Tax Conference Committee Resolves Differences Between House and Senate Tax Bills

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2 Page 2 of 19 Tax Conference Committee Resolves Differences Between House and Senate Tax Bills The agreement includes several provisions of interest to cities and also removes the local referendum requirements that were in the House bill. House and Senate Tax conferees released a compromise tax agreement on May 11 that focuses on personal income and corporate income tax changes needed to conform with the federal Tax Cuts and Jobs Act of The bill also offsets personal and corporate income tax increases that would otherwise occur under the conformity changes. The conference committee report reflects the unified position of the Legislature. Gov. Dayton had stated that he would not negotiate until the House and Senate had finalized their negotiations. The tax chairs, Rep. Greg Davids (Link to: (R-Preston) and Sen. Roger Chamberlain (Link to: (R-Lino Lakes), announced at the conclusion of the May 11 hearing that they would provide the governor and the Department of Revenue several days to review the legislative position. The conference committee will reconvene on May 14 or May 15 to work with the governor on a final tax conference committee report. Provisions of interest to cities Referendum requirements not included None of the referendum requirements or modifications included in the House bill were adopted in the initial agreement. These included: Gas and Electric Franchise Fee reverse referendum. The House bill included a new notification and reverse referendum provision added to the process to enact or renew a municipal gas and electric franchise fee. Lease-purchase financing reverse referendum. The House bill included a new reverse referendum requirement for lease-purchase financing arrangements between an economic development authority, housing and redevelopment authority, or a port authority and a city or county. First class cities (Minneapolis, St. Paul, Duluth, and Rochester) would have been exempt from this requirement. Local referendum elections moved to November. The House bill included an article that would modify a number of statutes addressing local referendum requirements to remove special election options and, therefore, require these referendums to be held at a general election in November.

3 Page 3 of 19 Expanded local tax prohibition The agreement includes the modifications to the existing statutory prohibition on local income and sales taxes, expanding it to also cover excise taxes and fees of food and containers. This expansion was included despite the League s opposition. The League did successfully argue for an exemption from the fee limit for license fees. Local government aid (LGA) Lilydale. The agreement includes a one-time increase in the LGA distribution for the City of Lilydale ($150,000 for regional sewer costs), but does not increase the LGA appropriation to cover the cost. Hermantown. The agreement includes a one-time increase in the LGA distribution for the City of Hermantown ($97,260 to retroactively address an unintentional LGA formula error), but does not increase the LGA appropriation to cover the cost. LGA acceleration. The agreement does not include the increase in the amount of LGA that will be distributed in June Under last year s tax bill, the state accelerated the distribution of roughly $77 million of the July 2019 LGA payment to June The House bill would have increased that acceleration to roughly $91 million. Sales tax exemptions The agreement includes: Construction materials sales tax exemption for a public safety facility in Minnetonka. Construction materials sales tax exemption for a fire station in Inver Grove Heights. Sales tax exemption for the construction or remodel of a fire station in Virginia. A retroactive sales tax refund on the construction costs related to an Elko- New Market water treatment facility. An extension of a sales tax exemption for reconstruction projects in the City of Melrose as a result of a downtown fire. Tax increment financing (TIF) special law provisions The agreement includes: Bloomington Central Station TIF district. Champlin Mississippi Crossings TIF district.

4 Page 4 of 19 Local sales taxes/tax adjustments The agreement includes: St. Cloud food/beverage tax and lodging taxes modification. Cloquet general sales tax use adjustment. St. Paul lodging tax increase. Excelsior local option sales tax authorized. Other items of interest included in the initial conference committee agreement: A clarification that cities and towns may appropriate funds for historical societies in the respective city or town. Under current law, a city or town can only appropriate funds for a county historical society. A grant to the city of Mazeppa for recovery efforts related to a fire. A state general property tax abatement and sales tax break for medical facilities in underserved areas of Greater Minnesota. A state general property tax abatement for qualifying properties in Aitken, Crow Wing, and Mille Lacs due to fishing ban. A state general property tax abatement for qualifying natural gas line extensions in unserved areas. A provision calling for a study of a state-level housing tax credit for investors based on a bill introduced by Sen. Carla Nelson (R-Rochester) (SF 3301) and supported by the Minnesota Housing Partnership earlier in session that would have created a tax credit program based on a model from North Dakota. Read the current issue of the Cities Bulletin (Link to:

