Posts filed under ‘Public Policy | Government Affairs’

Lots of Buzz about Tax Reform as We Approach 2018

Although it may seem like very little of the political chatter is about substantive issues, tax reform has become an important issue this year for local, state and federal officials.

In Washington, efforts have begun on the first major rewrite of the tax code since 1986. Although proposals thus far have taken the form of frameworks and broad policy descriptions, the breadth of ideas under discussion are likely to include lowering corporate tax rates, changing the ways that carried interest is taxed, and reducing the burden on pass-through entities.

However, any federal tax reform would carry the risk of increasing the budget deficit, which may impact access to capital for many businesses. Because of the complexity of federal tax reform, it is likely that any action in 2017 or early 2018 would be a first step, with additional reform after next November’s elections.

On the state level, tax reform is benefiting the commercial real estate industry through the repeal of the automatic inflator on the statewide general property tax. Commercial-industrial real estate accounts for nearly all of the revenue from the statewide general property tax, so this change reflects an important step in managing rising tax burdens on commercial real estate.

However, Governor Dayton’s line-item veto of biennial funding for the Minnesota Legislature was accompanied by a demand that the legislature reinstate the automatic inflator. A court case on the constitutionality of the line-item veto remains before the Minnesota Supreme Court. Regardless of the outcome of that court case, it is likely that the repeal of the inflator will be discussed during the 2018 legislative session.

Finally, several court cases limiting the ability of cities to assess fees separate from the property tax system are having an impact on 2018 tax proposals. In St. Paul, Mayor Chris Coleman has proposed a 23.9% increase in the city’s property tax levy, primarily to fill a hole in the budget caused by a reduction in right-of-way maintenance fees.

For NAIOP members, the mayor’s proposal is a both a step forward and backwards. Increased simplicity and transparency in local property taxes are important goals for all local governments – the mayor’s proposal meets these goals. However, since any property tax increase disproportionately impacts commercial real estate, it will be important for NAIOP members to hold St. Paul city council members accountable and look for ways to reduce the cost of city services.

October 20, 2017 at 3:04 pm Leave a comment

Governor, legislative leaders square off over veto of legislative funding

On September 8th, the Minnesota Supreme Court ruled that Governor Dayton’s veto of the legislature’s biennial appropriation was a legitimate and constitutional use of his executive power. However, the issues surrounding this veto are far from resolved.

Governor Dayton vetoed the legislature’s appropriation in an effort to convince legislative leaders to return to the bargaining table on the omnibus tax bill, which had several provisions that the Governor opposed. One of those provisions eliminated the automatic inflation escalator on the statewide business property tax – NAIOP Minnesota supports eliminating the escalator, which puts state tax increases on autopilot.

Legislative leaders have argued that Governor Dayton could have vetoed the tax bill in its entirety as a method of continuing negotiations. However, the Legislature linked funding for the Department of Revenue’s operations to the tax bill, and Governor Dayton chose to preserve funding of the department’s services. By vetoing only the appropriation for legislative functions (called a line-item veto), he sought to get the legislature’s attention without risking the funding of any state agency.

Legislative leaders also argued that a veto of all funding for the legislature violated the principle of separation of powers. It was clear that the Court had some sympathy for that argument, but was unclear whether they believe the judicial branch has the authority to settle a battle over legislative appropriations. The Court ordered Governor Dayton and legislative leaders to enter mediation to attempt to resolve the dispute, and asked the parties to offer further information and arguments to help settle the different separation of powers issues.

A successful veto doesn’t reinstate the automatic escalator for statewide property taxes and Governor Dayton hasn’t publicly opposed another provision of the tax bill that reduced the impact of the statewide tax on smaller commercial and industrial property. However, any effort to reopen the tax bill puts both laws at risk.

Clear as mud? Stay tuned.

September 14, 2017 at 2:08 pm

St. Paul, Woodbury court cases on municipal fees also impact NAIOP members

Earlier this month, a Citizens League task force released a report suggesting that the City of St. Paul should explore a PILOT (Payment-In-Lieu-Of-Taxes) program for non-profits with substantial real estate holdings. A Minnesota Supreme Court decision struck down St. Paul’s expansive assessment system for infrastructure improvements, and Mayor Chris Coleman announced a projected property tax increase of nearly 24 percent to replace assessment fees. The Citizens League report recommended that St. Paul explore a voluntary PILOT system for non-profits such as health care facilities and higher education, which are exempt from property taxes but pay assessment fees. Kaye Rakow, former public policy director for NAIOP Minnesota, served as co-chair of the task force.

While NAIOP is concerned about the size of the St. Paul property tax proposal, we also strongly support more transparency in municipal taxing decisions and more limited use of municipal fees.

In a case involving the City of Woodbury, a district court judge ruled that an assessment fee on builders to pay for road improvements outside of a residential subdivision was illegal under state law. The Minnesota Court of Appeals will rule as soon as this month on the appeal of that decision, which is one of several decisions in the past two decades limiting the expenditures that cities can include in assessment fees on new development.

Either issue could be addressed at the State Capitol in the upcoming legislative session.

