5.10. SR 05-08-1995 - Laserfiche WebLink

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House completes work on omnibus tax bill Lithe if anything for cities Gary Carlson The House completed work on the Omnibus Tax bill on Tuesday April 2S. During a four hour floor debate, members of both parties mounted several attempts to modify the bill. However,. in the end, little in the bill changed from its original draft. Although the League and other city groups were successful in moderating several of the most onerous provisions, the bill still contain few, if any favorable provisions for cities. The most notable change involved the status of municipal bonds for income tax purposes. Under the bill originally adopted by the House Tax committee, only general obligation bonds issued by municipalities maintain their tax exempt status. The bill was amended by Representative Ann Rest (DFL-New Hope) so that all municipal bonds will maintain their tax exempt status. This amendment was a major victory in our efforts to preserve the tax exempt status of municipal bonds. In an effort to close the door this session on the tax exempt bond controversy, Representative Gene Hugoson (1R-Granada) offered an amendment to repeal all of the bond interest provisions in the bill. The Hugoson amendment was defeated on a 65 to 68 vote. City officials should still be concerned by the remaining provisions that would make state bonds taxable. The Ohio lawsuit that has been cited as the rationa}e for the bond interest provision could still ultimately lead to major changes in the Minnesota law. If this continues to be viewed as a potential state liability, we can expect future legislation to remove the exemption for all bonds. The League is looking for potential Congressional remedies for the issues raised by the Ohio lawsuit. We will. keep you informed on any development in that arena. The tax increment financing provisions included in the original ,~~"`~~ House tax bill were essentially L~ , Uh changed during the House floor debate. Representative Jim Girard (IR-L nd) offe ed dm City officials influence bond interest provisions Gary Carlson The changes offered to the bond interest provisions on the House floor by Representative Ann Rest were apparently heavily influenced by the calls and letters from city officials throughout the State. According to sources, the DFL caucus meeting shortly before the tax bill floor debate included a lengthy discussion of the provisions that would affect the tax. status of state and municipal bond interest income. Apparently many DFL legislators were skittish about removing the income tax exemp- tion, because it would not only raise income taxes but would increase governmental borrowing costs. The efforts of city officials that wrote or called their legislators ultimately paid substantial divi- dends. We were able to clarify with legislators the impact of the proposal and ultimately change of the position of the House. Unfortunately, the battle over chose provisions may not be over. .Although it may be less likely that tax status of municipal bonds would be reinstated in conference commit- tee, stranger things have happened. We may colt upon you again to communicate with not only the House members but the Senate members as well. (~ • Page 6 y r an amen ent to remove the pre-.1990 pooling restric- tions from the bill. After a brief debate, his amendment . • s defeate on a S4 to 7$ vote. For a more complete review of the TIF provisions, see the. bill summary on page 7. The bill still contains a provision to make $20 million of permanent cuts in HACA to cities, counties, special districts, and townships for the 1996 aid distribution year. These cuts are "permanent" because the base amount of HACA for each community would be permanently reduced into the future. by the amount of the 1996 cut. Consistent with earlier version of the bill, the final version of the House bill does not contain the governor's proposed $S7 million of 1995 aid reductions. The House tax bill will now be sent to the Senate where they will likely refuse to concur and force a conference committee be appointed. We expect this could happen as early as Thursday and the conference committee could convene late this week early or next week. Q~ LMC Cities Bulletin