5 Page 5 of 19 Senate Majority Releases $825 Million Bonding Bill The measure, which compares to the recently advanced House bonding package, but does not align with Gov. Dayton s $1.5 billion proposal, contains several provisions of interest to cities. (Published May 14, 2018) Senate Capital Investment Committee Chair Dave Senjem (Link to: (R-Rochester) released his $825 million omnibus bonding bill on May 9. The measure, SF 4013 (Link to: funds a variety of public works accounts and projects statewide. The bill was passed by the Senate Capital Investment Committee (Link to: on May 10 and will be heard in the Finance Committee (Link to: cmte_id=1007&ls=90) in the coming days. It spends an amount equal to the House bonding bill, HF 4404 (Link to: authored by Rep. Dean Urdahl (Link to: (R-Grove City). However, the Senate proposal is more prescriptive in how the money will be spent. State agency commissioners have testified on both bills, saying they fall well short of Gov. Dayton s proposed $1.5 billion package. Items of interest to cities Some provisions in the Senate bonding bill that may be of interest to cities include the following: $ million for transportation funding, including: $65.8 million for the Local Road Improvement Program $15 million for the Local Bridge Replacement Program $120 million for water infrastructure projects, including: $20 million for federal revolving fund match $27 million water infrastructure fund (WIF) grants for clean water $10 million WIF grants for drinking water $35 million for point source implementation grants $85 million for housing projects, including: $5 million for public housing rehabilitation $30 million for housing infrastructure bonds

6 Page 6 of 19 $50 million for housing infrastructure bonds for persons with behavioral health needs $32 million for construction of new veterans homes A number of local, city-specific projects are also included in the spreadsheet and bill language. No guarantee of bonding bill, but appears likely The bonding bill is typically one of the last bills passed during session. While there is no promise of a bonding bill in 2018, recent activities at the Capitol suggest legislative leaders are planning to send an omnibus capital investment bill to Gov. Dayton before the constitutional adjournment date of May 21. The League is actively advocating for passage of a robust bonding bill that includes provisions benefiting cities. More information Senate Capital Investment spreadsheet (pdf) (Link to: Side-by-side comparison of governor s, House, and Senate capital investment proposals (Link to: Cities Bulletin article about House bonding bill (Link to: Cities Bulletin article about Gov. Dayton s bonding proposal (Link to: Read the current issue of the Cities Bulletin (Link to: Your LMC Resource

7 Page 7 of 19 Contact Anne Finn Assistant IGR Director (651) or (800) afinn@lmc.org (Link to: mailto:afinn@lmc.org) Contact Craig Johnson IGR Representative (651) or (800) cjohnson@lmc.org (Link to: mailto:cjohnson@lmc.org)

8 Page 8 of 19 House Committees Approve Omnibus Pension Bill With Changes for PERA and Other Plans The bill, which was approved by the Senate in late March, would also require some dissolved relief associations to return unneeded funds to the state. (Published May 14, 2018) The omnibus pension bill finally began the committee process in the House as the Government Operations and Elections Policy Committee (Link to: and the State Government Finance Committee (Link to: approved the bill last week. The bill will now head to the House Ways and Means Committee (Link to: before it receives a vote on the House floor this week. The bill moved very quickly through the Senate, receiving final approval on March 26 on a vote of 66 to 0. The bill includes sustainability changes to the state s major public pension plans, including the Public Employees Retirement Association (PERA) General Plan and Police & Fire (P&F) Plan. During a hearing of the House State Government Finance Committee on May 11, Minnesota Management and Budget Commissioner Myron Frans testified that if a stand-alone version of the bill is presented to Gov. Dayton, the governor will sign it into law. The commissioner s reference to a stand-alone bill was the result of last year s merger of the omnibus pension bill with a number of local government pre-emption provisions, which the governor subsequently vetoed. Relief association amendment The bill was amended to include a special law for the City of Maplewood due to the recent dissolution of their volunteer fire relief association and also to increase the lump-sum maximum annual benefit to $12,500 for cities that are currently at or above a lump-sum benefit of $9,500. The amendment also included a requirement that any volunteer fire relief association that is, as of the effective date of the bill, providing an annual lumpsum benefit of $9,500 or more and is dissolved must return unneeded relief association funds to the state general fund if the city has not made a required contribution to the fund in the last 10 years. Based on information from the Pension Commission, only three cities with active relief associations are at the $9,500 annual benefit level Brainerd, Eden Prairie, and Plymouth.

