What’s Going on with the Legislature?

May 27, 2025

On midnight May 19th, the evenly divided Minnesota House and DFL controlled by one-vote majority Minnesota Senate adjourned until February 2026. However, not all the budget bills have been passed, leaving Governor Walz the power to call a special election to finish the job.

The budget bills that did pass are Agriculture, Housing Budget & Policy, Judiciary and Public Safety, Legacy, Pensions, State Government and Elections, and Veterans and Military Affairs. Completed policy bills are Cannabis and Human Services. The bills that remain outstanding are the ones that affect commercial real estate the most.

Outstanding Budget Bills:

  • Jobs and Labor
  • Health & Human Services
  • Taxes
  • Capital Investment
  • Higher Education
  • Education
  • Energy
  • Commerce
  • Transportation
  • Environment

Outstanding Policy Bills:

  • Education
  • Liquor Omnibus

Some of the hang-ups are medical expenses coverage for people here illegally versus nursing home expenses and balancing the budget without raising general taxes.

The budget must be passed before June 30th to avoid a government shutdown which last time proved to be very costly. We will provide another update at that time!


Roz Peterson
Public Policy Director | NAIOP Minnesota
roz@naiopmn.org | (612) 708-5281

🏛️ LEGISLATIVE SESSION & BUDGET UPDATE

📊 TAX POLICY & FISCAL ISSUES

Data Centers:

One item of contention during these final negotiations involved data centers. Currently, data centers benefit from a sales tax exemption on electricity, software, computers and servers, and cooling and energy equipment. The current law sunsets in 2042. Advocates have been supporting bills dealing with moving to an upfront exemption and extending the sunset to remain competitive with neighboring states.

Unfortunately, opponents were able to garner enough support to immediately repeal the sales tax exemption on electrical usage and include some guard rails regarding clean energy, water usage, and a fee to be used for weatherization. A proposal had been introduced to expand that sales tax exemption, but instead, legislators introduced a surprising move to eliminate the electricity sales tax exclusion entirely—a change that immediately caused multiple data center projects to halt and exit the Minnesota market.

The industry worked with the opponents and were able to come to a compromise which included extending the sales tax exemptions to 35 years instead of 20 to offset the new requirements and costs.

We can thank our Faegre lobbyist team for being on top of this legislation all session. It was a very tumultuous ride! Data centers were on track to create $6 billion in development and the entire industry almost left to go to more favorable neighboring states. This was not a billionaire bailout.

This resolution was critical in maintaining Minnesota’s competitiveness for high-tech and infrastructure-heavy developments.

Sales Tax Expansion:

The Legislature continues to debate proposals to expand the sales tax base to include a range of professional services, including legal, accounting, title, and investment services. NAIOP strongly opposes this change due to the disproportionate impact on commercial transactions, deal flow, and business operations across the state.

Gov. Walz’s proposal applied sales taxes on services including accounting, banking, brokerage, and legal services while lowering the state sales tax by .075%. The proposal would not have applied on business-to-business transactions. Ultimately, this proposal was not included in the final budget agreement.

The only sales tax expansion included in the tax omnibus was to increase the tax on cannabis.


🧱 DEVELOPMENT INCENTIVES & INFRASTRUCTURE

Tax Increment Financing (TIF):

Several bills were introduced to provide greater flexibility for TIF use, particularly for redevelopment and affordable housing. NAIOP was tracking these closely and advocating for tools that help projects move forward during challenging market conditions.

Among the proposals, the House tax bill contained a “pilot” program for Minneapolis, St. Paul, and Duluth to use TIF to address underutilized buildings similar to the CUB (Catalyst for Underutilized Buildings) credit. The final omnibus tax bill agreement carried a number of TIF extensions, but did not include the pilot program or the CUB credit.

Land Value Tax Districts:

A proposal to authorize local governments to implement Land Value Tax Districts was introduced. While intended to encourage development, NAIOP raised concerns about its potential to add unpredictability and risk to property valuations and future investments. This is an issue that keeps getting more support and will likely be an issue again next session(s).

Infrastructure Investment:

House, Senate, and executive leaders remained at an impasse with regards to transportation financing into the final days leading up to the special session. In the end, a proposal that would have transferred funds from the metro area sales tax for transit to the Met Council was removed from consideration and agreement was formed.

The legislature also came to an agreement on a $700M capital investment package for funding water and road projects. View the funded projects here »

Lobbyist Reporting:

The 2025 legislature clarified several issues related to local government lobbying.

First, expert witness communications with public or local officials are now exempt from lobbyist registration requirements if they occur at public meetings or are otherwise made available to the general public. This exemption does not apply to comments before the Public Utilities Commission.

Second, the definition of “local official” is clarified to better distinguish which appointed, elected, or employed individuals within a political subdivision are covered under the state’s lobbying laws. This clarification ensures that disclosure requirements apply to officials with actual fiscal decision-making power, not lower-level staff without such authority.

Third, the definition of “official action of a political subdivision” was refined to better identify which local government actions trigger lobbying disclosure requirements and clarify that routine purchases, collective bargaining, and litigation-related communications are not considered official actions.

Finally, the Campaign Finance and Public Disclosure Board must publish a plain-language lobbying handbook by January 15, 2026. The handbook must include information regarding lobbyist registration requirements, activities and expenses that count toward registration thresholds, and guidance on differences in lobbying state agencies, the Legislature, and political subdivisions.

Minneapolis Advance Notice of Sale:

Roz has been working with BOMA & MNCAR to meet with Minneapolis councilmembers regarding a proposal to require the city is provided with 60 days advance public notice before considering selling commercial real estate. The purpose is to provide tenants an opportunity to purchase CRE. There is already a requirement for affordable housing (but oddly no one has used it yet).

We believe this is just another barrier to an already challenging market and is a solution looking for a problem. So far, our efforts seem to have paid off; however this is not the first time we have stopped this idea. We will continue to monitor and keep talking with decision-makers.


🏛️ 2026 LEGISLATIVE SESSION

What's next?
The session is adjourned until February 17th, focusing on policy next year. We are working on property tax appeal reform, addressing data privacy, deadline flexibility, and emerging issues. We aim to share concerns and provide bipartisan solutions for our industry.


🏛️ FEDERAL LEGISLATIVE UPDATE

The U.S. House passed the tax bill May 22nd on the narrowest of margins protecting important tax provisions for commercial real estate such as preserving 1031 exchanges, which allows investors to defer capital gains taxes on property sales by reinvesting in similar properties. However, the U.S. Senate has their own ideas, therefore it is not over yet. It will be detrimental to CRE if the current tax cuts expire on December 31 so we will continue to monitor this legislation.


📉 COMMERCIAL MARKET CONDITIONS

Legislators are increasingly aware of the economic headwinds facing our sector, including high interest rates, construction costs, and elevated commercial vacancy rates. CRED iQ data shows the Minneapolis-St. Paul-Bloomington market currently has the highest distress rate for commercial real estate nationally at 49.7%. We’re working to ensure policymakers understand the need for regulatory certainty and growth-oriented policy.


✅ HOW YOU CAN HELP

Your voice is essential. Legislators listen when they hear directly from industry professionals in their districts. If you’re interested in testifying, contacting your legislator, or participating in advocacy efforts, please reach out to us directly.

Don’t forget about donating to our PAC or spreading the word about our Penny Per Square Foot (PPSF) program. These efforts are 100 % funded by PPSF contributions.

Thank you for your continued support and engagement. We will keep you updated as the issues evolve.


Roz Peterson
Public Policy Director | NAIOP Minnesota
roz@naiopmn.org | (612) 708-5281