Minnesota Department of Transportation

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MnDOT Policies

Debt Management

MnDOT Policy #FM007
Effective Date: October 27, 2020

View/print signed policy (PDF)

Please go to the MnDOT Org Chart to find specific contact information: Org Chart.

Responsible Senior Officer: Deputy Commissioner/Chief Administrative Officer
Policy Owner: Director, Office of Financial Management
Policy Contact: Budget Director, Office of Financial Management

Policy Statement

The Minnesota Department of Transportation (MnDOT) must manage debt obligations of the trunk highway fund to ensure that debt service does not exceed 20 percent of annual state transportation revenues to the trunk highway fund. Debt obligations for the trunk highway fund include:

  • Trunk highway bonds;
  • Loans from the transportation revolving loan fund;
  • Money advanced by local governments by agreement for trunk highway construction projects (see “Advance Funding for Trunk Highway Projects” definition);
  • Other forms of long-term commitments are possible, for example, from forms of alternative financing.

MnDOT must prepare a formal budget forecast for the trunk highway fund in November and February of every fiscal year and as needed at the end of a legislative session. The fund statement must cover the current fiscal year and two additional biennia into the future. These fund statements must include total projected debt service amounts, the calculated debt service percentage, and the estimated additional capacity.

Reason for policy

Minnesota Statute §167.60 "Debt-Financing Management Policy” requires MnDOT to develop a debt management policy.

Receipt of funds that involve incurring debt obligations are for use in current budget periods, repayment is in accordance with the terms of the debt obligation instruments in future years. Even if economic conditions (such as low interest rates, expected low construction cost, and the like) are favorable for using debt obligations, limits to the amount of bonds or other obligations are needed in order to protect future budgets from being required to make debt service payments that are so large that other portions of the budget must be adjusted.

Although careful planning may have occurred to limit total debt service to less than 20% of estimated state transportation revenues to the trunk highway fund, estimated revenue is just that – based on estimates. Actual revenue in future years may vary significantly from estimates. Future events could occur that might substantially affect the receipt of actual revenue, such as major disruption of petroleum supplies and substantial economic recession. If the actual revenue were substantially less than was forecasted, the percentage of debt service could exceed 20%, despite management practices that limited the amount of debt obligations entered into.

Applicability

All MnDOT employees must comply with MnDOT policies.

Key stakeholders affected by this policy include:

  • Commissioner and Deputy Commissioners
  • Chief Financial Officer
  • Financial Controller & Director, Financial Management
  • Office of Financial Management
  • Director, Office of Transportation System Management
  • Transportation Program Investment Committee

Definitions

Advance Funding for Trunk Highway Projects

Minnesota Statutes §161.361 authorizes local governments, by agreement with the commissioner of Transportation, to advance money to expedite construction of programmed trunk highway projects. Repayments to the local governments occur in the year the project is currently scheduled. The law provides for three different types of advances and limits total repayments related to each of these types to $10 million per year.

Cash Flow Forecast

A statement of estimated expenditures of funds for projects funded with trunk highway bond proceeds for the entire life of the projects.

Formal Budget Forecast

Forecast of highway user tax distribution fund and trunk highway fund revenues and expenditures prepared in cooperation with the Department of Management and Budget in February and November each year.

See Minnesota Statutes §16A.103 and §174.03, Subd. 9.

State Transportation Revenue

State transportation revenue includes a portion of dedicated highway taxes (motor fuel taxes, motor vehicle registration taxes, and 60% revenue from the motor vehicle sales tax) that are transferred from the highway user tax distribution fund to the trunk highway fund, and other sources of revenue (such as investment income) that are deposited directly into trunk highway fund.

Transportation Program Investment Committee (TPIC)

A MnDOT committee with the mission to provide policy direction for MnDOT's capital investments on the transportation system and make programmatic capital investment decisions and recommendations to the Commissioner.

Transportation Revolving Loan Fund

An account established by Minnesota Statutes §446A.085, Subd. 3, to make loans for public transportation projects eligible for financing or aid under any federal act or program or state law, including, without limitation, the study of the feasibility of construction, reconstruction, resurfacing, restoring, rehabilitation, or replacement of transportation facilities; acquisition of right-of-way; and maintenance, repair, improvement, or construction of city, town, county, or state highways, roads, streets, rights-of-way, bridges, tunnels, railroad-highway crossings, drainage structures, signs, maintenance and operation facilities, guardrails, and protective structures used in connection with highways or transit projects.

Enhancement items, including, without limitation, bicycle paths, ornamental lighting, and landscaping, are eligible for financing provided they are an integral part of overall project design and construction of a federal-aid highway.

