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The House bill awaits action on the House floor, expected to occur next Tuesday.
(Published Apr 19, 2013)
The House Omnibus Tax Bill now awaits action the house floor. The House floor is expected to discuss the bill on Tuesday, April 23. On Friday, the bill passed through the Ways and Means committee. The bill was amended to include a provision that requires certain publicly-funded projects in Hennepin, Ramsey, Olmsted, and St. Louis counties to enter into a “labor peace agreement” as a condition of accepting any public funds.
The Senate is still developing its version of the omnibus tax bill. We expect the Senate version to be unveiled on Tuesday.
The House bill includes a number of provisions of interest to cities including LGA formula reform and funding, an expansion of direct property taxpayer relief programs, a new funding source for police and firefighter pensions, the street improvement district authorization for cities, a prospective sales tax exemption for public safety radio equipment and a revised Destination Medical Center article to address infrastructure needs in Rochester associated with the Mayo Clinic expansion.
The approved bill replaces the current LGA formula with a new formula that makes adjustments to an individual’s city aid based on its “aid gap” or the difference between its current aid and its unmet need as measured by the formula. As unveiled on Monday, the bill included a $60 million appropriation increase for the 2014 distribution and an additional $20 million for the 2015 distribution. Last night, Representative Jim Davnie (DFL-Minneapolis) who is the chair of the Property and Local Tax Division offered an amendment to the bill that will accelerate the $20 million 2015 appropriation increase to 2014, which matches the governor’s original $80 million LGA funding recommendation for the calendar year 2014 distribution.
Beginning with the 2015 distribution, the LGA appropriation is increased annually by the sum of the increases in the annual growth in inflation for state and local governments as measured by the implicit price deflator, and annual change in total city population. The annual growth factor is limited to a maximum of 5 percent and a minimum of 2.5 percent.
For estimates of the impact of the LGA formula on individual cities with the 2014 funding at $80 million, please refer to this spreadsheet.
In the bill as approved by the committee, the former homestead credit program is not restored, but instead the bill expands and renames the homeowner property tax refund as the “homestead credit refund” and also modifies the renter refund program. These two programs provide homeowners and renters a state-paid direct refund based upon the individual’s property taxes paid relative to their personal income. The bill also requires the Department of Revenue to match property tax data submitted by each county with income tax and other data collected by the Department of Revenue and then notify potentially eligible homeowners of the program.
The approved bill also imposes a $5 annual surcharge on homeowners and automobile insurance policies and dedicates the proceeds of the surcharge for specified fire and police pension purposes. The surcharge was proposed by Rep. Joe Atkins (DFL-Inver Grove Heights) to stem the erosion in the existing police and fire state aid programs. Over the past decade, funds dedicated to fire state aid have declined by more than 30 percent while police state aid revenues have declined by roughly 17 percent. The homeowner and automobile surcharges terminate when the funding ratios of the state patrol retirement plan and the PERA police and fire plan equal or exceed 90 percent.
Fire surcharge (based on homeowner insurance) would generate an estimated $7.5 million per year and would be distributed as follows:
-17.342 percent to the Public Employees Retirement Association (PERA) for deposit in the PERA police and fire fund to reduce the funding deficiency in the plan
-8.658 percent to municipalities employing paid firefighters who have retirement coverage in the PERA police and fire fund
-74 percent for municipalities with volunteer firefighters
Police surcharge (based on the automobile insurance) would generate an estimated $15.5 million per year and would be distributed as follows:
-one-third as police state aid to be distributed to employing government entities
-two-thirds to PERA (for deposit as a supplemental state aid in the PERA police and fire fund) and to the Minnesota State Retirement System for deposit as a supplemental state aid in the state patrol retirement fund.
