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As rebuilding begins, tax committee tackles how to pay for it

In the days after the death of George Floyd while in police custody, a wave of arson and vandalism swept across not just the South Minneapolis neighborhood where it happened, but also North Minneapolis and St. Paul’s Midway neighborhood and elsewhere.

Now a collection of bills is emerging, each addressing the rebuilding of those commercial corridors. But how will those efforts be funded? That’s where the House Taxes Committee comes into the conversation.

On Wednesday, the committee approved two bills related to the aftermath of the unrest.

SSHF79, as amended, would provide property tax relief and a tax exemption for the materials small-business owners in those areas need for the process of getting their businesses up and running again. It is sponsored by Rep. Aisha Gomez (DFL-Mpls).

Another would provide the funding mechanism for the Metropolitan Area Redevelopment Corporation, outlined in a bill approved by the House Government Operations Committee on Tuesday.

SSHF87, sponsored by Rep. Kaohly Her (DFL-St. Paul), would create a 0.125% sales tax to be imposed by the seven metropolitan counties. Proceeds would fund grants to nonprofit organizations led by people of color and indigenous people that are engaged in rebuilding the areas damaged by the civil unrest.

Both bills were incorporated into a delete-all amendment to HF132 that was approved by the House Ways and Means Committee and sent to the House floor.

The state’s response to a February fire in Alexandria provided the basis for SSHF79. Although that fire destroyed four buildings and over 1,500 were damaged or destroyed in the Twin Cities area during the last week of May, the Alexandria template of sales tax exemptions, property tax abatements and valuation freezes was a starting point for the proposed legislation.

A key difference is that more of the small-business owners on Minneapolis’ Lake Street and West Broadway and St. Paul’s University Avenue are tenants, rather than the owners of the property. So elements of the tax relief are divided between them.

The Department of Revenue estimates that the tax exemptions in SSHF79 will decrease state funds by $1.2 million annually in fiscal years 2021, 2022 and 2023. It also estimates that property tax abatements will cost the General Fund $1.3 million in fiscal year 2021, but that property tax credits will help increase revenue by $1.4 million in fiscal year 2022.

The sales tax proposal in SSHF87 proved a more controversial measure. Three amendments were added to the bill, but the one that provoked the most discussion would institute a seven-county sales tax to fund the Metropolitan Area Redevelopment Corporation.

Rep. John Petersburg (R-Waseca) asked if the corporation would have board members from throughout the seven-county metro area. When told that they would be from the areas that are being redeveloped, he said, “That creates a concern in that you’re asking people to pay taxes for something on which they have no input. That’s what we used to call taxation without representation.

“And, because sales taxes are regressive, won’t this affect low-income people more?”

Rep. Dan Fabian (R-Roseau) asked if any of the seven counties could opt out of participation. Her said that this increase in sales taxes would be subject to a referendum within each county, so yes.

The Department of Revenue estimates that the tax would generate $59.3 million during calendar year 2021.

Rep. Jeff Brand (DFL-St. Peter) spoke in favor of the bill. “Back in 2017, we appropriated $1.7 million from the General Fund for Madelia’s downtown, with another law providing a tax exemption for building materials. So there’s precedent for this.”

Rep. Paul Marquart (DFL-Dilworth) concurred.

“The thing to remember is that these businesses were devastated through no fault of their own,” said Marquart, the committee chair. “They want to rebuild, and the state should help them do that. In 1997, we had floods in the Red River Valley and, while floods are different from civil unrest, the state has provided hundreds of millions of dollars to help build our businesses. Minnesota has always come to the forefront when we’ve needed to help people.

“We have people coming forward with a vision on how to rebuild. If successful, it will help not just the metro area but everyone in the state, and it will help bring Minnesota together and make us stronger culturally and economically.”



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