Minnesota leaders see 2022 as key year for infrastructure strides

Every night, up to 10 American Indian children find emergency shelter in a 114-year-old St. Paul home near Summit Avenue where the foundation is crumbling, there is asbestos in the bathrooms and the chimney's integrity makes staffers shudder.

"To see the work that happens here is really powerful and quite moving," Lt. Gov. Peggy Flanagan said on a recent tour of the Ain Dah Yung Center, where workers listed hundreds of thousands of dollars in needed repairs. "The physical space should be able to match the kind of tone and just environment that is created here."

The center is one of the hundreds of nonprofits, local governments, colleges and state agencies asking to be included in the construction funding package that will be a top priority next year at the State Capitol. But the perennial battle over the infrastructure bill will look different this year, with a massive influx of federal dollars along with inflation, supply chain backlogs and workforce shortages complicating the results.

Minnesota is poised to get more than $6.8 billion from the federal infrastructure package President Joe Biden signed into law earlier this month. The injection of cash will help update drinking water systems, improve public transportation, repair bridges and jump-start other projects. It could also free up the state to devote more money to other needs.

But the federal government is still finalizing details of the spending, including just how much money state and local governments might need to match.

The Minnesota Department of Transportation expects to get about $5 billion from the infrastructure package over five years. Spokeswoman Anne Meyer said the federal government typically requires a match of 20%, meaning the state would have to come up with $1 billion to receive the funds.

"We look forward to working with legislators about this need — no matter what the match amount is," Meyer said. "It's possible for this to be a part of the capital investment bill."

Chairs for the state House and Senate Capital Investment committees, which shape the construction funding bill, said they are waiting to get more details in the next month or so.

The state appears to be in a strong financial position headed into the next legislative session, with monthly revenue reports showing more tax dollars coming in than anticipated. Budget officials will give the full picture on Dec. 7.

If the trend continues, it could offer more leeway to use cash to pay for construction projects, in addition to the traditional use of proceeds from the sale of general obligation bonds. That form of borrowing can only be used to pay for publicly owned infrastructure.

Public entities have submitted about $5.5 billion in bonding requests, and lawmakers and officials with Gov. Tim Walz's administration have been traveling the state to review the proposals. But Minnesota Management and Budget officials said they also have received $91 million in requests from nonprofits that don't qualify for bonding dollars.

The Ain Dah Yung Center is among the projects that don't qualify for bonding proceeds. The organization has struggled to get financial help with repairs and has spent almost eight years chasing funds from foundations, Interim Executive Director Sheri Riemers said.

Flanagan said Ain Dah Yung is one example of an organization doing the hard work to meet children and families' needs.

"But it is not the kind of work, frankly, that funders are always going for," she said.

Minnesota's last construction package — a historic $1.9 billion deal that state leaders passed in October 2020 — included $30 million in cash for projects that supported Black and Indigenous communities and communities of color. Flanagan and House Democrats said they want to increase that sum in the next bill, but the lieutenant governor was mum about the full scale of the administration's infrastructure plan.

Walz must reveal his construction bonding and spending proposal by Jan. 17. It will provide the starting point for negotiations when legislators return to the Capitol at the end of that month.

In the Senate, Capital Investment Chair Tom Bakk, I-Cook, said he thinks the size of the bill should be close to that of the 2020 measure. Finding out what strings are attached to the federal money will "take some pressure off," he said. Bakk hopes the additional dollars will allow the state catch up on two backlogs that keep growing: repairs and upgrades at colleges and universities, and statewide upkeep of the Department of Natural Resources' infrastructure.

However, projects that get funding next year could take longer to complete if the supply chain crisis delays access to certain materials or equipment, Bakk said. He is already seeing rising inflation affect projects in his Iron Range district; architects had estimated that a trailhead and parking project in Ely would cost $1.5 million, and it came in at twice that amount.

"That inflation is real. I watch the price of steel ... It's way, way higher than we historically have seen it," Bakk said. "The whole country is suffering from it. Things are just going to cost a little more than they historically have. And this may be the new normal."

Legislators are hearing concerns about rising costs from people working on projects the state previously funded, said House Capital Investment Chair Fue Lee, DFL-Minneapolis. They must weigh those projects along with new requests, he said.

"We really need to make sure we can have as big of a bill as possible so that we can address all these different needs," Lee said, noting that the last economic forecast from February showed Minnesota has the capacity to bond for $3.3 billion.

Wastewater systems and aging higher education infrastructure are particularly critical, said Rep. Dean Urdahl, the Republican leader on the Capital Investment Committee. He offered a more modest picture of what the bonding bill might look like.

"We could go over $1 billion. I think leadership in my caucus has been open to doing that," Urdahl said recently as he strolled St. Paul's Como Zoo with fellow lawmakers on a bonding tour. They listened to a zookeeper describe the need for new skylights and the addition of a male orangutan.

The fate of a bonding bill is often decided in the final days, or hours, of a legislative session. It requires three-fifths of the members in the House and Senate to support it, making a deal particularly difficult.

House Speaker Melissa Hortman, DFL-Brooklyn Park, said that if agreement can't be reached with House Republicans, lawmakers could resort to a cash-only infrastructure bill or perhaps one with bonds that don't require a supermajority.

"We're not going to let people who just want to be partisan and just want to be obstructionist get in the way of doing projects Minnesotans need, or get in the way of leveraging that federal bill to the max," she said.