LRT has lifelines without state bonding

Janice Bitters//August 3, 2016

As Southwest light-rail planners hope for a special legislative session that authorizes $135 million in bonding for the line, the transit project still has a couple of lifelines in case legislators don’t act.

Metropolitan Council Chair Adam Duininck said last month at a Corridor Management Committee meeting that regional planners are “looking at every avenue we can to keep this project as on schedule” as possible.

But the remaining options aren’t as good as state bonding and legislative support for Minnesota’s share of the cost, many regional planners, legislators and transit researchers say. Options leaders have explored briefly in the past include asking Hennepin County to shoulder the funding gap, or taking out higher interest bonds through a “certificate of participation.”

A certificate of participation is a mechanism to receive funds in exchange for future payments, similar to bonding. In this case, the project planners or stakeholders would issue bonds to be paid back later.

The downside is that the investment is riskier than a state bond, so the interest rate is higher, said Adeel Lari, a director at the University of Minnesota’s Humphrey School of Public Affairs.

Even so, the option is used for transit projects around the country, said Lari, who also works for the school’s Center for Transportation Studies.

“A lot of transit agencies have used it because then they don’t have to go to the voters and go to the Legislature to get that [state bonding] authority,” he said.

Some also have suggested that the line’s largest local funder, the Counties Transit Improvement Board, attempt to pick up more project costs.

But other planned transit lines around the metro would then suffer, CTIB Chair Peter McLaughlin said at a CTIB meeting last month. The agreement to fund more of the project would also need to be approved by members of the joint powers board.

CTIB is already set to fund $496 million of the $1.8 billion line between Minneapolis and Eden Prairie. Its members include representatives from counties in Anoka, Dakota, Hennepin, Ramsey and Washington counties, who have already voted to stop funding Southwest if the state’s share isn’t secured this year.

Planners briefly discussed using a certificate of participation last year. The Met Council’s Duininck said he hoped it wouldn’t come to that, Capitol Report reported at the time.

“We would hope to not use them ever at all,” he said last year, adding that “it’s an important mechanism for us to show financially that we can, if need be, provide a state share.”

Now, the Met Council is waiting to see whether a special session, tentatively set for late August, will come to fruition and bring with it the last $135 million in local funding needed for Southwest. If the final funding gap isn’t filled this year, the project could miss the deadline to apply for more than $900 million in funding from the Federal Transit Administration.

Until a special session is called, the regional planning agency isn’t speculating about which alternative might work, Kate Brickman, spokesperson for the Met Council said in an email Monday.

“We continue to talk with our partners at the state and local level about all available options to fund SWLRT,” she said. “We know the governor and state leaders will be discussing a possible special session this week.”

Some state leaders have questioned the legality and whether using a certificate of participation is the best move for the project or taxpayers, including Rep. Tim Kelly, R-Red Wing, who chairs the House Transportation Policy and Finance Committee.

“You’re working around the system to create a bonding strategy that the state is really on the hook for,” Kelly said in an interview Wednesday. “Shouldn’t you be going through the Legislature to get that approval?”

Though it may come with a higher interest rate, if the line is going to be built, a certificate of participation could be a better financial option than delaying the project, Lari said.

“If you pay 1 percent more of interest in a certificate instead of having a bond, that means $1.35 million a year,” he said. “But if you delay the project a year, the inflationary impact is much higher than $1.35 million.”

Last legislative session, state leaders also considered letting Hennepin County pick up the last $135 million share. Before the 2016 regular session ended, a nearly $1 billion bonding bill narrowly failed to pass through the Senate because of a missing provision to pay for the controversial 14.5-mile line.

In the final minutes of the session, Senate leaders tried to add an amendment to the bill that would allow Hennepin County to pick up a greater share of the Southwest project. Before it could be heard by the House, the representatives had adjourned.

The amendment was a last-ditch effort to keep the line alive, McLaughlin, a Hennepin County commissioner, said in May. Though McLaughlin wasn’t available for comment Monday, he has said in the past that he’s hoping not to have to lean on that option in the future, characterizing it as “the worst option in a list of bad options.”

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