Legislative Update: Taxes, Development & Adaptive Reuse

March 18, 2024

Your penny per square foot advocacy dollars are working hard for you at the Minnesota & US Capitols. The session began February 12th with DFL majorities in the House, Senate & Governor’s office. At the same time, our NAIOP chapter convened in Washington DC to meet with our US Representatives and Senators to discuss taxes, capital markets and adaptive reuse. Meanwhile Donovan and Dave with Faegre Drinker held down the fort at our state capitol.

Even years tend to be bonding and policy bills plus a smaller supplemental budget since the main budget decisions are made in the odd years. With hundreds of bills being introduced every week on top of the 9,000 bills already introduced in the House and Senate, it has become increasingly challenging to keep on top of all the issues affecting Commercial Real Estate (CRE). While there isn’t enough time to cover all the bills we are following on your behalf, here are a few highlights about what is happening at the Capitol. Hopefully you were able to join us at the MNCRE Day at the Minnesota Capitol. Along with our 2024 legislative priorities, we also passed out the impact that CRE has on the US and Minnesota economy with attendees and their legislators.

The public policy team meets with a staffer from Majority Whip Tom Emmer's office in DC

Senate Minority Leader Mark Johnson speaks to CRE industry professionals at Day at the Capitol

February Budget Forecast

We have a $3.7 billion surplus for FY 2024-25. However there is a future deficit of $1.478 billion due to projected spending increases in education and health & human services. That leaves $2.237 billion available to spend now, unless the legislature raises more taxes or cuts spending to fix the structural imbalance.

Taxes

Since a large part of the surplus came from more than expected corporate income tax, House Tax Chair Rep. Gomez (DFL-Minneapolis) held a hearing about ways to hold corporations accountable, such as reporting their earnings in other places outside of Minnesota (HF 4513). If passed, up to 4,500 companies would have to publicly disclose their federal taxes for up to three years.

Here is Chair Gomez’s tax bill (HF 4302). Instead of meaningful tax relief after 10 years of surpluses & 38% spending growth in one biennium, it appears the approach in the House is to raise taxes. Tax Chair Senator Rest has vowed to not raise taxes (SF 4091). Get your popcorn folks!

The legislature also passed a couple of tax fixes due to some drafting errors from last year’s tax bill regarding the standard deduction and net operating losses. As of this writing, school resource officer legislation is going back and forth between the House & Senate, but will likely pass to fix last session’s legislation.

HF 4510-Youakim | Valuation exclusion authorized for improvements to homestead and commercial-industrial property.

HF 4481-Coulter & SF 4701-Putnam | Property tax classifications consolidated, rates modified, state general levy on seasonal recreational property eliminated and other changes.

We are also still working on property tax appeal data privacy changes along with BOMA. We have meetings with Sen. Latz and Rep. Scott scheduled for this week.

Investor Home Owners

Look out Investor home owners who sell using contract for deeds and multiple home owners who rent:

HF 685-Agbaje & SF 365-Boldon | Limits single family homes that can be rented to 10 and is retroactive, so should it become law, it would require divestment of excess properties.

HF 3692-Hassan & SF 3489-Mohamed | Contract for Deed changes for investor sellers of residential property - requires recording and several specific disclosures to the buyer from the seller. If the buyer defaults within four years, the buyer is entitled to get 10% of their earnest money back. It also restricts churning - selling the same property over and over. This is still being negotiated with the AG office, Legal Aid, MNAR (realtors) & MSBA (lawyers) and will likely pass this session.

Independent Contractors

HF 4444-Greenman & SF 4483-Oumou Verbeten | House Labor Committee approves bill with up to $10,000 in penalties if an employer misclassifies an employee as an independent contract worker - especially in building and construction.

Development

HF 4028-Jordan & SF 4183-Fateh | Metropolitan Council requiring environmental & public health considerations in comprehensive development guide, allowing for more density and discourage development on undeveloped land. This was heard in the House transportation committee on March 4th.

HF 4128-Frieberg & SF 4051-Boldon | Authorizes cities to impose a public park dedication fee on certain new property developments

Adaptive Reuse

Conversion of Underutilized Buildings (CUB) Tax Credit

Rethos, Sherman Associates & Hempel are working on adaptive reuse tools. The CUB tax credit is a six year program designed to help redevelop vacant and underutilized buildings with tax credits equivalent to 30% of Qualified Conversion Costs, or 90% grants for properties under $5 million. More details here »

Adaptive Reuse article from Finance & Commerce »

ICYMI-NAIOP’s Ideas for Adaptive Reuse »

Additional Items

Here is a nice article from Finance & Commerce highlighting the Norhart proposed 223 unit apartment project in Ramsey.

Here is an interesting bill introduced in the Minnesota Senate (SF 3554-McEwen) restricting paint and licensing painters. A paint board would determine what paint could be sold in Minnesota.

Roz recently attended a career fair at University of St. Thomas hosted by the real estate department. It was great to connect with students and other colleagues. View the white paper on the Class A office property valuation market in Minneapolis. Check out what they came up with and feel free to reach out to Andy Babula (ajbabula@stthomas.edu) if you would like to see further details or examination.