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Turns out, killing off CTIB kinda screwed over the city of Minneapolis

The city of Minneapolis will collect between $1.6 million and $1.8 million less each year in lodging taxes as a result of the dissolution of the regional transit board know as the Counties Transit Improvement Board. 

The city of Minneapolis will collect between $1.6 million and $1.8 million less each year in lodging taxes as a result of CTIB’s dissolution.
MinnPost photo by Corey Anderson

Remember that dissolution of the regional transit funding board known as CTIB, the Counties Transit Improvement Board?

Getting rid of it was considered something of a win-win, at least for regional transit. It would double the money available for mass transit projects in Hennepin and Ramsey counties. And it would allow the three other counties that had made up CTIB — Dakota, Washington and Anoka — to keep paying the same tax rate but keep the money locally for future rail and bus rapid transit projects rather than share it regionally. 

As it turns out, though, there was a loser (beyond, of course, those who might not support additional mass transit lines but will still pay higher taxes). The city of Minneapolis will collect between $1.6 million and $1.8 million less each year in lodging taxes as a result of CTIB’s dissolution.

“The net result is not that the county receives more money from our sales tax but that hotels are being subject to a lower overall tax,” Mark Ruff, the city’s chief financial officer, told the Minneapolis City Council’s Ways and Means Committee Tuesday.

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Here’s what happened, according to Ruff. The quarter-cent sales tax that the five counties in CTIB were allowed to impose and spend collectively on projects such as the Green Line was exempt from a long-ago cap on the amount of hotel taxes that could be collected in Minneapolis. So even though the lodging tax — which is an accumulation of various state, local and special assessments on hotel charges — was higher than the state-imposed cap of 13 percent, the old transit tax didn’t count against it.

But with CTIB’s dissolution, the new tax that Hennepin and Ramsey counties opted into was not exempt from the lodging tax cap. And when that new tax kicked in, on Oct. 1, the cap was reached and crossed, and Minneapolis had to reduce the size of its lodging tax to make it all fit.

So that’s what it did. The city reduced its lodging tax from 2.625 percent to 2.125 percent — a rate that was in place during the Super Bowl.

The cap, which dates to 1986 as part of the convention center funding authorization, only applies to Minneapolis. St. Paul, Rochester, Duluth and Bloomington all have cumulative lodging taxes that exceed 13 percent.

All totaled, Minneapolis collects more than $80 million in various sales taxes; there’s a local sales tax, a downtown liquor tax, a downtown restaurant tax and an entertainment tax in addition to the lodging tax, which accounts for about $8 million.

Ruff said the city made CTIB leaders aware of the impact before the dissolution, but was told the process was too far down the road to respond.

Last October, former Minneapolis City Council President Barbara Johnson wrote her counterpart on the Hennepin County Commission, Jan Callison, asking for help getting a solution at the Legislature.

Ruff described it as a “technical fix.”

But other political battles are likely to reappear along with any request at the Legislature coming from the city of Minneapolis. The first problem is the general lack of fondness that legislative Republicans have for the state’s largest city. The second is the issues Republican transportation leaders have with light rail in general and the dissolution of CTIB specifically. Last spring, attempts by the GOP to intervene in and even block the dissolution were thwarted by Democratic Gov. Mark Dayton.