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Local Taxes Advisory Task Force Hears Public Testimony
The task force will issue its final report to the Minnesota Legislature on Feb. 2.
On Dec. 20 the Local Taxes Advisory Task Force heard public testimony and met again on Jan. 3 to continue its work refining recommendations for the report it will deliver to the Legislature. Most notably, Minnesota Department of Revenue Commissioner Paul Marquart informed the task force that he had spoken with the chairs and minority leads of the House and Senate tax committees and had received approval to extend the report’s deadline from Jan. 15, 2024, to Feb. 2, 2024.
Background
The 2023 omnibus tax bill created the Local Taxes Advisory Task Force and charged it with determining objective evaluation criteria for local sales tax, lodging tax, and food and beverage tax proposals. The authorizing legislation also required the task force to examine the current process for authorizing these local taxes, determine if it should be changed, and decide what entity should review and give final approval of these taxes.
Public testimony
Several city leaders testified during the Dec. 20 hearing:
- Evan Vogel, the city administrator for Cambridge, testified to how inflation has increased construction costs and challenged the city’s ability fully complete projects authorized by the voters and the Legislature.
- Michael Funk, the city manager for Minnetonka, shared how the two-year local sales tax moratorium is negatively impacting the city, which was in a project planning process that has stalled due to the moratorium.
- Dave Callister, the city manager for Plymouth, also spoke about the current moratorium, noting that Plymouth residents pay local sales taxes in other cities, and suggested the city should also be afforded the opportunity to go to its voters with a local sales tax proposal in order to treat all cities equally.
- Jeff Dahl, the city manager for Wayzata, testified to the food and beverage tax and shared how it may be a good fit for the city.
Rep. Steve Elkins (DFL-Bloomington) testified for the second time, this time about the difficulty the task force was having in defining “regional” projects. He recommended using definitions that already exist elsewhere for parks and trails. He also noted that the Minnesota Department of Transportation tracks traffic flow, which could be used as a potential model. He recommended that any project eligible for a local sales tax be regional, as defined as at least one-third of the use be from nonresidents. Other testimony came from out-of-state tax professionals or county officials.
Preliminary recommendations for criteria for eligible projects
All members of the task force had already agreed in concept that cities seeking a local sales tax should not have to request a special law authorization from the Legislature if their project met certain criteria. At this meeting, the task force continued to define what it viewed as the proper criteria.
- The task force agreed that local sales taxes can only be used for capital projects.
- The task force agreed that voter approval should still be required for any local sales tax proposal.
- The task force agreed to a list of projects that would be considered eligible. It also agreed to the requirements those projects would need to meet in order to bypass a special law authorization. Projects that could be eligible to move forward without legislative authorization include:
- Libraries that are included in the Regional Public Library Systems as defined in Minnesota Statutes, chapter 134, chapter 317, or section 471.59.
- Airports
- Convention centers
- Regional trails and parks as defined by the Greater Minnesota Regional Parks and Trails Commission in Minnesota Statutes, section 85.536.
- Regional trails and parks as defined by the Metropolitan Parks and Open Space Commission for projects in the metropolitan area.
- Community centers, athletic complexes, and aquatic centers that meet certain criteria. The task force discussed the idea of allowing neighboring jurisdictions some type of veto authority over a proposed project but did not come to agreement on that idea.
Determining eligibility and criteria
Much of the discussion around eligibility involved determining what the criteria should be for public safety facilities, as well as parks, community centers, athletic complexes, and aquatic centers. The task force has not yet made a recommendation on what that criteria should be, though it discussed possible options.
It was proposed that for parks to qualify, they must be required to meet the same criteria as trails, since there are existing definitions in statute for regional parks, which allow them to receive legacy funding. Jenny Max, the city administrator from Nisswa and the League appointee to the task force, noted there are many parks that draw visitors from a large area and provide a regional benefit but do not currently qualify under the proposed criteria. Additionally, very few of the parks projects the Legislature has authorized local sales taxes for the during the past few years would have qualified under these criteria.
The potential pitfalls of allowing neighboring jurisdictions veto authority were brought, such as whether a potentially much smaller community should be allowed to have veto power over a project that is popular in the municipality bringing the proposal forward. Some also raised concerns that community centers can provide unnecessary competition with the private sector, while others noted that this was less often the case in smaller cities. It is unclear how the task force will address these types of projects.
Other discussion
The task force also discussed the possible need for revenue sharing of local sales taxes. It was acknowledged that revenue sharing may not be needed if the eligible projects do provide a regional benefit to surrounding communities.
Marquart expressed concern that jurisdictions without a significant sales tax base would be left behind, even if only regional projects were allowed to go to the voters without a special law authorization.
Several task force members suggested that sales tax capacity be factored into aid formulas such as local government aid to better reflect revenue raising capacity. It was also suggested that a certain percentage of local sales tax revenue for projects that are authorized by the Legislature be set aside for cities and counties with lower sales tax bases.
What’s next?
The new due date for the task force to submit its report to the Legislature is Feb. 2, 2024. The task force will have its next hearing on Jan. 11 and its final meeting on Jan. 25. There will be a week-long window for the public to review the draft report and provide letters with comment as a means of providing a testimony option.
If you have any questions about testifying or want more information about task force discussions, please reach out to League staff at lmc.org/igrstaff.