June 5, 2023

The Minnesota legislative session commenced on January 3rd, 2023. Their primary task was establishing the state’s biennial budget for fiscal years 2024-25 with a nearly $18 billion surplus. With Democrat majorities in the House, Senate and Governor’s office, they wasted no time passing sweeping legislation such as making Minnesota’s energy sources carbon-free by 2040, adding inflation into the budget, codifying abortion, prohibiting hairstyle discrimination, approving driver’s licenses for all, providing free school lunch/breakfast, protecting transgender surgery for all ages, restoring voting rights to some felons and ending the public health emergency.

Before the legislative deadline of midnight on May 22nd, legislative leaders agreed to increase spending by 38% and raise total taxes/fees over $9 billion. They also passed the budget bills totaling $72 billion, including a $2.6 billion bonding bill. For reference, the FY 2022-23 budget was ~$52 billion. So far only one has been vetoed—the Uber/Lyft bill which would have increased rideshare fares by 30% in the metro. Gov. Walz is expected to sign all budget bills, avoiding a special session.

Omnibus Tax Bill

The tax bill received a target of $3 billion net in tax relief, which mostly went to seniors and low-income families in the form of credits or rebate checks. Ultimately to provide that significant level of tax relief and other priorities, the bill included $1 billion in new revenue by taxing multinational corporations through GILTI (global intangible low-taxed income), phasing out the standard/itemized deduction for incomes over $1 million, adding a new 1% tax on net investment income, and modifying corporate Net Operating Losses. Other revenue raisers that were considered but didn’t become law were establishing a new fifth tier income tax, removing the tax exemption for data centers, and establishing worldwide combined reporting.

Regarding the revenue raisers, GILTI is the federal conformity to the Tax Cuts and Jobs Act (TCJA) from 2017, which taxes intangible assets that are transferred to foreign countries. The net investment income of individuals, estates, and trusts over $1 million includes interest, dividends, annuities, royalties and other gains not derived from a trade or business and excludes gains from sales of class 2a agricultural property. Finally, the standard/itemized deduction accelerates the phase out by 10% for those earning over $340,000 and 20% for those over $1 million.

Key provisions of tax relief include exempting all state taxation on social security benefits for those making up to $100,000, creating a child tax credit that begins phasing out at $35,000, providing a one-time rebate of $520 for married filers making up to $150,000 or $260 for single filers up to $75,000, restoring the historic rehabilitation tax credit retroactive for FY23 and sunsets in FY30 (Thank you Sherman Associates for your testimony and resources on this issue!), allocating $10 million for the Angel Tax Credit, and distributing $300 million in one-time public safety aid to cities and counties. The Market Value Homestead Credit was raised up to $517,200 from $413,800, which will result in a shift in burden to other homestead properties and commercial/industrial properties. We testified in opposition to this approach without a matching commercial/industrial offset.

Given the shift in power, our top priority was to avoid increases in the State General Levy as Minnesota remains an outlier in the nation with this unique tax on businesses. While we were unable to persuade legislators to provide additional relief, we were successful in preventing initiatives to raise the levy.

Transportation

For years, there has been agreement between both the DFL and GOP regarding an increased need for transportation, it was just a question of how to fund those needs. The goal of the transportation bill was to fix the crumbling road and bridge system and create a modern transit system. With the DFL majority in both the House and Senate, they chose to rely mostly on new forms of revenue.

The omnibus transportation appropriation bill would invest $1.3 billion over the next two years. The bill contains new revenues including a $.50 fee for deliveries more than $100, indexing the gas tax to inflation, and .75% metro area sales tax mostly for transit. Along with the new forms of revenue, the bill also increases fees for vehicle registration and dedicated auto part sales taxes for transportation. Key investments include $195 million to establish the Northern Lights Express from the Twin Cities to Duluth, $50 million to extend the Blue Line to northwest Minneapolis, $18 million for local roads, and $18 million for local bridges. There was also $402 million appropriated to MNDOT mostly for roads and bridges in the bonding bill.

Key Bills Signed into Law

• Paid Family and Medical Leave
• Earned Safe and Sick Time
• Federal Conformity
• 2040 Clean Energy Standards
• MinnesotaCare buy-in study/for all
• Driver’s licenses for all
• Catalytic converter enhanced penalties
• Legalize cannabis
• Metro sales tax for transit .75%
• Metro area sales tax for housing .25%
• PRO Act (Roe V. Wade Abortion Protections)
• Unwinding Public Health Emergency
• Federal Infrastructure Investment and Jobs Act (IIJA) funding
• Attorney General funding for enhanced criminal cases
• Warehouse labor standards
• Banned non-competes
• Accelerate commercial building code to reduce 80% energy by 2036

The legislature is set to return February 12th, 2024. All 3,000 + bills that have been introduced will be in play next legislative session. New bills will also be introduced at that time.

In summary, there were a lot of initiatives passed and some of the impacts are yet to be known. Please reach out if you have any questions or issues you would like us to work on.

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