Money in the fund may not be used for any toll facilities project or congestion-pricing project.

Note: MnDOT is authorized to enter into loans pursuant to Minnesota Statutes §161.04, Subd. 4.

Trunk Highway Bonds

Debt obligations issued and sold by the state to provide funding for capital projects that are part of, or functionally related to, the construction, improvement, and maintenance of the state's trunk highway system. Authorized by the Constitution of the State of Minnesota, Article 14, Section 11 "Highway Bonds" and Minnesota Statutes §167.50.

Trunk Highway Fund

The principal operating fund for MnDOT and, to some extent, for the Department of Public Safety. It is supported by state motor fuel taxes, vehicle registration fees, and vehicle sales taxes and used for construction, maintenance, and operation of Minnesota’s trunk highway transportation infrastructure. Annual transfers of funds to the Minnesota Management & Budget (MMB) debt service account in the state debt service fund are also made from this fund.

Trunk Highway Fund Debt Service

Payment on debt service (payment of principal and interest) on trunk highway bonds required by the State Constitution comes from the Trunk Highway Fund. A transfer occurs in November of each year from the Trunk Highway Fund to the Minnesota Management and Budget (MMB) debt service account in the state debt service fund, from which actual payments of debt service are made.

Other components of MnDOT’s debt service includes repayments of loans from the transportation revolving loan fund for trunk highway purposes and repayments of money advanced by local governments by agreement for trunk highway construction projects.

Debt service on trunk highway bonds will typically start at lower levels compared with the total cost of the project because annual bond sales are based on estimated cash needs for each project not the total project cost.

Responsibilities

Commissioner and Deputy Commissioners

  • Ensure that proposed budgets and other actions that might result in new authorizations of trunk highway bonds will not result in future, total debt service estimated to be greater than 20 percent of annual state transportation revenues to the trunk highway fund.
  • Communicate with legislative leaders and Minnesota Management and Budget if legislative committees propose new authorizations of trunk highway bonds that would result in the total debt service estimated to be greater than 20 percent of annual state transportation revenues to the trunk highway fund.
  • If projections are estimated to exceed 20 percent of annual state transportation revenues to the trunk highway fund, collaborate with the Transportation Program Investment Committee to develop strategies for reducing the amount of debt service as a percentage of total state transportation revenues.

Chief Financial Officer

  • Provide the Commissioner of Transportation with the current status of debt service.
  • Provide information to the Commissioner about the effect that additional bond authorizations have on estimated total debt service level.
  • Assist in communicating concerns to legislative leadership as needed.

Financial Controller & Director, Financial Management

  • Ensure that updates regarding the status of debt service are provided each time a formal budget forecast for the trunk highway fund is prepared.
  • Obtain official forecasts of trunk highway debt service from Minnesota Management & Budget (MMB) whenever proposals made to propose additional trunk highway bond authorizations, either within the department or by external parties.
  • Monitor changes in the program of projects using trunk highway bond revenue.
  • Develop revised estimates of cash flows for the projects and obtain revised estimates of the trunk highway debt service from Minnesota Management & Budget (MMB), as needed.
  • Review policy every two years, or sooner as necessary, to ensure policy remains up-to-date.
  • Ensure documents and training associated with the policy remain current.
  • Work with Policy Coordinator to revise policy and/or confirm its accuracy.
  • Communicate policy revisions, reviews, and retirements to stakeholders.

Office of Financial Management

  • Prepare cash flow forecasts prior to scheduled bond sales.
  • Coordinate with Office of Transportation System Management Director to ensure that cash flow forecasts are both in compliance with policy and align with planned project schedules.

Director, Office of Transportation System Management

  • Monitor the program of construction projects for use of trunk highway bond proceeds.
  • Notify the Director, Office of Financial Management regarding changes to the capital program. Changes include scheduled letting dates for projects that shift the project or projects into a different fiscal year and changes in estimated project costs that are greater than $10 million.
  • Report any concerns about scope, schedule, and budget that may arise to the Transportation Program Investment Committee (TPIC).

Transportation Program Investment Committee (TPIC)

  • Take action to modify the schedule of highway and bridge construction projects proposed for use of trunk highway bonds as needed.
  • If projections are estimated to exceed 20 percent of annual state transportation revenues to the trunk highway fund, collaborate with the Commissioner and Deputy Commissioners to develop strategies for reducing the amount of debt service as a percentage of total state transportation revenues.

Resources and related information

Resources

History and updates

Adopted

April 17, 2013

Superseded

  • 2.6, Debt Management Policy
    • Effective July 1, 2010

Revised

  • First Revision: October 27, 2020

Policy review

This policy's next scheduled review is due October 2022.