New quarter-cent metro sales tax for housing assistance likely to pass Legislature

The Minnesota Legislature is poised to fund a new rental assistance program with a quarter-cent sales tax increase in the Twin Cities metro area, which would be the state’s first ongoing funding stream dedicated to housing.

The state House approved the tax on Monday as part of a $1 billion bill that funds new affordable housing development and preservation, homeownership opportunities, homelessness prevention and public housing. The bill was negotiated between members of both chambers in the Legislature and is expected to pass the Senate and be signed into law by Gov. Tim Walz.

“This is a home run of a housing bill,” said Rep. Michael Howard, DFL-Richfield, chair of the housing committee, on the House floor on Monday. “This is the most ambitious bill the Legislature has ever seen to produce more housing.”

Howard says the bill represents a significant shift in how the state sees its role in addressing housing affordability and homelessness. During one of his early years at the Legislature, Howard said the state gave more money to the Minnesota Zoo to house animals than it put into the housing budget.

Republicans sharply criticized the bill, saying the bill doesn’t reduce the cost of regulatory compliance for builders or put enough toward new housing construction.

“We’re raising taxes on people who can’t afford it, and we’re not doing anything to actually change… why it is so expensive to build homes in the state of Minnesota,” said Rep. Anne Neu Brindley, R-North Branch.

The additional .25% sales tax increase in the seven-county metro area is projected to raise an estimated $300 million in the first two years.

Half of the proceeds would go to metro-area counties and a quarter would go to metro-area cities to use for emergency rental assistance or new affordable housing development. The remaining quarter would fund more than 5,000 rental vouchers a year for low-income residents in the metro area, a first for the state. Currently only about one in four people who are eligible for a federal housing voucher like Section 8 actually gets one.

The new program is a paired-down version of a program proposed by housing advocates — called “Bring it Home Minnesota” — to provide rental assistance to every low-income Minnesotan who needs it, at a cost of about $2 billion per year.

The tax proposal appeared to be on shaky ground because it was left out of the Senate version of the large housing bill. It was added back in, however, in negotiations between the two chambers.

The proposal has the support of local leaders who say their residents are suffering from an affordable housing shortage that counties and cities are unable to fix on their own.

The $1 billion bill represents a historic investment in housing eight times larger than the last budget appropriation, though mostly funded with one-time money from the state’s $17.5 billion budget surplus.

The bill includes funding for new housing development across the state, including $200 million in housing infrastructure, $150 million for down payment assistance and $15 million for public housing rehabilitation.

Housing isn’t the only priority lawmakers are looking to fund with new taxes. The Legislature is also considering a .75% sales tax increase in the metro area to pay for on-going public transit improvements; the governor has recommended a .125% sales tax for transit.

Sales taxes in the metro area currently range from 7.13% to 8.03%.