely re-prioritize projects funded with general obligation bonds.
It is in your interest to talk to the Republicans about supporting the Hazardous Substance Tax revenue bonds if your city has a project tied to the bonding portion of the proposed capital budget.
Note: The Senate Republican (plus three Democrats) budget also uses $68 million in MTCA cash for the operating budget. The assumption is that there is enough MTCA cash for current projects and that the $68 million will not be needed this biennium.
Solid Waste Tax: Un-dedicate, dedicate, or sweep?
There are various perspectives on the Solid Waste Tax as it relates to the capital and operating budgets. The solid waste tax generates approximately $70 million per biennium that currently goes into the Public Works Assistance Account (commonly known as the Public Works Trust Fund). AWC has opposed, and continues to oppose, permanent sweeping of the Solid Waste Tax. We urge you to contact your legislators to express your concern about this permanent transfer of funds.
Both the House and Senate budgets propose un-dedicating (or redirecting to the general fund) the Solid Waste Tax through the biennium. AWC is neutral on this proposal because it is temporary.
- In order to get bipartisan support, the Senate Democrats’ proposal had the intent of directing 85% of the Solid Waste Tax (SWT) to the general fund as a way to pay the debt service on $439 million in new general obligation (GO) bonds. Once the bonds are paid, the SWT revenue would return to the Public Works Assistance Account. The House proposes the use of $506 million in GO bonds and does not identify a payment stream ($30-$40 million needed annually to finance the bonds). AWC prefers the House approach and is officially neutral on the 85% proposal.
- The Senate Republicans propose a permanent sweep of the $70 million per biennium SWT. In broad terms, this proposal is being justified on the grounds that, 1) the operating budget needs the money; 2) the Public Works Trust Fund is growing at approximately 8%; and 3) there won’t be enough projects that need funding.
- On the other hand, the sweep of the SWT does little to enhance GO bonding authority – it’s a net benefit of $53 million over 34 years, but it’s a sweep of $1.2 billion in lost loan/capital funding during the same timeframe. It also sidesteps the point that, if the Public Works Board was granted permission to increase project eligibility or take action to increase project loan amounts to allow projects over $10 million, the funds in the Public Works Assistance Account, including the supporting solid waste tax, would be encumbered immediately.
For more information, contact Ashley Probart.