9 Page 9 of 19 PERA changes Of interest to cities, the bill includes a number of PERA General and P&F plan modifications, including employer and employee contribution increases for the PERA P&F Plan participants. Under the bill, employer contributions into the P&F plan will increase by 0.75 percent of salary on Jan. 1, 2019 (to percent) and by an additional 0.75 percent of salary on Jan. 1, 2020 (to 17.7 percent). Employee contributions will increase by 0.5 percent in each of those years (to 11.3 percent and then 11.8 percent). The bill requires $27.2 million in additional spending for the second half (fiscal year 2019) of the current biennium. Of that total, $4.5 million will be directed to the PERA P&F Plan to reduce the need for larger employer and employee contribution increases. Other pension plans The other large allocations include roughly $7 million to fund employer contribution increases for state employees in the Minnesota State Retirement System (MSRS) General plan, the State Patrol Plan and Corrections Plan; $10.9 million to fund a general education pension adjustment for school district contributions to the Teachers Retirement Association (TRA) plan; and $5 million to fund a direct contribution to the St. Paul Teachers Retirement Fund. The estimated state cost of the bill increases substantially in the next biennium to $113.3 million for fiscal year (FY) , which is due, in part, to coverage of two years of operations. However, the increase is also due to a boost in the aid to the PERA P&F Plan and even larger increases in MSRS and TRA costs. The aid to the PERA P&F Plan will increase to $9 million beginning in FY For more details about the bill, read a previous Cities Bulletin article. (Link to: Read the current issue of the Cities Bulletin (Link to: Your LMC Resource Contact Gary Carlson IGR Director (651) or (800)

10 Page 11 of 19 Water Tank Service Contract Bill Signed by Governor Starting in September 2018, cities will be required to use the standard bid or best value contracting options for water tank maintenance projects over $175,000 in cost. (Published May 14, 2018) A bill (HF 1975 (Link to: Rep. Bob Vogel (Link to: R-Elko New Market) that removes city authority to use special procurement options when dealing with water tank maintenance was signed into law as Chapter 124 (Link to: year=2018&type=0&doctype=chapter&id=124) on May 8. The new law removes a previously allowed option under Minnesota Statutes, section , subdivision 5b (Link to: of including water tank maintenance work under a multiyear professional service contract entered into through direct negotiation or a request for proposals. The bill had narrowly passed the Senate with a vote, but passed the House The final bill was amended from earlier versions, changing the threshold from $100,000 to $175,000. This change was made to match the competitive bid threshold, which recently changed to $175,000, rather than have its own threshold value. (See related Cities Bulletin article. (Link to: ) So, if the cost of proposed maintenance is estimated to exceed $175,000, a city would need to separately bid using either a low bid or best value bid procurement process that is required for all other city contracts. The change will apply to contracts entered into on or after Sept. 1, For more background information about this bill, read a previous Cities Bulletin article (Link to: Read the current issue of the Cities Bulletin (Link to: Your LMC Resource Contact Craig Johnson

11 Page 12 of 19 IGR Representative (651) or (800) (Link to:

12 Page 13 of 19 Sign Up Now for 2018 Policy Committees City staff and elected officials are encouraged to join these groups that meet three times during the summer to develop the League s legislative platform. (Published Jun 5, 2017) Dates are set for the 2018 League legislative policy committee meetings. Join your city colleagues for great discussion about municipal legislative issues. Last year, more than 150 city officials from all around the state participated in the four committees that set the legislative policies for the League s lobbying efforts. Sign up for a policy committee now (Link to: Important note for members who served last year: Please sign up to confirm your participation again this year, even if you served last year. Here are answers to some common questions about policy committees: Who can be on a policy committee? Current city officials and staff are eligible. City councilmembers, mayors, city administrators, assistant city administrators, clerks, human resource staff, municipal elections officials, public safety staff, engineers, finance directors, economic development staff, and others have been members of the committees. Committee members can be new to their city position, have many years of experience, or be somewhere in between. While any member city may have more than one person serving on a committee, each city will have only one vote on policies or other committee business. What typically happens during each of the three committee meetings? At the first meeting in July, members hear a briefing of the previous legislative session from LMC staff, network with one another by sharing issues of interest that are related to the committee, and begin to look at policies to edit, delete, or add. At the second meeting in August, members usually hear from guest speakers from state agencies, interest groups, legislators, and other local officials to learn more about a specific issue of interest to the group. During the third meeting in September, members continue their work discussing edits to existing or new policies and vote to approve their policies. What happens after the third policy committee meeting? The League s Board of Directors hears about the work of each policy committee during a fall meeting, typically in October. Then, the draft policies are open for