September 14, 2017 at 1:43 pm

State Budget: Repeal of the Statewide Business Property Tax may be at risk

NAIOP Minnesota members and the industry are potentially impacted by the court case that has continued the budget debate between Governor Dayton and legislative leaders. Following a district court ruling that the Governor’s veto of the two-year funding for legislative operations was unconstitutional, the Governor acknowledged that his veto was intended to bring legislative leaders back to the bargaining table on several issues in the tax bill, rather than a concern about funding. The judge’s decision stated that vetoing the legislature’s appropriation because of an unrelated objection violates the principle of separation of powers.

For you and our industry, this court case is important. Governor Dayton has targeted the recent repeal of the inflator for the statewide business property tax as an item he wants renegotiated. Repealing this inflator, which previously placed the state business property tax on autopilot, was an important legislative victory for NAIOP Minnesota and other business organizations in 2017. Ultimately, an appeal means that the Minnesota Supreme Court is likely to make the final decision on this court case.

August 17, 2017 at 12:44 pm

PILOT Discussions Continue in St. Paul

PILOT stands for “payment in lieu of taxes,” a method used by local governments to receive revenue from organizations that are exempt from property taxes, yet still receive the benefits of local services.

One year ago, the Minnesota Supreme Court ruled that right-of-way assessments in St. Paul were taxes, not fees, meaning that non-profit organizations were exempt from the assessments. In response to a potential loss of tens of millions of dollars in tax revenue, city leaders have been exploring ways to use PILOT or SILOT (services in lieu of taxes) to replace the lost revenue, rather than immediately increasing the property tax levy or cutting the city’s budget.

NAIOP Minnesota works tirelessly to keep local governments accountable for property tax levels or increases. The Supreme Court decision has been a welcome victory for transparency in local taxation. Efforts by the City of St. Paul to find a reasonable and public solution to this revenue issue have improved taxpayer understanding of how local budgets work.

In August, a Citizens League task force is expected to complete its work analyzing potential solutions for the City of St. Paul. Kaye Rakow, formerly having championed NAIOP Minnesota’s public policy initiatives, is co-chairing the task force.

August 17, 2017 at 12:39 pm

State Tax Receipts Down Slightly

According to Minnesota Management & Budget (MMB), July state tax receipts totaled $975 million. This amount was roughly $66 million below forecast, and follows an agency report that revenues for fiscal year 2017 were 0.5% lower than projections.

Variations in month-to-month tax receipts are not unusual, as the timing of tax collections can be hard to predict. In October, MMB will release a three-month economic update that will provide a closer look at the trendlines in tax receipts, and a late November budget forecast will set the stage for the 2018 legislative session.

August 17, 2017 at 12:13 pm

MnCRE property tax relief approved but still in limbo

Just three years ago, tax relief for commercial property owners in Minnesota was unthinkable. The consensus among state legislators, the news media, and the general public was that tax relief for commercial property taxpayers would only benefit the wealthy. Any legislation introduced, which sought to ease tax burdens, was therefore doomed.

Since 2014, NAIOP has worked very hard to shift the paradigm concerning commercial property taxes. We have communicated with audiences at all levels, explaining who actually pays commercial real estate property taxes in Minnesota. Most of the people we have talked with were surprised to learn that property taxes are paid by the small business owners who rent space in commercial or industrial buildings and not the building owners. And with some of the highest commercial property taxes in the nation, tenants must raise prices to cover their overhead costs. In short, we all pay.

At the end of the 2016 legislative session, our communications efforts began to bear fruit. We argued strongly for the elimination of the mechanism that automatically increased taxes on the state’s commercial properties, based on the rate of inflation. Because of its complexities, however, removal of the automatic inflator was dropped. Lawmakers ultimately passed a tax bill that, among other things, exempted the first $100,000 of assessed property value from the state’s commercial property tax. The measure clearly benefitted owners of smaller, often rural properties but it was a solid stride forward for our cause. Unfortunately, Governor Dayton vetoed the bill for unrelated reasons.

Following the 2016 elections, we knew that opportunities for tax relief would be better. Throughout the 2017 legislative session, NAIOP worked very hard to communicate the need for tax relief. Through special events, newsletters, blog posts, tweets, and face-to-face meetings, we called for property tax relief. NAIOP’s lobbyists met personally with business leaders, property managers, reporters, legislators and more, and orchestrated speakers at key legislative hearings to clearly communicate the need for relief and the economic benefits that will come to Minnesota as a result.

Now that the legislature’s special session is done, I am very pleased to report that our efforts paid off – sort of. Within the tax bill finally approved by the House and Senate is the relief we fought so hard to convince legislators on both sides of the aisle to include – the elimination of the automatic property tax inflator, effectively freezing the levy at 2018 levels. The bill also contained language to exempt the first $100,000 from a property’s taxable value – a provision that was lost at the end of last year’s session. The Governor signed the tax bill late Tuesday evening, after signing other budget bills, but used his line-item veto authority to de-fund House and Senate operations. He said he would call another special session to restore the Legislatures funding if lawmakers agreed to revisit several issues that he opposed in the signed bills, including the removal of the automatic inflator. As of May 31, it is not clear what steps legislative leaders will take next. Many speculate the courts may have the final say in the matter.

If the removal of the auto-inflator and a small exemption are retained, they will become significant steps in the right direction. This issue illustrates how we need to continue to educate public officials and community leaders about the importance of commercial property tax relief, the burden of which falls on small business tenants. If we can accomplish this goal, greater economic prosperity will follow for everyone.

May 31, 2017 at 1:21 pm

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