New sales tax increase funds transportation, housing

The spike in inflation over the past year has made the cost of fuel and groceries even more expensive. And that amount just went up a bit higher with the recent one percent sales tax increase in Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties that went into effect on October 1.

Changes in state law this past session created a three-quarter-cent sales tax to fund transportation and a quarter-cent sales tax to fund housing. According to the Minnesota Department of Revenue, the taxes are expected to generate over $700 million annually.

Generally speaking, sales tax increases are regressive, acknowledged Ben Helvick Anderson, vice president of policy and organizing at Beacon Interfaith Housing Collaborative. That means that they hurt lower-income earners and poorer households more than more affluent households, But Helvick Anderson notes that Minnesota has measures in place to mitigate the impact of sales tax increases on poor families.

“There are some good mechanisms in Minnesota to make it less regressive, such that food, clothing, and prescription drugs are exempt from the Minnesota sales tax,” said Helvick Anderson, whose organization lobbied for the housing funding portion of the sales tax this past legislative session.

However, there are some items that will be subject to the new sales tax increase, including dining out, food deliveries, and purchases from local hardware stores.

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Helvick Anderson adds that affordable housing is in desperate need of additional funding, the same concern expressed by transportation advocates. Both argue that despite the fact that sales taxes generally lead to higher costs for monthly expenses and therefore hurt low-income families more, it’s one of the best ways to generate additional revenue.

“[Sales taxes] should not be the only source. [But] at the end of the day, we need new revenue,” said Minneapolis DFL Rep. Frank Hornstein, who chairs the House Transportation Committee that passed the sales tax on transportation this past session. “We’re not going to be able to solve our many and varied needs in transportation with what we have now.”

Of the extra dollar that will be charged for a $100 purchase, roughly $0.59 will go towards funding Metro Transit and the suburban transit providers to maintain and expand service. In addition, $0.13 will go to local counties to fund affordable housing, and another $0.13 will also go to fund county transportation.

Roughly $0.06 will go to cities to fund affordable housing, and another $0.06 will be allocated to Minnesota Housing to bankroll 3,000 housing vouchers. The remaining $0.03 will go towards Twin Cities-area bike and pedestrian infrastructure projects. It will be distributed by the Transportation Advisory Board, a 37-member body facilitated by the Metropolitan Council to distribute federal funds for transportation projects.

The region is already seeing the results of the sales tax increase. Metro Transit will receive about $450 million annually, enough to plug its anticipated $150 million shortfall when it exhausts its pandemic relief funds in 2026.

They will also be able to use that money to increase the wages of their workers, increase service, improve bus stops, build out the region’s alphabet-letter routes that make fewer stops, and increase the system’s security presence.

A day after the sales tax increase went into effect, Metro Transit added two trips on their Northstar line, a commuter railroad connecting Minneapolis to St. Cloud with a transfer to a bus in Big Lake. Metro Transit is also asking riders to tell them how to spend the sales tax money by visiting metrotransit.org/forward.

Meanwhile, counties are still determining how to spend the proceeds. For the transportation revenues, they will receive the money based on population and how their state-subsidized roads are being used, and have to spend 41.5 percent for traffic safety, 41.5 percent to repair and maintain road pavement, and 17 percent for transit, bike, and walking.

Counties are still evaluating how they can spend revenue for affordable housing. The county boards will decide how to spend transportation and housing sales tax revenues by the end of the year.

The Minnesota Housing Finance Agency is also determining how to allocate the approximately 3,000 housing vouchers funded by the metro-area sales tax. The vouchers are for a new state rent-assistance program designed to mimic Section 8 housing subsidies.

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The rent assistance program has a total of approximately 5,000 vouchers, with about 2,000 vouchers funded by a $46 million appropriation by the legislature that are set aside for greater Minnesota housing authorities.

State law says vouchers are to be allocated to local housing authorities based on how many of their residents are eligible for assistance regardless of whether they are being served by the housing authority. To make that determination, they are to use numbers from the Census American Community Survey, a questionnaire that is more involved than the decennial Census and conducted on select households annually.

The sales tax increase will not be the only thing that funds housing and transit. The gas tax will now be indexed to inflation and the tax on motor vehicle sales will increase. Starting next July the state will also begin charging a 50-cent fee on product deliveries that cost over $100 from places such as Wal-Mart and Amazon. This tax will fund transportation initiatives statewide.

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