House goes big on housing, passes $1 billion bill that aims to fight homelessness, aid first-time homebuyers

To tax or not to tax? That was the question the House debated until late Wednesday for the omnibus housing finance bill.

Passed 70-57, and en route to the Senate, HF2335, as amended, would appropriate $1.07 billion over the 2024-25 biennium.

Metro sales tax increase

Perhaps the most contentious proposal in the omnibus housing finance bill, a 0.25% sales tax to be imposed on the seven-county metro area with 60% of the proceeds going to the metropolitan county aid, 25% to a state rental assistance program, and 15% to metropolitan city aid.

Unfazed by Republican dissent, Rep. Michael Howard (DFL-Richfield), the bill sponsor, says challenges across the housing continuum from homelessness to cost-burdened renting need dedicated future funding and this tax would provide that.

Howard said the tax would create 1,000 new rental units, 1,000 new affordable homes to own, and 3,000 vouchers for families to have housing stability.

“The benefits outweigh the costs in the long-term,” he said.

Effective for sales and purchases made after June 30, 2023, a revenue analysis estimates that the tax would bring in $353 million during the 2024-25 biennium and $391.2 million for the 2026-27 biennium.

Opponents say the proposal would put an undue burden on taxpayers amidst a historic $17.5 billion budget surplus, particularly considering sales tax provisions in other omnibus packages like the 0.75% transportation metro-area sales tax, passed earlier in the day by the House.

Should both the housing and transportation sales tax increases become law, shoppers could expect to pay rates of about 9.03% in Minneapolis; 8.88% in St. Paul; 8.53% in Hennepin County; and 8.38% in Ramsey County.

“It’s going to harm the people who you intend to help the most,” said Rep. Jim Nash (R-Waconia), who unsuccessfully offered an amendment to remove the sales tax increase.

Another unsuccessful amendment, offered by Rep. Andrew Myers (R-Tonka Bay), would have required a referendum for voters to decide to approve or reject the tax at the general election.

[MORE: Look at sales tax rates around the state; View the bill’s spreadsheet]

Bill spending

“The lack of sufficient down payment assistance is part of the reason why Minnesota has, unfortunately, the fifth-largest racial homeownership gap in the country,” said Rep. Esther Agbaje (DFL-Mpls).

To help close this gap, a one-time $150 million appropriation could support close to 4,000 new homebuyers through a first-generation homebuyer down payment assistance fund.

“We know that the disparities across Minnesota are stark because they were intentionally enacted throughout our history to create barriers to homeownership for Black and brown households, so solutions to that injustice must also be intentional,” Agbaje said.

Beyond that and short of the $1 billion authorization initially proposed in bond sales, the Minnesota Housing Finance Agency would be authorized to issue up to $66.67 million in housing infrastructure bonds.

Likewise, instead of the previous $200 million allocation of housing infrastructure bonds, the current proposal would appropriate $185 million for the housing infrastructure program. Eligible uses would include rehabilitation loans, a special purpose credit program or discretionary funding to any federally recognized Indian Tribe in Minnesota.

That $15 million discrepancy was moved to the stable housing organization relief fund, which would appropriate an increased total of $25 million for nonprofits suffering financial strain due to lost rental income from tenants, among other things.

Other major spending in the omnibus housing finance bill includes:

• $150 million for a community stabilization program;
• $100 million for the newly formed statewide rental housing voucher program;
• $95.54 million for the Family Homeless Prevention and Assistance Program;
• $80 million for homeownership investment grants;
• $75.85 million for the economic development and housing challenge program; and
• $44 million for the Greater Minnesota workforce development program.

Notably, the Family Homeless Prevention and Assistance Program already received $50 million when HF1440 became law. Plus, over $200 million for various homeless services, passed the House through HF444, or the “Pathway Home Act.”

The omnibus package also contains smaller appropriations, such as $10 million for the manufactured home park cooperative purchase program, $5 million for the Greater Minnesota housing infrastructure grant program, and $4 million for the lead safe home program.

[MORE: Read about original bill and the committee-approved proposal]

Accepted amendments

Offered by Nash, successful amendments would require a report to the Legislature on staffing changes and use of appropriations at the Minnesota Housing Finance Agency.

Another adopted amendment, as amended, by Rep. Brian Johnson (R-Cambridge) would limit administration expenses to no more than 10% of any appropriation.