Minnesota poised to hike Twin Cities' sales tax to fund affordable housing

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Sales taxes in the Twin Cities metropolitan area will get a 0.25% bump to fund affordable housing under a bill awaiting the signature of Gov. Tim Walz.

The bill gives a record $1 billion boost to housing programs overall, but most of it is one-time money from the state’s $17.5 billion budget surplus.

The legislation will create a new statewide rental voucher system for about 5,000 families a year, which will reduce waiting times for Section 8 subsidized housing, and provide aid for more than 5,000 first-generation homebuyers. About half the $1 billion total would go toward increasing the housing supply across the state.

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The Senate voted 34-32 Tuesday to approve the agreement, which was worked out by a conference committee. The House backed it on a 70-61 vote Monday. Walz supports it.

A bill awaiting Democratic Minnesota Gov. Tim Walz's signature would raise sales taxes in the Minneapolis-St. Paul metropolitan area by 0.25% to fund state affordable housing initiatives. (AP Photo/Steve Karnowski)

"This is a transformational investment that will improve housing stability for tens of thousands of people across the state by helping them afford their first house or pay their rent," said Democratic Sen. Lindsey Port, of Burnsville, the lead Senate author.

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The metro sales tax increase works out to $1 on each $400 spent on taxable items. Supporters say it's needed to provide ongoing extra revenue to fund affordable housing into the future. But Republican lawmakers criticized raising the tax when the state already has a massive budget surplus.

"A sales tax increase is going to further hurt those who are hurting the most," said GOP Sen. Eric Lucero, of St. Michael. He also said over-regulation is driving up housing prices.

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The Legislature is also considering another sales tax increase for the metro area to provide ongoing additional funding for public transit and roads. The House version of the transportation budget bill calls for a 0.75% increase. The Senate version calls for a half-point bump. The statewide base rate is 6.875%.