Sales tax for affordable housing? No, say metro cities and Minnesota Chamber of Commerce

A proposal in the Minnesota Legislature to add a quarter-cent sales tax in the seven-county metro area to raise money for affordable housing programs has attracted an unlikely pair of opponents.

After the bill was presented to the House Housing Committee, it drew criticism from the Minnesota Chamber of Commerce and an organization that represents 89 cities in the metro area that will get new housing funding from the bill.

The Chamber opposed the tax for expected reasons. It thinks taxes in Minnesota and in the metro are already too high and discourage business location and retention. Use the surplus instead, said Beth Kadoun, a lobbyist for the Chamber.

But Metro Cities’ position was less expected. While the group agrees with the need, it opposes the sales tax, arguing that a statewide need like housing should be paid for with statewide money. Taxing the metro area to pay for what has historically been paid for by the state as a whole would be unfair.

Advertisement

“Metro Cities opposes the financing of programs that have statewide value and significance, and are traditionally funded with state revenues, with local revenue sources,” wrote executive director Patricia Nauman. “Programs and resources to address housing needs serve state goals and objectives and should be financed with traditional state revenue sources.”

Nauman concluded the group “further opposes substituting traditionally state funded programs such as housing, with funding mechanisms that would disparately affect taxpayers in the metropolitan region.”

The tax has been proposed by the two DFL housing chairs in the Legislature, Rep. Mike Howard of Richfield and Sen. Lindsey Port of Burnsville. It would raise around $200 million a year, with the money being sent in three directions: 60% to the seven counties, 15% to cities and 25% to a state rental assistance program. While it would be collected by the Met Council, none would remain there, Howard said.

Hennepin County would receive $28 million and Ramsey $13.5 million. Minneapolis would receive $3.6 million and St. Paul $2.45 million. At the other end of the population list, Carver County would receive $3.6 million, and Victoria would receive $19,454.

Advertisement

The bill was heard in the two housing committees as House File 2763 and Senate File 2844 but is being merged into the larger housing omnibus bills. That billion-dollar bill was called “historic” and “life-changing.” It includes $125 million in rental assistance, $100 million for housing vouchers for those on long waiting lists, $150 million in down payment assistance for first-generation homeowners, $150 million to rehabilitate naturally occurring affordable housing and $200 million in cash to partner with nonprofits and private housing providers and $200 million more in what are called housing infrastructure bonds.

Howard said Tuesday he was meeting with Metro Cities about their concerns about the metro area sales tax. Even though 25% of the money would be sent to the state housing agency, all of those proceeds would be spent on rental assistance in the seven-county region. Howard said the existing state rental assistance program would also receive state general fund cash that would be spent outside the metro region.

The rest of the sales tax money would flow directly to cities and counties in the Twin Cities region, he said. Unlike a regional transit sales tax that would be spent by the Met Council, these dollars would flow directly to local governments, something Howard said cuts out “the middleman.”

“They’ll have the resources to address their own affordable housing challenges,” he said. But while Metro Cities thanked Howard at his committee’s hearing Tuesday afternoon, the organization did not change its position.

The quarter-cent sales tax for housing is being proposed at the same time that a three-quarter-cent sales tax for regional transit is being offered in the House Transportation Committee. Both would be collected in the Met Council geography, which consists of all of Washington, Ramsey, Anoka and Carver counties and most of Dakota, Hennepin and Scott counties.

The Legislature has already directed $50 million to the Minnesota Housing Finance Agency’s rental assistance program and is expected to send another $50 million in the two-year budget later in the spring. Howard said rental assistance for low-income families “will do more to reduce homelessness than any other tool before our body this year.”

The money for cities and counties could produce more than 1,000 affordable housing units per year, he said. It could also provide around 3,000 housing vouchers that are used to pay rent in privately owned apartments and houses. 

“In total we’re talking about a better home for nearly 10,000 Minnesotans,” Howard said. And he tried to head off criticism from those who note that Housing was provided a large amount of new money in what are termed budget targets – $1 billion from a total of $17.8 billion. He predicted opponents would call it “bonkers.”

“I’ll tell you what’s bonkers: leaving this legislative session without making long-term, significant investments to address our long-term affordable housing crisis,” he said. Historically, housing programs are funded from the state general fund every two years, getting different amounts based on the financial situation of the state. It has no dedicated source of money, something housing advocates have lobbied for.

Minnesota Housing Partnership director of policy Libby Murphy said dedicated revenue is needed for addressing affordable housing shortages and increasing evictions.

“Dedicated revenue provides stability and dependability for rental assistance programs and development,” Murphy said. “Projects take years to put together, and that is made increasingly difficult by the lack of known funding.” The partnership supports a three-eighths of one percent statewide sales tax for housing and has pushed for a constitutional amendment to put the idea before voters.

Opponents of the metro area tax increases, whether regional or statewide, say they should not be considered when the state has a massive budget surplus. As a point of reference, the state general fund budget is about $26 billion a year.

Kadoun, of the Minnesota Chamber of Commerce, called increasing spending on affordable housing “a worthy goal” but said it could be accomplished within current revenue. The surplus is on top of spending growth that is already built into the proposed budget of 7.4% for the current biennium and 7% growth for the next biennium, she said. 

“Minnesota is already seen as a high-tax state, ranking 45th in the business tax climate by the Tax Foundation,” Kadoun said. High taxes are cited as a top concern by chamber members. She also said House committees should consider the other tax increases by other committees, including the transportation sales tax, the delivery and rideshare fees and the employer-employee assessments for a new paid leave insurance program.

Rep. Jim Nash, R-Waconia, said the sales tax is regressive in that it collects a higher percentage from people at lower incomes than at higher incomes. “That’s a very big number on the backs of the people who you are trying to help out.” 

Rep. Andrew Myers, R-Tonka Bay, did raise the issue of the surplus, as Howard predicted someone would. “I’m not going to call this bonkers, but I think this is a little ridiculous. We need to do a better job of making Minnesota more competitive.”

Editor’s Note: Peter Callaghan wrote this story for MinnPost.com. It was originally published on MinnPost on March 29.

Callaghan covers the state government for MinnPost.

MinnPost is a nonprofit, nonpartisan media organization whose mission is to provide high-quality journalism for people who care about Minnesota.