Walz proposes $2.7 billion infrastructure package

Gov. Tim Walz laid out a $2.7 billion construction funding plan Tuesday that he said will help ease a backlog of maintenance needs across the state while preparing Minnesota for the future.

"It sets up jobs in the skilled trades for a decade to come, and it tackles those issues, whether it is aging infrastructure or putting resiliency in" to address climate change, Walz said as he unveiled his plan at the University of Minnesota.

The DFL governor's announcement caps months of travel across the state to examine needs ranging from sewer system improvements to university building repairs. State agencies and local governments submitted $5.5 billion in funding requests.

Tuesday's release kicks off the debate at the Capitol, where lawmakers will battle over the scale of construction borrowing and spending. House Republicans have already rejected the size of Walz's proposal. Leaders will also contemplate how to leverage dollars from the federal infrastructure package signed into law in November.

Minnesota expects to get about $6.8 billion from the federal government, but Walz said planners are still waiting for information on exactly how much the state needs to put forward to meet matching fund requirements.

"We can't leave a single penny on the table," he said.

The debate over what should be included in the so-called bonding bill, which uses state-backed bonds to pay for capital projects along with a variety of other funding sources, typically lasts through the final hours of the legislative session or takes a special session to resolve.

Minnesota leaders could also lean on a historic $7.7 billion projected budget surplus to pay for some building projects.

Walz's offering Tuesday includes a mix of cash and borrowing. The proposal would use $2 billion in state-backed general obligation bonds and more than $200 million in cash, Minnesota Management and Budget Commissioner Jim Schowalter said, as well as a variety of other bonds and funding sources.

"This recommendation is fiscally responsible," Schowalter said, noting that nearly 40% of the package will go toward lingering upkeep needs for building and facilities. He and Walz said spending money on those needs now, before infrastructure deteriorates further and while interest rates remain low, will save Minnesota money in the long run.

The governor made his pitch outside a construction site at the University of Minnesota, where workers are overhauling the Institute of Child Development. The U received state dollars from the 2020 bonding bill for the project.

The $213.8 million included in Walz's plan for the University of Minnesota system is a down payment to address a 10-year backlog of nearly $5.1 billion in deferred maintenance, U President Joan Gabel said at the event.

"It supports our students, how we do research and discovery and our capacity for impact as an institution," Gabel said.

The governor's proposal also includes about $261.3 million for the Minnesota State system.

Dozens of local governments across the state would get money for projects under Walz's plan, from $18 million for the Maple Grove Community Center to $16 million for a planned North End Community Center in St. Paul and $12 million for the Spirit Mountain Recreation Area in Duluth.

Which projects make the final cut remains to be seen, and local requests often end up being used as bargaining chips to reach a final deal.

While stark differences in state leaders' visions for the bonding bill are already apparent, lawmakers expressed optimism that they could reach a deal despite election year politics.

The political backdrop to this year's debate is similar to 2020, when all 201 legislative seats were on the ballot. Nonetheless, lawmakers and Walz were able to pass a $1.9 billion construction funding package that year, the largest in state history.

Sen. Tom Bakk, an Independent who chairs the Senate Capital Investment Committee, said last week he would be surprised if this year's bill surpassed the 2020 package.

"It will probably be the most significant piece of legislation passed during the session," Bakk said. "There's a lot of needs. But you get back to the Capitol and bills get smaller than bonding chairs want."

Walz's proposal is "way bigger than we've ever done," Bakk said Tuesday, as he was traveling on the Senate's latest tour to check out more infrastructure project requests. He stressed that a bonding bill should be about public infrastructure and said his priorities are deferred maintenance and preserving the state's assets, as well as public safety projects.

DFL House Speaker Melissa Hortman said Monday that House Capital Investment Committee Chairman Fue Lee is looking at roughly $3.5 billion as a starting point.

"In communities throughout Minnesota, there is an immense need for investment in local projects and resources that bring jobs and opportunities to the region, especially when it comes to investing in marginalized Minnesotans and addressing our state's housing crisis. The recommendations put forward by the Governor do just that," Lee said in a statement Tuesday.

House Republicans are open to a bill that includes more general obligation bonds and cash than in the past, but not to the extent Walz or House Democrats want, said Rep. Dean Urdahl, the GOP lead on the House Capital Investment Committee.

"I do believe that $2.7 billion is likely substantially more than we will be willing to do," Urdahl said.

The Walz plan includes more than $450 million for housing projects, including $70 million for veterans homes. Another $940 million is dedicated to projects the Walz administration says will either help the state prevent or adapt to climate change, or mitigate its impacts. There is also cash from the state's general fund to help nonprofits.

Walz and Lt. Gov. Peggy Flanagan visited nonprofits with infrastructure needs in recent months, from V3 Sports, which aims to build a health and community center in north Minneapolis to the Ain Dah Yung Center in St. Paul that provides emergency shelter for Indigenous children. Both projects received funding in the Walz plan.

The 2020 construction package included $30 million for projects that supported Black and Indigenous communities and communities of color. The Walz administration's proposal this year bumps that up to about $100 million for communities that Flanagan said have traditionally been excluded from the capital investment process.

"Organizations that focus on Black, Native and community of color-led organizations are included in our bonding bill, and we think it's pretty good work," Flanagan said.