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Minnesota legislative ‘big, big deal’ spends $1B on affordable housing, adds metro sales tax

The tax hike, which would raise $200 million a year for housing projects and programs in the seven-county area, is part of a $1 billion investment in affordability that sponsors and advocates are calling historic. It would be the first-ever tax dedicated to affordable housing.

House Housing Committee Chair Mike Howard
House Housing Committee Chair Mike Howard said the sales tax is the first ongoing source of money for affordable housing the state has ever had.
MinnPost photo by Peter Callaghan

The on-again, off-again metro county sales tax to raise money for affordable housing is on-again. And it’s on-again at the right time, appearing in a housing omnibus bill agreement that was approved on a party-line vote by the House Monday.

The Senate is expected to give its approval sometime Tuesday. It would then go to Gov. Tim Walz who is expected to sign it.

(UPDATE: the Senate approved the bill on a party line vote early Tuesday afternoon.)

The tax hike, which would raise $200 million a year for housing projects and programs in the seven-county area, is part of a $1 billion investment in affordability that sponsors and advocates are calling historic. It would be the first-ever tax dedicated to affordable housing.

It is the second metro region sales tax being considered this session. The other is a sales tax ranging from 0.5% to 0.75% for regional transit and roads.

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House Housing Committee Chair Mike Howard, DFL-Richfield, said the sales tax is the first ongoing source of money for affordable housing the state has ever had. As to the underlying bill, Howard called it “a home run of a housing bill.

State Sen. Lindsey Port
State Sen. Lindsey Port
“This is a big, big deal,” Howard said.

“It has a really balanced look at addressing the supply need, addressing the home ownership gap between communities of color and white Minnesotans and a deep look at rental assistance, both emergency and ongoing,” said Senate Housing Chair Lindsey Port. “It’s historic, exciting and what I hope is the new baseline.”

Other provisions in the bill: 

  • $50 million for emergency rental assistance on top of $50 million passed earlier in the session
  • A first-ever investment of $90 million to help preserve private housing, sometimes called naturally occurring affordable housing (or NOAH)
  • $150 million in downpayment assistance to help up to 4,000 lower-income buyers, especially first-generation homeowners
  • A first-ever state housing voucher plan similar to the federal Section 8 program that could help 5,000 low-income renters
  • $200 million in housing infrastructure cash rather than the normal bond sale that can be part of the funding for private and nonprofit housing projects
  • $10 million for to help those living in mobile home park to purchase the land when they are threatened with eviction for redevelopment; and $17 million for repairs and improvements to manufactured homes
  • $50 million in one-time spending to help nonprofits like Catholic Charities that support some of the hardest-to-house populations
  • $10 million to retrofit high-rise public housing tours with sprinklers

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Historically, the bulk of the housing bill has been made up of infrastructure projects funded through bond sales. But Port said the money targeted for housing at the Legislature this year provided more money up front and less in the future, making bonding less attractive and cash purchases more so.

Commissioner Jennifer Ho
Commissioner Jennifer Leimaile Ho
“A billion dollars. That’s a number I’m going to have to get used to,” said state Housing Commissioner Jennifer Leimaile Ho. “ For perspective, we’re poised to receive more state housing resources in the next two years than in the past 10, and nearly half of these resources are dedicated to development.”

Much of what Walz requested made it into the final bill, though some funding amounts differ, the department said.

Howard said the agreement includes the largest investment in housing money for Greater Minnesota, mostly in workforce housing development. He said later he regretted using the baseball metaphor, as Republicans used it to describe the bill differently.

State Rep. Pat Garofalo
State Rep. Pat Garofalo
“I would disagree that this is a home run,” said Rep. Jim Nash, R-Waconia. “I would categorize this as about five or six foul balls and then chasing a ball that’s down and away and striking out.”

Rep. Pat Garofalo, R-Farmington, went with a barnyard analogy in criticizing the metro area sales tax increase.

“Oink. Oink. Oink,” he said. “Despite a record budget surplus, we have the Democrats coming to us again raising taxes. There’s nothing new here, members. There’s nothing historic. There’s nothing ambitious. In fact it’s the same-old same-old. Same old tax increases. Same old liberals. Same old Democrats.”

State Rep. Peggy Scott
State Rep. Peggy Scott
Rep. Peggy Scott, R-Andover, said the bill needed to look at the supply side of the housing issue rather than using state money to pay rent, build public housing and subsidize nonprofit and private housing. She told of a friend who decided to build a house in Wisconsin instead of Minnesota because they would save $20,000 in permitting and regulatory costs. 

But Howard said Republicans who oppose the tax should talk to their cities and their counties who support ongoing revenue to help solve housing shortages.

“They know the community needs. There isn’t the resource there,” he said.

The 0.25% sales tax that would be collected in the seven counties that make up the Met Council area was proposed separately by Howard and Port and was contained in each of their omnibus bills. But the tax fell away when Port presented her bill to the Senate Taxes Committee and remained absent when the bill passed the Senate.

Howard was able to hang onto the tax when his bill went through the House Taxes Committee, and Port said she worked to convince the Senate DFL caucus that it was needed and will have DFLers’ support when the conference report is presented Tuesday. That report was signed by the four DFL members but neither of the two GOP members.

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 with the agency, Howard said.

The distribution is population based. 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.

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Local governments are required to use the money for what the bills calls “qualifying projects,” which include helping low-income tenants cover rent costs, making grants to nonprofit affordable housing providers or contributing money for the construction of new affordable housing or the rehabilitation of existing affordable housing.

While supportive of the large investment in housing, the organization representing cities in the metro area opposed the sales tax. Housing has historically been a statewide function and Metro Cities (the Association of Metropolitan Municipalities) opposes the precedent of using regional-only taxes to fund it.

A proposed seven-county sales tax for transit and transportation — 0.5% in the Senate transportation omnibus and 0.75% in the House version — does not raise the same concerns because transit has often been funded with regional taxes.