This is what happens when the high interest rates from Bidenomics meets wasteful, reckless, runaway state government spending: an already bloated $500 million luxury office building for 134 politicians will cost Minnesota taxpayers, with interest, $740 million.
“This is financial insanity,” House Minority Leader Lisa Demuth said. “It did not have to be this way — there were alternative, less costly options to renovating the State Office Building. But Democrats refused to consider anything less than their extravagant plans. Minnesotans should not be on the hook for a $730 million office building for 134 politicians. This is beyond irresponsible.”
Minnesota could pay over $275 million in interest on State Office Building renovation
By Michelle Griffith
Minnesota taxpayers could be on the hook for over $275 million in interest from the state’s $454 million in debt it took on to fund the major renovation of the building that houses the offices of members of the Minnesota House.
Minnesota Management and Budget, the state budget agency, said the 4.39% interest rate over 20 years means the total cost of the loan would be $729.32 million.
The 90-year-old State Office Building houses the secretary of state and the offices of 134 members of the Minnesota House, hearing rooms and other key offices that facilitate the operations of the state Legislature. The building needs costly repairs, including renovations to fix flooding and mold, poor ventilation and safety hazards.
MMB spokesperson Patrick Hogan said the $729 million figure is the maximum the state could pay and “in reality, the cost could be less,” citing the possibility of paying it off early or refinancing. He also criticized the Reformer for reporting on the project’s interest cost.
“It continues to trouble me that the Reformer would treat this one project differently than all others in the way the cost is reported,” Hogan said.
On Oct. 25, the state sold “certificates of participation” — a higher interest form of borrowing, because investors don’t have a guarantee they’ll get all of their money back. MMB sold the $454 million in debt to the 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 after the Reformer reported that MMB said they could not compute the total cost because there were too many unknown variables.
In a letter Monday, MMB Commissioner Erin Campbell told Demuth that Minnesota “at the very most” would pay $729.32 million through 2044, or about $36 million annually.
“As part of MMB’s ongoing responsible management of the state’s debt portfolio, we will look for opportunities to refinance the (debt) in the future and achieve interest rate savings so the final cost could be less,” Campbell wrote.
The Department of Administration, the agency overseeing the project, estimates the total SOB renovation will cost $478 million. Jefferies LLC is liable to pay a premium of about $25 million, meaning the state saved some money by only borrowing $454 million.
MMB says it received seven bids from financial entities to buy the state’s debt, and it 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 sidestep the political challenge of spending big money on offices for politicians.
Normally, the Legislature, with approval of a supermajority of lawmakers, could sell more conventional bonds that offer the lenders a guarantee. The Senate at the time was controlled by Republicans, who were unlikely to support an expensive renovation. Then-House Majority Leader Ryan Winkler, DFL-Golden Valley, slipped through a little-noted provision allowing the House to create a lease-purchase agreement account to pay for the renovation without Senate approval.
According to the law, renovation costs for the SOB only needed approval from “the affected building’s primary tenant.” The House is the SOB’s main tenant, so Democrats were able to get their desired funding without interference from the then-GOP-controlled Senate.
Republicans have been critical of the steep renovation cost, though they do acknowledge the decrepit building needs repairs.