DFL lawmakers to propose statewide sales tax hike to fund housing

DULUTH — Some Democratic-Farmer-Labor lawmakers will propose a constitutional amendment that would raise the state sales tax to fund housing programs.

Bill draft language would raise the state sales tax by three-eights of 1% — about 37 cents for every $100 spent — to create three funds geared towards supporting homebuyers, renters and people facing homelessness and housing insecurity. Each fund would be administered by a 24-member council appointed by a panel of legislators. 

If lawmakers approve the proposed constitutional amendment, voters would make the decision via statewide ballot in November.

Four DFL senators and 23 representatives sponsored the same proposal in the 2023 legislative session, but the bill did not advance out of committee.

The proposal mirrors the Legacy Amendment, a 2008 constitutional amendment that 56% of Minnesota voters approved — a three-eighths of 1% sales tax hike to fund environmental initiatives and arts and culture programs.

Last session, the Legislature approved historic levels of funding for housing, but much of it was a one-time allocation for the 2024-25 biennium. Housing advocates want to see ongoing funding — but some DFL lawmakers have signaled they’ll be taking a more cautious approach to spending in the 2024 legislative session.

Sen. Ann Rest, DFL-New Hope, chair of the Senate taxes committee, said last week she would not support any new taxes, Axios reported. With a one-seat majority in the Senate, DFL advocates of the proposed constitutional amendment would likely need Rest’s support. 

The bill’s advocates believe lawmakers would have political cover to vote yes because they would not be directly voting for a tax increase; only whether to put the proposed amendment on the ballot.

Minnesota, like the rest of the country, is facing a housing crisis. The National Low Income Housing Coalition estimates Minnesota would need to add more than 100,000 affordable rental units in order alleviate all households overburdened by the cost of rent. High interest rates have slowed the rate of new construction, and in Minnesota, the cost of building homes is higher than surrounding states.

The number of people experiencing homelessness in Minnesota has ticked up in recent years, according to point-in-time counts.

At a housing and homelessness town hall in Duluth, state Sen. Jen McEwen, DFL-Duluth, said she supports the proposed constitutional amendment, but that the funding mechanism — an increased sales tax — gives her pause. 

Sales taxes are regressive, meaning poor people pay more of their income in sales taxes than the wealthy. A recent report found that Minnesota’s tax system is the most progressive of all 50 states. 

At the housing town hall in Duluth on Monday, nonprofits that serve people experiencing homelessness said consistent state funding would help them expand operations, which are already at their limit, and help people transition from shelters to rental units and eventually homeownership.