Democrats propose quarter-cent sales tax to fund new rental assistance program

The high-level budget agreement between Gov. Tim Walz and legislative leaders includes the biggest number for housing in state history: $1 billion over the next two years, eight times larger than the last budget appropriation.

Yet nearly all of that is one-time funding, paid for with part of the state’s $17.5 billion budget surplus. That means a proposal to provide ongoing rental assistance to all cost-burdened, low-income Minnesotans — which has won favor among Democrats in recent years — is off the table.

“It is unprecedented to be having a billion-dollar increase … And at the same time, it will not be enough to meet the long-term need,” said Rep. Michael Howard, DFL-Richfield, who chairs the House Housing Finance and Policy Committee.

Instead, Democratic Gov. Tim Walz and DFL legislative leaders are planning a major increase in education funding, as well as tax cuts and rebates expected to top $2 billion.

For the past three years, Howard has put forward a $2 billion bill (HF11) to provide rental assistance to the estimated 212,000 low-income Minnesotan households paying more than 30% of their income on rent. Currently, only about one in four households eligible for federal housing vouchers like Section 8 get the assistance.

The bill’s authors and supporters hope they can still launch a scaled down version of a rental assistance program by creating a .25% sales tax in the seven-county Twin Cities metro area, which is projected to bring in about $300 million a year.

Under the new proposal, three-quarters of the revenue would go to cities and counties in the metro area, which could use the money for rental assistance or funding affordable housing projects. The remaining quarter of the revenue would go to rental assistance through metro-area agencies that administer federal vouchers like Section 8.

The bill has the support of local leaders like Hennepin County Commissioner Marion Greene, who told the Senate housing committee that there are only 18,000 units in Hennepin County affordable to the 53,000 renter households with incomes less than 30% of the area median income.

“Our residents desperately need these funds now,” Greene said.

The proposal faces potential opposition in the Legislature, as swing-district lawmakers would need to explain to voters why a sales tax increase was necessary despite the surplus.

Asked if Walz would support a new tax to fund housing, a spokeswoman pointed to their housing and tax plan that doesn’t include the new tax.

Howard and Port aren’t the only Democrats eyeing new taxes to fund their priorities left out of the governor’s plans. State lawmakers are also considering a .75% sales tax increase in the metro area to pay for on-going public transit improvements; the governor has recommended a .125% sales tax for transit. Sales taxes in the metro area currently range from 7.13% to 8.03%.

“It will be a big lift,” acknowledged Sen. Lindsey Port, DFL-Burnsville, who chairs the Senate Housing and Homelessness Prevention Committee.

Yet a new tax is likely the only way the state will fund on-going rental assistance, after what was a make-or-break year for the idea.

The proposal faced its best prospects this year with a Democratic trifecta and co-authors including a Republican in the Senate — Jim Abeler of Anoka — and House Speaker Melissa Hortman, DFL-Brooklyn Park.

Housing committee leaders also hoped for a significant increase in ongoing funding — the kind that could support more rental assistance — in the budget targets rather than mostly one-time funding.

“It feels like if we aren’t able, in this budget-year environment, to grow the pie to invest in housing, I’m not sure we ever will unless we kind of find more creative ways to get it done,” Howard said.