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The bill includes several provisions of interest to cities, including LGA reform, police and fire pension aid funding increase, and municipal street improvement districts.
(Published Apr 29, 2013)
The House of Representatives on April 24 approved HF 677, the omnibus tax bill, on a vote of 69-64, after considering roughly a dozen amendments. The full Senate will be considering the Senate version of the omnibus tax bill at its floor session on April 29. Given the significant differences between the approved House bill and the pending Senate bill, the bills are expected to go to a conference committee to resolve the differences. (Read about the Senate tax bill.)
The House bill includes a number of provisions of interest to cities, including local government aid (LGA) formula reform and funding, an expansion of direct property taxpayer relief programs, a new funding source for police and firefighter pensions, street improvement district authorization for cities, a prospective sales tax exemption for public safety radio equipment, and a revised Destination Medical Center article to address infrastructure needs in Rochester associated with the Mayo Clinic expansion.
Amendments offered on House floor
On the floor, there were several amendments that would have impacted the LGA system, although only one of the amendments was approved. The approved amendment, offered by Rep. Rod Hamilton (R-Mountain Lake), would accelerate the December 2013 LGA payments to cities impacted by the southwest Minnesota ice storm in early April by requiring the commissioner of Revenue to distribute the December payment at the same time as the July payment.
Among the amendments that were not adopted was one offered by Rep. Sarah Anderson (R-Plymouth) that would have eliminated the LGA inflation/population growth factor and used the future savings to increase the homeowner property tax refund. Under the bill, this refund is already expanded and renamed the homestead credit refund program. Rep. Kurt Zellers (R-Maple Grove) offered a similar amendment that would have used the LGA growth factor savings to increase the property tax refund program and the agricultural homestead credit program.
Rep. Jenifer Loon (R-Eden Prairie) offered an amendment that would have frozen the LGA for the cities of Minneapolis, St. Paul, and Duluth, and used the savings to increase a new veteran’s hiring credit included in the bill. Finally, Rep. Steve Drazkowski (R-Mazeppa) offered a fourth amendment that would have frozen the LGA for the cities of Minneapolis, St. Paul, and Duluth and used the savings to increase the homeowner property tax refund program.
One other substantial amendment that was approved on the House floor modified the “labor peace” provision in the bill that had been added in the Ways and Means Committee. Under the amended language, projects that receive more than $1 million in public funds in the counties of St. Louis, Ramsey, Hennepin, and Olmsted, and that include hospitality jobs must have a labor peace agreement in place in order to receive public funding. A labor peace agreement is an agreement between a developer and a labor organization seeking to represent hospitality workers on qualifying projects. The labor organization agrees not to picket or otherwise disrupt work on the project in exchange for establishing a process for determining employee preference regarding union representation.
LGA formula changes
The approved bill replaces the current LGA formula with a new formula that makes adjustments to an individual’s city aid based on its “aid gap,” or the difference between its current aid and its unmet need as measured by the formula. Previously, the bill included a $60 million appropriation increase for the 2014 distribution and an additional $20 million for the 2015 distribution.
Rep. Jim Davnie (DFL-Minneapolis), chair of the Property and Local Tax Division, offered an amendment to the bill on April 18 that will accelerate the $20 million 2015 appropriation increase to 2014. This matches the governor’s original $80 million LGA funding recommendation for the calendar year 2014 distribution.
Beginning with the 2015 distribution, the LGA appropriation is increased annually by the sum of the increases in the annual growth in inflation for state and local governments as measured by the implicit price deflator, and annual change in total city population. The annual growth factor is limited to a maximum of 5 percent and a minimum of 2.5 percent.
Property tax refund changes
In the approved bill, the former homestead credit program is not restored, but instead the bill expands and renames the homeowner property tax refund as the “homestead credit refund” and also modifies the renter refund program. These two programs provide homeowners and renters a state-paid direct refund based upon the individual’s property taxes paid relative to their personal income. The bill also requires the Department of Revenue to match property tax data submitted by each county with income tax and other data collected by the Department of Revenue, and then notify potentially eligible homeowners of the program.
