Minnesota Democrats consider tax and fee increases

Democrats are considering about $2 billion in tax and fee increases in their two-year budget plans at the Minnesota Legislature, arguing the hikes are necessary to tackle overwhelming needs across the state.

A metro area sales tax could fund housing assistance. Fishing licenses and state park permit fees could climb. Workers and employers would foot the bill for paid family leave, starting in 2025. A slate of tax and fee increases would subsidize the transportation system, including an added delivery cost on everything from Amazon packages to pizza.

The proposed costs for taxpayers come as the state has a massive projected $17.5 billion budget surplus. But Democrats who control the Legislature stressed that most of that is one-time money.

"We're not going to solve our housing crisis with one-time resources," Rep. Mike Howard, DFL-Richfield, said as he proposed a quarter-percent metro sales tax. "We are also bringing in the new revenue that is desperately needed to address this challenge in the long term."

The full picture of proposed tax and fee increases is still emerging as House and Senate committee chairs recently started publishing their major spending bills on areas such as transportation, housing and the environment. Democrats plan to pair spending with $3 billion in tax cuts, but details of the tax bill have yet to be released.

Republicans have condemned the scale of the proposed spending increases — about $17.9 billion more over two years — and the cumulative impact of taxes and fees.

"We can add tax, upon tax, upon tax. But eventually ... it limits and reduces the disposable income that everybody has," said Rep. John Petersburg, R-Waseca, at a recent committee hearing. "All of a sudden it starts, kind of like the snowball going down the hill, and we can't stop it."

Tax and fee plans

The House transportation bill alone includes nearly $1.5 billion in tax and fee increases, including a sales tax for motor vehicles and a registration fee increase. Democrats want to give the Metropolitan Council the ability to impose a three-quarters of 1% sales tax in the metro area, raising $917 million over the next two years to use for transit and transportation, according to a House estimate.

Both the House and Senate transportation budgets include a new 75-cent fee for the purchaser on most retail deliveries. A House analysis shows that fee could bring in nearly $193 million over the next two years.

States such as Colorado and Massachusetts have looked to similar fees to help fund transportation projects. But opponents have criticized the fee as "regressive," not taking into consideration the size of the delivery.

"How is it fair that the delivery of a $3,000 bike, or couch, or washing machine in a 10-ton box truck pays the same fee as an $11 hoagie sandwich delivered in a 3,000-pound compact car?" said JJ Haywood, CEO of Twin Cities pizza chain Pizza Lucé, which now offers free delivery to customers.

The controversial idea of raising the gas tax is not among the proposals, but Democrats point out that tax isn't bringing in as much funding as it used to, leading to shortfalls and a need for new sources of sustainable funding.

"We are in a time of declining revenues in all of the transportation supporting funds," said Sen. Scott Dibble, DFL-Minneapolis, chair of the Senate Transportation Committee. "Which is kind of a paradox of this moment of surplus."

Housing 'a statewide concern'

Lawmakers are also contemplating another quarter-percent metro sales tax for housing needs. If someone spends $1,000 on items subject to that sales tax in the seven-county metro area, they would have to pay $2.50.

A quarter of the revenue would go to rental assistance, assisting low-income residents languishing on Section 8 waitlists. The remaining three-quarters of the tax dollars would be devoted to housing assistance specifically in metro counties and cities.

Advocates said the dollars are critical to prevent housing instability and homelessness, but some local government and business groups oppose the approach. Metro area taxpayers already support existing housing programs through income, sales and property taxes, said Patricia Nauman, executive director of the group Metro Cities.

"Housing is a statewide concern," Nauman said. "Those programs serve very important state goals, and as such they should be financed through traditional state revenue sources."

The sales tax was removed from the Senate's housing bill but remains in the House version, said Senate Housing Chair Lindsey Port, DFL-Burnsville. She said lawmakers plan to work through differences in a conference committee, potentially expanding the metro sales tax to allow other counties to opt in.

For campers and anglers, their hobbies would cost more under the House environment and natural resources bill. Annual and daily passes for Minnesota state parks would climb, and fishing license prices would rise to cover Department of Natural Resources costs.

Some of those fee increases were left out of the Senate's environmental budget bill, according to Sen. Grant Hauschild, DFL-Hermantown.

"Minnesotans should be able to enjoy the great outdoors without facing financial barriers," he said in a statement Thursday, saying he prevented the hikes.

House Environment and Natural Resources Chair Rick Hansen said he hopes to reach an agreement that provides good management of the state's outdoor resources.

"Do I like to raise fees? No," said Hansen, DFL-South St. Paul. "But I also need to make sure I've got a balanced budget and that we provide those services for our game and fish, and for our parks and water recreation."

Lawmakers are simultaneously looking at creative ways to cut Minnesotans' expenses, Hansen added — for instance, helping the Science Museum with its debt and thereby allowing the museum to keep more of its money, on the condition that it drops ticket prices.

Changes to come

Another proposed tax would not hit Minnesotans' pocketbooks until July 2025: the 0.7% payroll tax, which would fund a paid family and medical leave program, allowing individuals to stay home to care for a newborn or recover from a serious illness. Employers statewide would have to pay the tax unless they met requirements to opt out, and they could share half the cost with their workers.

The various spending bills will change as they make their way to the House and Senate floors for votes. Then conference committees will need to iron out differences between the House, Senate and DFL Gov. Tim Walz.

Tax Committee chairs are not expected to release the details of their bills for another week or two, but top DFL leaders have set out a $3 billion tax cut target and said they're eyeing a mix of one-time checks and sustained tax breaks. Social Security income tax cuts are on the table, as well as tax credits for families to help cover the cost of child care.

The broad tax packages could include additional tax increases. DFL House Speaker Melissa Hortman didn't close the door on asking the state's wealthiest residents to pay more through the creation of a fifth-tier income tax bracket. They want to make sure the state can "sustain budgets over time," she said.

"It's early," Hortman said, noting that committee chairs' ideas for sales taxes and other revenue-generators might not end up in the final bills. "The question is whether the people of Minnesota and their caucus colleagues give them the feedback that they want to do these things."