Legislative Update: Lobbyist Definition Expansion, Taxes, Property Tax Appeal Data Privacy & More

May 8, 2024

Minnesota Update

The legislature has been busy passing their omnibus bills in the House and Senate for their supplemental budget and are also working on a bonding bill. Committee deadlines have passed and there only a handful of legislative days remaining. We know that it means little until they adjourn on or before May 20th, the constitutionally defined deadline for the legislature (thank God!). Taxes and capital investment (bonding) do not have committee deadlines which is reflected in the Senate where Sen. Rest introduced her omnibus tax bill on April 29th.

Remember that there is a $3.9 billion surplus for FY 2024-25; however a $1.5 billion structural deficit for FY 2026-27 (future revenues are not projected to meet spending down the road). Governor Walz came out with his supplemental budget of $230 million. While this is a lot of money, it dwarfs the total spending budget of $61.8 billion for 2024 & $59.1 billion for 2025. View additional detail »

Leadership in the House and Senate are meeting behind closed doors to come to an agreement ASAP and adjourn. They need to focus on the House election this fall and potentially two senate seats that may become available should DFL Sen. Kelly Morrison (SD-45-Lake Minnetonka area) win her campaign for congressional district 3, currently held by Rep. Dean Phillips. The other is due to the recent arrest of DFL Sen. Nicole Mitchell (SD-47-Woodbury) for a first-degree burglary felony charge. As a reminder, the DFL holds a one seat majority 34-33 and are not up for re-election until 2026.

There has been a flurry of activity since our last update. Out of the over 10,000 bills introduced, we have been tracking 30-40 closely. They have either died or have been included in omnibus bills. Here are a few highlights.

Lobbyist Definition Expansion with Local Government

Luckily they decided to study this expansion by the Campaign Finance Board and pushed out the enforcement of this legislation to June 1, 2025. This would affect many of our members as written. Roz testified on this bill in the Senate and we met with the bill author in the House to encourage changes. The Office of Administrative Hearings will be asking for feedback on this legislation. Once we get the details, we will send out a link and encourage your participation.

Taxes

The House tax bill proposed creating land value districts which would have the potential impact of increasing taxes on vacant parcels. Roz testified in opposition to this bill encouraging carrots like tax credits instead of sticks to encourage development. Other provisions include requiring large corporations to make their tax returns public and allowing local governments to raise sales taxes up to a 1% cap without seeking legislative permission.

Property Tax Appeal Data Privacy

Thank you to Gauri Samant (NAIOP member and tax appeal attorney for Fredrikson & Byron) for your testimony in the Senate! After working with the counties and other stakeholders for a year, we were pleased to get a hearing thanks to Sen. Ron Latz. It is moving in the House as well. Hopefully we will make this fix into law this year.

Adaptive Reuse

Conversion of Underutilized Buildings (CUB) tax credit program to spur redevelopment of obsolete buildings got a hearing. However, they don’t have enough money this session to implement.

Misclassifying Independent Contractors

Bottom line—there are big penalties for misclassifying an employee as an independent contractor. A new enforcement agency is proposed that establishes an independent contractor test for construction builders. Federal and state law currently allow for safe harbor when the classification was accidental. However, both the House and Senate tax bills include legislation to decouple from the federal law.

Decarbonization Credits

Thermal storage, energy & engineering modeling, energy credits for clean energy investments, load shifting programs through Xcel rebates, buying/selling credits, etc.—lots of choices to reduce your carbon footprint with large tax incentives are available. Also proposed, expanding PACE financing rules to include improvements to a property’s resilience (indoor air, storm water, etc.) and increasing the amortization schedule up to 30 years.

Rent Control for Senior Living

Bipartisan legislation limiting rent increases at senior affordable housing developments receiving tax credits to 1% less than the previous year’s change in Social Security benefits. More info here »

Banning REITs & Private Equity to own Medical Facilities

HF 4206-Hanson | This bad idea had an informational hearing in the House but we don’t see it moving forward in the Senate. The bill authors believe these entities are raising the cost of medical care because they are for profit, and CAM should be included in the rent, for example. Honestly, I can’t make this stuff up.

Pre-empting Local Zoning Restrictions

This bill was squashed by leadership—mostly due to mayors who organized protecting their local control.

Proposed Constitutional Amendments

Full time legislature, Equal Rights Amendment (ERA) & Ranked Choice Voting.

Bonding

Governor Walz $982.5 million, House $980 million, and Senate $988 million. Discussions are taking place with leaders of all four caucuses regarding the amount each caucus may spend on projects as they need 60% of the vote to pass both bodies. The bill amount will likely be north of $950 million.

Federal Update

Carried Interest Federal Legislation

US Senate Democrats introduced legislation increasing taxes on carried interest from capital gains to ordinary income. Read more from NAIOP »

EPA rules PFOA & PFOS as Hazardous Substances under CERCLA

Without getting too far in the weeds, this rule could hold property building owners liable for environmental hazard remediation and could affect financing since PFAS are throughout the environment.

Additional Items

ICYMI

St. Paul must spend $6 million in TIF on real estate development by 2025.

Megatrend: Historic Wealth Transfer

Baby Boomers hold half of nation’s $140 trillion in wealth, $18.9 trillion of which is in real estate, compared with the Silent Generation-$4.7 trillion, Gen X-$14.4 trillion & Millennials-$5.5 trillion.

2024 UST Minnesota Real Estate Hall of Fame

The Real Estate Hall of Fame honors industry leaders who have made significant contributions in real estate and demonstrated a passion for improving their community as a business leader. All applicants need to be either 65 years of age or older or retired. Make a nomination by June 15 »

Dates to Remember

May 20 | Constitutionally required end of state legislative session

June 18 | Public Policy Social and PAC fundraiser (details to come!)

August 13 | Primary (June 28 Early Voting)

November 5 | General Election (September 20 Early Voting)

Biden Introduces Tax Plan

If you joined our April program, you heard Aquiles Suarez, SVP for Government Affairs for NAIOP, talk about President Biden's framework for tax policy if the Democrats win this fall. Some of the proposals include realizing a capital gain as taxable income upon death instead of stepped up basis effective December 31, 2024. Corporate income tax rate would increase from 21% to 28% and top individual tax rate would rise from 37% to 39.6% retroactive to 2023. 1031 exchanges tax benefits would be eliminated beginning 2025.

As a reminder, tax cuts passed in 2017 expire in end of 2025.