Insurance surcharges for PERA Police and Fire
The approved bill also imposes a $5 annual surcharge on homeowners and automobile insurance policies, and dedicates the proceeds of the surcharge for specified fire and police pension purposes. The surcharge was proposed by Rep. Joe Atkins (DFL-Inver Grove Heights) to stem the erosion in the existing police and fire state aid programs.
Over the past decade, funds dedicated to fire state aid have declined by more than 30 percent while police state aid revenues have declined by roughly 17 percent. The homeowner and automobile surcharges terminate when the funding ratios of the state patrol retirement plan and the Public Employees Retirement Association (PERA) Police and Fire plan equal or exceed 90 percent.
The fire surcharge (based on homeowner insurance) would generate an estimated $7.5 million per year and would be distributed as follows:
The police surcharge (based on automobile insurance) would generate an estimated $15.5 million per year and would be distributed as follows:
The insurance surcharge provisions in the House omnibus tax bill coincide with the second omnibus pension bill, HF 1152/SF 1191. The pension bill applies a number of changes in the PERA police and fire pension plan, including an increase in the PERA police and fire employer and employee contributions that is aimed at addressing the funding deficiency in the Police and Fire plan. That bill, if signed into law, will increase employer contributions by a total of 1.8 percent of employee’s salary in two equal installments over two years beginning on Jan. 1, 2014. According to PERA, the increase in funding for police and fire pensions will reduce the impact of that 1.8 percent employer contribution by roughly 0.65 percent of salary, or about one-third of the contribution increase.
Street improvement districts
The bill includes a version of the street improvement district authorization, which permits a statutory or home rule charter city to establish by ordinance a street improvement district and defray part or all of the costs of improvements and maintenance, with fees charged to all parcels in the district.
The authorization prohibits the city from creating districts that overlap to include a property in more than one district, and requires costs of street improvements and maintenance to be apportioned on all parcels or tracts of land in the district on a uniform basis within each real estate classification. The city may elect to apportion the cost based on market value, tax capacity, front footage, or area, but regardless of the method chosen, no class of property can bear more than twice the cost that it would if the method used apportioned the cost uniformly across all classes of property.
Under the street improvement district requirements, the city would develop a street improvement plan, which would be adopted after notice and public hearing that identifies the district before the fee may be imposed. Fees must be imposed for a period of at least five years and no more than 20 years.
Emergency public safety radio system exemption
The bill includes an exemption for ARMER and other emergency public safety radio systems in all counties. Under current law, only purchases for the ARMER system by the counties of Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, Washington, Dodge, Freeborn, Fillmore, Goodhue, Houston, Mower, Olmsted, Rice, Steele, Wabasha, Winona, Benton, Sherburne, Stearns, Wright, and Itasca are exempt. The exemption is prospective and is effective for sales and purchases made after June 30, 2013.
Mayo Clinic expansion
The bill includes an article that provides local bonding, taxing, and other development financing powers to the City of Rochester to fund public infrastructure for the Mayo Clinic Destination Medical Center project. Under the bill, the city would create a nonprofit corporation to help develop the plan and to finance the development.
In addition, the bill provides state aid, based on the level of new nonpublic capital investment in Mayo Clinic building projects in the city, to provide state assistance in building public infrastructure for the development. The maximum amount of general state aid is $327 million, with no more than $30 million per year (the city and county are expected to pay for $128 million to qualify for this aid). In addition, $116 million of funding is provided for public transit for the project, with a portion of this to be funded with local taxes.
Change in computing levy limits and other limits
The bill also converts the computation of levy, tax, spending, debt, and similar limits that are based on “market value” or “taxable market value” to estimated market value. These changes are needed as a result of the 2011 law that replaced the market value homestead credit with the market value exclusion, which inadvertently reduced the market-value based levy limits for economic development authorities, housing and redevelopment authorities, and port authorities as well as the calculation of the each city’s net debt limit. These changes will restore these existing levy and debt limits by using the market value of the city before the homestead market value exclusion.
In other provisions of interest, the bill also:
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Contact Gary Carlson
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