Omnibus Tax Bill Negotiations to Begin This Week

May 16, 2022

The conference committee will have less than one week to reach agreement on a tax package that will include many items of interest to cities.

With the passage of the Senate omnibus tax bill on May 11, the process of reconciling the differences between the House and Senate versions of the bill will begin this week. The bills include many provisions of interest to cities, including those related to local government aid (LGA), construction sales tax exemption, affordable housing aid, and more.

The League urges city officials to contact their legislators this week to assure they hear city perspectives.

Gov. Tim Walz, Senate Majority Leader Jeremy Miller (R-Winona), and House Speaker Melissa Hortman (DFL-Brooklyn Park) announced a broad end-of-session agreement today (May 16) that would allocate $4 billion for tax purposes. Details on how the tax target would be allocated had not yet been determined as of this writing. The Tax Conference Committee will start working on those details tonight.

Tight deadline

The Tax Conference Committee will have little time to complete its negotiations. The 2022 legislative session must adjourn by midnight on May 23, but under the Minnesota Constitution, the Legislature cannot pass any bills on the “day prescribed for adjournment.”

Therefore, if an omnibus tax bill is to be passed, legislators must not only reach agreement in conference committee, but must approve the bill on both the House and Senate floors by midnight on May 22.

Conferees

On May 13, the House appointed its five conferees: Taxes Committee Chair Paul Marquart (DFL-Dilworth), Property Tax Division Chair Cheryl Youakim (DFL-Hopkins), Rep. Dave Lislegard (DFL-Aurora), Rep. Kaohly Her (DFL-St. Paul), and Rep. Greg Davids (R-Preston).

The Senate appointed its conferees today: Taxes Committee Chair Carla Nelson (R-Rochester), Property Taxes Subcommittee Chair Bill Weber (R-Luverne), Sen. Paul Gazelka (R-East Gull Lake), Tom Bakk (I-Cook), and Ann Rest (DFL-New Hope).

LGA

Both versions of the omnibus tax bill have provisions that will impact cities.

The House bill includes the LGA formula update recommendations of the League of Minnesota Cities, the Coalition of Greater Minnesota Cities, Metro Cities, and the Minnesota Association of Small Cities, and a $34 million increase in the appropriation for the program.

These changes in the formula are the result of months of research on the formula need definition conducted with non-partisan House and Senate staff on the existing formula factors and the newly available data from the 2020 census and American Community Survey.

Construction sales tax refund

The House bill includes a League-supported simplification of the sales tax refund process for construction materials purchased by contractors and used in public facilities and public infrastructure. The Senate only authorized the simplification for school districts. The House provision is only temporary and is effective retroactively from July 1, 2021, through Dec. 31, 2022.

Urge your legislators to make this a permanent change in state law.

LGA payment acceleration

The House bill includes the League-supported acceleration of the LGA payment structure.

During budget deficits in the early 1980s, the distribution schedule was shifted to the current backloaded structure where payments are made to cities in July and December. The House bill would use future surpluses to accelerate a portion of the July LGA payment to March 15.

Affordable housing aid

The House bill includes a new League-supported local affordable housing aid program. It would provide flexible state aid of $8 million annually to cities to address locally identified housing needs.

This would further strengthen the state-local partnership when it comes to affordable and workforce housing efforts and bolster local innovation to address a myriad of housing issues.

Historic structure tax credit

Both the House and Senate bills include a League-supported repeal of the existing sunset on the historic structure rehabilitation tax credit.

The repeal of the sunset will provide greater certainty to cities and their project developer partners who use the credit to overcome barriers to rehabilitate and reuse historic buildings.

Targeting property tax refund

Both the House and Senate bills include the League-supported changes to the state-paid property tax targeting program. They would reduce the qualifying property tax increase threshold from 12% to 10%, and increase the refund maximum from $1,000 to $2,000.

Electric generation facility decommissioning transition aid

The Senate bill includes the League-supported provision establishing a transition aid program for cities that have a decommissioned electric generating power plant. The aid would offset tax increases to other properties and would be gradually phased out.

Tax increment financing (TIF) clarifications

Both the House and Senate bills include a number of policy and technical TIF provisions developed by a work group facilitated by the Office of the State Auditor. These changes will bring clarity to several technical aspects of TIF.

Direct property tax relief

The House bill includes modifications to direct property tax relief programs generally supported by League policies that would increase the homestead credit refund and renters refund programs.

Although LGA is a key program to assure cities across the state can adequately provide services to residents, property tax relief programs assure that the tax burdens defined by the classification system, changes in market values and city, county, and school levy decisions do not overly burden individual taxpayers. Importantly, these programs also achieve targeted relief without creating property tax shifts to other types of property.

4d Low-income rental classification expansion

The League has expressed concerns about the Senate provision that would significantly reduce the property classification rate for 4d low-income rental property to 0.25%, which would be the lowest classification rate in Minnesota’s system.

Although affordable housing is a League priority, this approach would shift property taxes to other properties, including affordable properties not included in the 4d program. The Senate bill also includes a transition aid program that would buffer tax shifts, but the program expires after two years.

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