13 Page 14 of 19 comment by all League members. Member comments are compiled in early November, and then the LMC Board makes the final adoption of the policies. During the next legislative session, the League s IGR staff use the policies to guide the League s legislative efforts at the Capitol. When and where are the meetings? Improving Service Delivery Committee (Link to: Monday mornings: July 30, Aug. 27, Sept. 17, 9:30 a.m.-12 p.m. Improving Local Economies Committee (Link to: Tuesdays mornings: July 31, Aug. 28, Sept. 18, 9:30 a.m.-12 p.m. Human Resources & Data Practices Committee (Link to: Tuesdays afternoons: July 31, Aug. 28, Sept. 18, 1:30-4 p.m. Improving Fiscal Futures Committee (Link to: Wednesday mornings: Aug. 1, Aug. 29, Sept. 19, 9:30 a.m.-12 p.m. All policy committee meetings are in the St. Croix Room, which is located on the first floor of the League building in St. Paul. What if I can t attend each meeting in person? We offer GoTo Meeting, which is an online option for all meetings. Many members use this option to remain involved in committee discussions, regardless of their ability to come to the League s office in St. Paul. What topics does each committee address? The topics include, but are not limited to, the following: Improving Service Delivery Committee: unfunded mandates, environmental mandates, elections, charter law, data privacy, government innovation and cooperation, and public safety. Improving Local Economies Committee: growth management, land use, boundary adjustments, housing, transportation, economic development, and telecommunications. Improving Fiscal Futures Committee: municipal financial management, property and other taxes, state aid programs, and financial reporting requirements. Human Resources & Data Practices Committee: employment law, labor relations, data practices, Open Meeting Law, personnel, and pensions.

14 Page 15 of 19 Read the current issue of the Cities Bulletin (Link to: Your LMC Resource Contact Laura Ziegler Sr. IGR Liaison (651) or (800) (Link to: Contact Heather Corcoran IGR Member Outreach Coordinator (651) or (800) (Link to:

15 Page 16 of 19 Help Select 2018 League Board of Directors Apply by June 1 to participate on the LMC Nominating Committee. (Published ) Do you want to have an important role in the selection of new members for the 2018 League of Minnesota Cities (LMC) Board of Directors? If so, apply by June 1 to be part of the Nominating Committee that interviews and recommends Board candidates. The Nominating Committee is made up of eight to 12 individuals, consisting of both elected and appointed city officials, from throughout the state. Any city official interested in serving is encouraged to apply. LMC President Jo Emerson, mayor of White Bear Lake, will choose committee appointees by June 4. (The League is also accepting applications for the Board of Directors (Link to: Important dates Once the Nominating Committee has been selected and members have been notified, there will be an hour-long conference call to provide information on the selection process and guidelines for conducting the board candidate interviews, deliberations, and decision-making steps. The call is scheduled for June 13, 11:00 a.m. to 12 p.m. The committee will convene on the morning of June 20 at the LMC Annual Conference in St. Cloud, and will interview candidates for the positions of president, first vice president, second vice president, and three director positions. The committee s recommendations will then be presented to the entire League membership at the Annual Conference during the annual business meeting on June 21. The League reimburses Nominating Committee members for expenses incurred for serving on this committee. Applying for the committee If you are providing a letter of reference for an individual who plans on applying to the Board of Directors, we ask that you refrain from applying to be on the Nominating Committee. This ensures that no conflicts of interest arise during the process. City officials interested in serving on the Nominating Committee should contact

16 Page 17 of 19 Kellie Sundheim, LMC, by June 1 at (651) , (800) or ksundheim@lmc.org (Link to: mailto:ksundheim@lmc.org). If you have questions about the committee or the process, contact Kellie Sundheim (contact info above) or Executive Director David Unmacht at (651) or dunmacht@lmc.org (Link to: mailto:dunmacht@lmc.org). Read the current issue of the Cities Bulletin (Link to: Your LMC Resource Interested in serving on the Nominating Committee? Contact Kellie Sundheim Assistant to the Executive Director (651) or (800) ksundheim@lmc.org (Link to: mailto:ksundheim@lmc.org)

