Minnesota Communities go on Spending Spree Funded by Stimulus Bonds

Vice President Joe Biden met with state and local government officials from across the country last year to provide guidance on spending federal stimulus funds. Biden implored local leaders to focus on only essential infrastructure needs that will put people back to work and to avoid frivolous projects: “No swimming pools! No tennis courts! No golf courses! No Frisbee parks!”

Since then, dozens of Minnesota cities and counties have taken advantage of a little known stimulus bond program, borrowing $684 million for projects that include municipal swimming pools, a multi-million dollar golf course renovation and a new mega-community center, a Freedom Foundation of Minnesota analysis shows.

The Build America Bonds program offers a substantial subsidy by the federal government to help cover interest payments and entice local governments to borrow money, making it the fastest growing portion of the municipal bond market.

While most of the 65 bonding projects across Minnesota appear to be public improvement projects for roads and basic infrastructure, concerns have been expressed that Build America Bonds could encourage borrowing for unessential government projects, as well.

The City of Plainview approved borrowing $1.5 million through Build America Bonds for renovations to its municipal swimming pool. The City of Coon Rapids leveraged Build America Bonds for a $4.23 million facelift to the city-owned Bunker Hills golf course. Despite a budget crunch, St. Paul Mayor Chris Coleman pitched using Build America Bonds to help fund $24 million in projects. The construction work includes installing a new $7.2 million swimming pool with a “lazy river”at Como Park, renovations to the Highland Park swimming pool, and building a 36,000 square foot community center.

Questions have also been raised about financial strings attached to the program that have reduced federal payments to an undetermined number of communities in other states. The U.S. Treasury recently announced it will reduce Build America Bond subsidies by any amount issuers owe the government.

Some financial analysts warn that unanticipated subsidy reductions could have serious repercussions for local governments with tight budgets. The federal government garnished $617,000 from the City of Austin, Texas over back payroll taxes. The State of Florida has stopped issuing the bonds because of concerns over the so-called offsets. The precise number of affected local government units remains unclear at this point.

State financial officials are aware of the concerns being raised in other parts of the country about Build America Bonds rebates being withheld, but do not believe any Minnesota communities have been affected to date.