It isn’t often that an influential committee chair explains an issue to her committee and then turns the meeting over to testimony by saying: “We can just let the bloodbath begin if we want.”
Not often? More like never.
But House Taxes Committee Chair Aisha Gomez knows what she is trying to do about how local sales taxes are employed to build projects like convention centers, sports complexes, libraries, parks and trails is controversial. Standing in the way of what one lawmaker called “niceties,” but are considered vital by the cities and counties designing them, isn’t popular with legislators or locals.
Gomez said her proposal attempts to balance her concerns about the process and its impacts and letting cities and counties pay for local and regional projects. Last year the Minneapolis DFLer tried to block 36 such projects from around Minnesota. While they were ultimately approved, Gomez won a two-year moratorium on new proposals.
In the meantime, a working group led by the Department of Revenue came up with a reform proposal. It was a limited version of that recommendation that appears in Gomez’s House File 5335.
Currently, local governments put together proposals for projects that are supposed to have regional appeal or draw visitors to the area and then seek special legislation that authorizes them to ask voters for approval. If local voters say yes, sales taxes are increased to make payments on bonds of up to 30 years duration to pay for projects.
But if the Legislature doesn’t have a taxes bill, which sometimes happens in non-budget years, or if a taxes chair doesn’t allow projects to move forward, local governments have to wait until next year. In addition, lawmakers don’t like having to wade through dozens of projects, along with waivers of sales tax collections on construction materials and tax increment finance district approvals.
In response, the task force suggested having a list of the types of projects that could use local sales tax increases and a process for cities and counties to present their plans to the state auditor. That statewide elected official would check the projects against the state requirements and then certify them to go before local voters at a November general election.
Only projects that are outside the rules — perhaps because they are especially expensive or include projects not on the allowed list — could go to the Legislature.
What share of local tax revenue in Minnesota comes from sales taxes? The table below shows Minnesota localities rely less on sales taxes and more on property taxes than other states.
But Gomez has a much more limited list of project types, excluding for example community centers, park projects not deemed regional by the Parks and Trails Legacy Plan, courts and jails, roads and water and sewer projects. She also requires approval of adjacent cities and envisions a system where cities that win voter approval would share some of the revenue raised with smaller, less-wealthy jurisdictions.
“Man, is this unpopular,” Gomez told her committee after describing the bill and what she called her “several rants” about the policy. “It doesn’t matter what your political orientation is.” Pointing to the two partisan sides of the committee table, she said, “You guys hate it. You guys hate it. It’s an equal opportunity one, this is.”
No bloodbath resulted. Not yet. What Gomez called a work in progress was held in the committee and could well end up in the committee’s omnibus bill, and ultimately in end-of-session negotiations between the House and Senate.
A different version — one much closer to what the task force proposed — is in the Senate Taxes Committee. It was there Tuesday that Chair Anne Rest described the legislative politics around the issue. She told her committee that while she and Gomez had hoped to agree on a single version, they were not able to. That, Rest said, could come in a House-Senate conference committee that would follow the House passing its tax bill and the Senate passing its bill, Senate File 5424.
“We have not unresolvable differences but certainly differences that will be obvious in the presentations of the bill,” Rest said.
Why can’t cities and counties raise sales taxes without legislative OK? It goes back to the 1970s set of laws known as the Minnesota Miracle that attempted to equalize revenue among cities and counties. The property tax was the fundamental source of local money with the state taking much of the sales tax. In return, the state shares some of the money through programs called local government aid and county program aid.
Local governments could raise sales taxes, but because that went against the basic revenue plan, they needed special permission. As LGA and CPA were cut or frozen, more local governments turned to sales taxes for project funding. Last year set a record, with 31 city projects and five county projects before lawmakers. They included St. Paul’s streets and park proposal and Edina’s Braemar Park improvements, both of which voters approved.
Last year, 32 cities and five counties won lawmakers’ permission to put sales tax increase plans before voters. A list of currently approved local tax projects is here.
Counties have separate authority to raise sales taxes for transportation projects.
What’s the issue?
Gomez last session raised questions over the way local projects are funded. Of the 30 local projects that went before her committee for approval, none received a hearing. And the moratorium was something she insisted on during House-Senate tax committee negotiations in 2023.
Her concerns are twofold: The sales tax is regressive in that low-income people have to devote a much higher percentage of their incomes to pay it than wealthier people. Second, cities with more robust retail sales can buy more things than cities that don’t.
“Are we going to pick winners and losers based on whether a kid was born close to a robust sales tax base or are we going to stick with our Minnesota tradition of equalizing resources across the state,” Gomez told her committee.
The legislative process is also suspect, she said, because it rewards local governments with the most money to hire the most-skilled lobbyists “who can work all the different levers in the Legislature. That is another thing that affects equity.”
Bradley Peterson, a lobbyist who represents the Coalition of Greater Minnesota Cities, promised there would be no blood, when he followed Gomez in testifying on her bill. He did say there should be more projects included in the list, such as convention centers and wastewater treatment.
And while he said there should be a way to show to the state that projects have regional support, Gomez’s plan gives adjacent cities a veto by requiring approval of all abutting jurisdictions.
In an interview, Peterson asked what the purpose of the permission requirement is.
“What are we trying to show?” he asked. “Are we trying to show a project is regional in nature and will have regional benefit or are we trying to show a project has regional support? Those are two different things.
“Our concern is that meritorious projects that would be of benefit to the region could potentially fall prey to local area politics, jealousies and parochial issues,” he said.
But Peterson said the cities group supports the idea of uniform standards, because over the years lawmakers have been inconsistent about which projects make the cut and which don’t.
“Putting bright lines around the projects that local governments can implement without having to come to the Legislature” is helpful, he said. “The more projects you can put into that category that can just go through a local process, the better. Especially because there are a lot of requests coming to the Legislature and they have to draw lines and make choices.”
During Tuesday’s Senate Taxes Committee meeting, Matt Hilgart of the Association of Minnesota Counties, said the list of projects should include local jails and criminal justice facilities. He took issue with Sen. Steve Drazkowski’s characterization of local sales-tax supported projects as “niceties” or that others assume are “popular.”
“I would point out that I don’t know of any county commissioner who has successfully run on a platform of ‘vote for me and I’ll build a jail,’” Hilgart said. The state has said 22 jails — whose average age is 42 years — need improvements.
“These facilities are inherently regional,” he said.
Gomez did include criminal justice facilities in the list of eligible projects in her Taxes Committee omnibus bill.
Peter Callaghan
Peter Callaghan covers state government for MinnPost. Follow him on Twitter @CallaghanPeter or email him at pcallaghan@minnpost.com.