17 Page 18 of 19 Apply by June 1 to Serve on the League Board League members will elect new officers and directors at the Annual Conference in June. (Published ) Apply now to serve on the League of Minnesota Cities (LMC) Board of Directors and partner with other city officials to oversee an organization that represents 833 diverse member cities throughout the state. Serving on the LMC Board of Directors is both an honor and responsibility. LMC s ability to serve members needs and exhibit leadership by anticipating and proactively addressing city challenges, result from Board guidance that is strategic, responsible, and representative of all cities interests. (The League is also accepting applications to serve on the Nominating Committee (Link to: that selects Board candidates.) Board responsibilities If you are interested in serving on the LMC Board, please review the Board s Governance Handbook before submitting an application to ensure you are aware of the roles and responsibilities: The League of Minnesota Cities Governance Handbook (Link to: was developed by the Board to guide the manner in which Board business is conducted and to outline the expectations of Board service. Board meetings are typically held at League offices in St. Paul during the day on the third Thursday of the month. In addition, this year s board planning retreat is scheduled for Sept at Grand Ely Lodge in Ely. The League reimburses all direct meeting expenses of Board members. Mileage is reimbursed at the federally approved rate. Selection process A Nominating Committee appointed by League President Jo Emerson will interview candidates on June 20 at the LMC Annual Conference in St. Cloud. The nominated candidates will be presented to members for final consideration at the annual business meeting on June 21. The League strives to balance our Board membership by gender, location and population of candidates cities, position held within the city (elected and appointed), League experience and involvement and a diversity of races and ethnicities representative of our state s population.

18 Page 19 of 19 League members will elect a president, first vice president, second vice president, and at least three directors during the annual business meeting If a current Board member is elected to an officer position, there would be an additional opening for a director position. How to apply To request an application packet, contact Kellie Sundheim, LMC, at (651) , (800) , or ksundheim@lmc.org (Link to: mailto:ksundheim@lmc.org). The deadline to apply is June 1. If you have questions about the Board, its role, and work, please contact LMC Executive Director David Unmacht at (651) or dunmacht@lmc.org (Link to: mailto:dunmacht@lmc.org). Read the current issue of the Cities Bulletin (Link to: Your LMC Resource Interested in applying for the LMC Board of Directors? Contact Kellie Sundheim Assistant to the Executive Director (651) or (800) ksundheim@lmc.org (Link to: mailto:ksundheim@lmc.org)

19 2018 State of the Cities Report Page 1 of State of the Cities Report Survey results reveal financial stability overall, but suggest that challenges remain for cities. The 2018 State of the Cities Report presents findings from the League s 15th annual Fiscal Conditions Survey. The survey was sent to the chief administrative official in each member city, and the results overall suggest that things continue to be fairly stable for cities right now. View the 2018 State of the Cities Report (pdf) (Link to: inline=true) State of the cities overview While the data does suggest that challenges for cities remain, especially in the areas of infrastructure funding and employee costs, most city officials who responded said that their city was better able to meet needs in 2017 than in the previous year. This echoes the nationwide trend. The National League of Cities reported that 69 percent of city finance officers were optimistic about meeting their city s fiscal needs in Two-thirds of Minnesota cities overall (66 percent) said they were better able to meet needs in 2017 and a slightly bigger share (70 percent) predict favorable circumstances in The last several years have represented a stable period for local government aid (LGA) and the property tax system in terms of major policy changes or funding adjustments. Areas of stress Two issues causing stress for cities are health insurance and infrastructure needs. A respondent commented, Health insurance cost increases are a huge problem and need to get under control. Another city official offered this comment: Infrastructure needs are increasing rapidly, with very little available assistance to address them. Revenue shortfalls Among all revenue sources, shortfalls in property tax revenues and in fees/charges/license revenues were cited the most often by cities. About a third of cities overall said that revenues from those two sources were either slightly less than expected or more than 10 percent less than expected (32 percent and 35 percent, respectively). The NLC fiscal conditions report highlighted a slowing of general fund revenues among their member cities. For more information If you have questions about the 2018 State of the Cities Report, contact Rachel Walker at (651) or rwalker@lmc.org (Link to: mailto:rwalker@lmc.org). Access past State of the Cities reports (Link to: Read the current issue of the Cities Bulletin (Link to: Your LMC Resource Questions about the State of the Cities Report? Contact Rachel Walker Policy Analysis Manager