The insurance surcharge provisions in the House omnibus tax bill coincide with second omnibus pension bill, HF1152/SF1191 that applies a number of changes in the PERA police and fire pension plan including an increase in the PERA police and fire employer and employee contributions that is aimed at addressing the funding deficiency in the Police and Fire plan. That bill, if signed into law, will increase employer contributions by a total of 1.8 percent of employee’s salary in two equal installments over two years beginning on January 1, 2014. According to PERA, the increase in funding for police and fire pensions will reduce the impact of that 1.8 percent employer contribution by roughly 0.65 percent of salary, or about one-third of the contribution increase.
Street Improvement District
The bill includes a version of the street improvement district authorization which permits a statutory or home rule charter city to establish by ordinance a street improvement district and defray part or all of the costs of improvements and maintenance with fees charged to all parcels in the district. There was an amendment that was an adopted which exempted all tax exempt properties from paying the street improvement fee.
The authorization prohibits the city from creating districts that overlap to include a property in more than one district and requires costs of street improvements and maintenance to be apportioned on all parcels or tracts of land in the district on a uniform basis within each real estate classification. The city may elect to apportion the cost based on market value, tax capacity, front footage, or area, but regardless of the method chosen, no class of property can bear more than twice the cost that it would if the method used apportioned the cost uniformly across all classes of property.
Under the street improvement district requirements, the city would develop a street improvement plan which would be adopted after notice and public hearing that identifies the district before the fee may be imposed. Fees must be imposed for a period of at least five years and no more than 20 years.
The bill includes an exemption for ARMER and other emergency public safety radio systems in all counties. Under current law, only purchases for the ARMER system by the counties of Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, and Washington, Dodge, Freeborn, Fillmore, Goodhue, Houston, Mower, Olmsted, Rice, Steele, Wabasha, and Winona, Benton, Sherburne, Stearns and Wright, and Itasca Counties are exempt. The exemption is prospective and is effective for sales and purchases made after June 30, 2013.
The bill includes an article that provides local bonding, taxing, and other development financing powers to the city of Rochester to fund public infrastructure for the Mayo Clinic Destination Medical Center project. Under the bill, the city would create a non-profit corporation to help develop the plan and to finance the development. In addition, the bill provides state aid, based on the level of new nonpublic capital investment in Mayo Clinic building projects in the city, to provide state assistance in building public infrastructure for the development. The maximum amount of general state aid is $327 million, with no more than $30 million per year (the city and county are expected to pay for $128 million to qualify for this aid). In addition, $116 million funding for public transit for the project is provided with a portion of this to be funded with local taxes.
The bill also converts the computation of levy, tax, spending, debt, and similar limits that are based on “market value” or “taxable market value” to estimated market value. These changes are needed as a result of the 2011 law that replaced the market value homestead credit with the market value exclusion, which inadvertently reduced the market-value based levy limits for EDAs, HRAs and port authorities as well as the calculation of the each city’s net debt limit. These changes will restore these existing levy and debt limits by using the market value of the city before the homestead market value exclusion.
Other provisions of interest:
-repeals the June 30, 2013 sunset for the Housing Improvement and the Special Service District authorities that have been successfully used by many cities. . This would make the authority permanently available for cities that choose to use it.
-allocates $1.5 million for border city enterprise zone tax reductions
-authorizes an optional adjustment to the original net tax capacity for TIF districts that suffered large reductions in captured tax capacity as a result of enactment in 2011 of the homestead market value exclusion
-includes special TIF law provisions for the cities of Bloomington, Ely, Glencoe, Maplewood, Oakdale, and St. Cloud, and the Dakota County Community Development Agency for a project in West St. Paul
-imposes a new $0.55 per cubic yard tax on silica sand extraction and a 3 percent tax on processing of silica sand
-modifies the distribution of taconite production tax revenues
-clarifies the treatment of accommodations intermediaries for local lodging taxes
-modifies existing local sales tax provisions for the cities of Clearwater, Central MN cities (St. Cloud area cities), Proctor and St. Paul and also allows a new food and beverage tax and lodging tax in the city of Bemidji
Click here for the full text of the bill.
Click here for the House Research summary of the bill.
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