Supplemental Omnibus Tax Bill Signed by Governor

The new law includes LGA modifications, local development changes, and clarification of the local government sales tax exemption.
(Published May 19, 2014)

(Updated May 21, 2014)

The conference committee report on the supplemental omnibus tax bill was approved by both the House and Senate on May 16 and was signed into law (Chapter 308) by Gov. Dayton on May 20.

The House passed it by a vote of 131-0, and the Senate vote was 59-1.

The final conference committee report voted on by the House and Senate was slightly different than the version that had been tentatively approved the previous week. The most notable changes were the inclusion of a local financing arrangement for the Lewis and Clark water project in southwest Minnesota, and a $2.3 million reduction in the appropriation increase for local government aid (LGA).

The conference committee report also includes a variety of provisions that will impact cities, including an amended version of the League-supported clarification on last year’s local government sales tax exemption, LGA, and local development.

Under current law, the LGA appropriation was scheduled to increase by $1.5 million for the distribution in 2015. The conference committee increased the LGA appropriation by an additional $7.8 million for the 2015 distribution, raising the total amount to $516.9 million for the distributions in calendar year 2015 and $519.4 million for 2016, and beyond.

The LGA appropriation increase had initially been set $2.3 million higher than the above 2015 and 2016 figures, but the final conference committee report included a new article to assist with funding of the Lewis and Clark water system in southwest Minnesota, and the committee redirected $2.3 million of the initial increase to cover the appropriation for that project. The committee did not adopt the House proposal for an annual increase based on inflation and population growth.

View estimates of your city’s 2015 LGA distribution (pdf)

Lewis and Clark Regional Water System Project
After days of negotiation on the omnibus tax bill, the supplemental budget bill and the capital projects (bonding) bills, the legislature and governor reached an agreement on a variety of provisions in those bills, including a $22 million state appropriation for the project that was included in HF 1068, the general fund capital projects bill, and also a funding mechanism included in the omnibus tax bill to assist cities and counties with their share of the project costs. The Lewis and Clark water project funding had been included in the governor’s recommendations to the Legislature.

Under the tax bill provisions, the cities of Luverne and Worthington and the counties of Rock and Nobles will be authorized to issue up to $45 million in bonds for the regional joint powers water system project. The local funding mechanism provides for an ongoing state aid payment by the Department of Revenue to assist the local units of government with the financing of the debt service costs.

Worthington, Luverne, Rock County, and Nobles County would be able to finance their share of the project costs through existing authority to levy property taxes, raising water fees or via new authority to impose up to a 0.5 percent local sales tax that would be imposed by each jurisdiction and dedicated first for water project costs.

Local government sales tax exemption
The conference committee report includes language that will expand the sales tax exemption to joint powers and other instrumentalities of local government and also clarify and limit the list of “goods and service” purchases that are not exempt because they are generally provided by a private business.

Read more about the sales tax exemption provisions

Levy certification deadline extended
The conference committee also approved an extension in the annual deadline for counties and cities to certify their proposed levies. Under the change, the date to certify the proposed levy will be moved from Sept. 15 to Sept. 30. This change was proposed by several metropolitan cities that want more time to analyze the effects of the fiscal disparities program on their local property tax levies.

Volunteer firefighter/EMS stipend
The conference committee adopted a provision that will create a three-year pilot program to pay a stipend to volunteer firefighters, volunteer ambulance attendants, and emergency medical responders in four areas of the state. The program was developed to assist local units of government in the process of attracting and retaining volunteers. The program will be in place for calendar years 2015, 2016, and 2017, and is expected to cost roughly $1.6 million per year.

Under the House bill, the pilot area was a cluster of counties in south central Minnesota but during the conference committee deliberations, Rep. Paul Torkelson suggested that the pilot be broadened to include other areas of the state. Under the adopted language, cities in southern Minnesota (Faribault, Fillmore, Freeborn, Houston, and Watonwan), west central Minnesota (Chippewa, Kandiyohi, Redwood, and Renville), central Minnesota (Morrison and Todd), and north central Minnesota (Beltrami, Clearwater, and Mahnomen) will be eligible to participate in the pilot program.

The amount of aid paid to each local government entity will be equal to $500 multiplied by the number of qualified volunteers. The aid will be paid to the participating entity by July 15 and then the funds are required to be distributed to qualified volunteers by Sept. 15. The pilot program includes a study of the effectiveness of the program in attracting and retaining volunteers.

Local development
The local development article of the tax bill contains two general law changes to tax increment financing (TIF), TIF modifications for nine cities, and a pilot program to assist cities in two counties lacking sufficient workforce housing to accommodate pending business expansions.

The article amends the TIF statute and extends the “five-year rule” for redevelopment districts certified after April 20, 2009, and before June 30, 2012, to eight years after certification of the district. This is a modified version of legislation sponsored by the League and Metro Cities.

The local development agreement did not include the League-sponsored workforce housing TIF legislation, but the bill creates a $2 million workforce housing grant pilot program administered by the Department of Employment and Economic Development. The grants will be available to cities over 1,500 population in Roseau and Pennington Counties, and the cities will have to report to the Legislature on the progress of the development projects funded with the grant.

The bill also allows any city that participates in the metropolitan or the Iron Range fiscal disparities programs to elect to make the fiscal disparities contribution for economic development districts in the same ways that are available for other types of districts—either from the district value itself or from the commercial/industrial valuation outside of the TIF district. Under existing law, the fiscal disparities contribution for economic development districts must be made from the TIF district increment, which reduces the available increment.

The local development article also includes special TIF provisions for the cities of Bloomington, Baxter, Eagan, Edina, Maple Grove, Mound, North St. Paul, Savage, and Shoreview, and an increase in the allowable abatement authority for the city of Jackson.

The local development article did not include a provision supported by the League and Metro Cities that would allow mixed-use properties to be included in Special Service Districts. Cities sought to change the law to reflect the increase in development of mixed use development, such as buildings containing both residential apartments and condominiums with retail and other commercial space.

Other local tax provisions
The committee also agreed to include the food and beverage tax proposals from Duluth and Proctor, as well as local sales and use tax proposals from Baxter, Brainerd, and Albert Lea.

Other property tax relief
The tax conference committee agreement includes temporary increases in several direct property tax relief programs. Under the bill, the homestead credit refund paid to each qualifying person will be increased by 3 percent while the renters refund paid to each qualifying renter will be increased by 6 percent. The bill did not contain a House proposal to exempt the first tier of commercial and industrial property from the state property tax.

Miscellaneous items included in the final conference committee report:

  • Modify the threshold for June accelerated sales, tobacco, cigarette, and alcohol taxes from $120,000 to $250,000.
  • Reduce the accelerated June payment for general sales tax and for tobacco, cigarette, and alcohol taxes from 90 percent to 81.4 percent.
  • Financial reporting/LGA penalty forgiveness for the city of Bluffton.
  • County program aid (CPA) grandfather for counties scheduled to have CPA reduction in 2014.
  • County program aid increase of $10 million for prevention of aquatic invasive species.
  • Transition aid for local units of government with more than 5 percent loss of tax base due to tax exemptions for business production bins and tanks.
  • Border City Disparity Reduction Credit funding increase.
  • Agricultural Homestead Market Value Credit one-time supplemental credit payment increase.
  • Notification by the commissioner of Revenue to cities and counties of pending pollution control exemption and applications.
  • Clarification that independent nonprofit firefighting corporations are eligible for state aid under the 2013 law change.

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