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INDUSTRIAL PSYCHOLOGY - Making Sense of the Industrial Market
Registration is now open for the June 19 breakfast program as speakers including Ted Carlson, Josh Budish, Steve Buss and Tim Olsen debate & discuss the industrial market. This traditional June program draws a strong crowd, so take advantage to get on the list now.
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FROM THE CAPITOL
The Tax Conference Committee met the morning of Wedneday, May 8 at 8:30 and until 10:30 that night. Time was spent on four economic development projects: 3M in Maplewood, Emerson in Shakopee, Baxter in Brooklyn Park, Mayo in Rochester and MOA in Bloomington.
- In the morning session, they compared the differences in the Senate and House approaches to the projects.
- In the evening session they dug into the Mayo project and after asking if committee members had questions on the other projects, which no one did, they moved on to the tobacco provisions.
- They might reach agreement before the weekend, but on the other hand, this could go on into the following week. At this point, only a few people really know what's going on.
- The State General Levy business property tax increase hasn't come up in discussion.
A comment on the unifying themes of more money and more progressivity in the current tax plans at the Capitol:
"If nothing else, Minnesota appears to be positioned to become a popular research destination for scholars interested in investigating the timeless question of how far this lever (more money and more progressivity) can be pulled before creating collateral damage to economic growth, the stability of the tax system, and general state competitiveness."
Minnesota Center for Fiscal Excellence
"Taxation and the Session Homestretch," Fiscal Focus, March-April 2013
On behalf of all business property taxpayers, thank you to the impressive number of NAIOP members who are contacting their legislators and members of the Tax Conference Committee regarding the business property tax increases in HF 677.
"Costs matter to Minnesota businesses and job-creators. These tax increases fail the test of government supporting job creation and incentivizing businesses to expand in Minnesota."
NAIOP Minnesota's board of directors sends a letter of concern to Tax Conference Committee members and Governor Dayton
"Taxing business properties too aggressively will cause our tenants to invest elsewhere or disinvest here, causing stagnation or a decline in job creation and economic development."
| NAIOP IS ALSO APPLYING PRESSURE BY SUCCESSFULLY PLACING ARTICLES AND OP EDS
House and Senate tax bills misuse "fiscal disparities"
"Office absorption rates for the region have just turned positive in 2011-2012 after showing a net loss in occupancy from 2008-2010. The word used by those who understand this market is 'fragile.'"
"Legislators are proposing to subsidize one competitor in a way that removes much of the risk for that developer and does not require the accountability to the public that should come with such a large subsidy."
"What kind of policy would make office owners, who may already have challenges with vacancy, subsidize a competitor that might actually take one of their existing tenants?"
"From the Citizens League perspective," this is "a bad policy."
Bob DeBoer, Project Director, Citizens League
St. Paul Pioneer Press, Thursday, May 9, 2013
| Tax break for MOA is a hard sell for some
"It's an appealing funding source at the Legislature because the money doesn't go through the state budget. But it worries others. In its 42-year history, opponents say Fiscal Disparities never has been used to subsidize this sort of private development, but if the Mall of America opens the door, others will surely follow."
"But who draws the line of who's worthy of a subsidy?"
Bob DeBoer, Project Director, Citizens League
St. Paul Pioneer Press, Monday, May 6, 2013
| Taxpayers asked to subsidize Mall of America expansion
The Mall of America is looking to double in size and taxpayer money could be used to cover some of the costs.
KARE 11, May 6, 2013
| Mall plan riles CRE leaders
"Requiring businesses to finance their competitor's projects through an increase in property taxes is a serious misuse of the pool."
David Kordonowy, President of Steiner Development & 2013 President of NAIOP Minnesota
"Fiscal disparities was never set up to be a funding mechanism. ... It wasn't meant to be used like TIF as a funding mechanism. We just think that's bad policy."
Pat Mascia, Duke Realty, NAIOP board member and past president
Finance and Commerce, May 7, 2013
| You, every other business property owner, and your tenants should be concerned
Fiscal disparities again a target at the Minnesota legislature
As the demand for more local revenue sources has grown, proposals to tap the program for favored local public or private projects have grown more frequent and more creative. In 2013, the fiscal disparities program will redistribute approximately $565 million worth of tax base levy dollars around the metro area, according to the program's administrative auditor and the Department of Revenue.
Minnesota Real Estate Journal, April, 2013
| Finding Our Balance: Taxes, Spending and Minnesota competitiveness
The fiscal catch-22: Spend too little on essential physical infrastructure and human capital and productivity declines and economic growth suffers. Tax too aggressively, and businesses will choose to invest elsewhere or disinvest here, causing job creation and economic development to stagnate or decline.
Can a more challenging business tax and cost climate offset the benefits strong foundational competitiveness is expected to deliver?
Mark Haveman's PowerPoint presentation to the Public Policy Committee
The full study
| Working hard on your behalf-from NAIOP Corporate
Job Growth Is the #1 Driver of Commercial Real Estate
According to a new Cassidy Turley report, for every 100,000 net new office-using jobs created, vacancy typically falls by 60 basis points six months later.
More info on study
How Is U.S. Employment Shaping Up?
| FROM THE CAPITOL
The final budget dance has begun
After a steady flow of budget bills on the House floor appropriating general fund money for the 2014-2015 budget period, the House passed their tax bill raising $2.6 billion to pay for this spending.
On Tuesday, the Senate unveiled their tax bill, with revenue hikes of $1.9 billion, putting in place the final piece for budget deliberations at the Capitol in the coming weeks.
If the Senate passes their tax bill next week, as expected, negotiators from the two chambers and Gov. Dayton will try to hammer out a final tax package by mid-May.
Mark Haveman of the Minnesota Center for Fiscal Excellence cautions that none of the proposed DFL budgets seem very concerned with one hallmark of sound tax policy - competitiveness. "That's a good tax principle that deserves consideration," Haveman said.
Of particular interest to NAIOP in the Senate Tax Bill:
An increase in business property taxes of $220 million in the 2016-2017 biennium, through the state general levy, a property tax paid by business properties into the state general fund.
An increase in business property taxes in the seven-county metro area of $6 million annually to pay for the Phase II expansion of the Mall of America through the fiscal disparities pool.
Of particular interest to NAIOP in House Tax Bill:
A diversion of resources from the fiscal disparities pool to pay for the Phase II expansion of the Mall of America of approximately $6-9 million annually.
The granting of authority to cities to levy a street maintenance fee (another property tax) on properties to pay for street maintenance.
In early April, United for Jobs, a coalition lead by the Minnesota Business Partnership and the Minnesota Chamber of Commerce, began running ads attacking Gov. Dayton and DFL lawmakers for their purportedly spendthrift ways. The Senate bill is likely to exacerbate those tensions.
Watch the ads
| To members of the Senate Tax Committee from NAIOP Minnesota President David Kordonowy:
"We are concerned that regardless of how any diversion from the fiscal disparities program might be structured, metro area business properties will ultimately bear the burden of financing these projects, private or public, through an increase in the area-wide rate."
Read the letter
| Proposed street fees rile property owners
"I just think it's very disingenuous to say we want to provide property tax relief but then take it out of the other pocket and call it something else."
Kaye Rakow, Director of Public Policy, NAIOP Minnesota
Finance and Commerce, Wednesday, April 24, 2013
| From NAIOP Corporate: Working hard on your behalf
Stormwater Management
The U.S. Environmental Protection Agency (EPA) has considered implementing new stormwater regulations for commercial buildings for the past several years. Under a settlement agreement with the Chesapeake Bay Foundation, EPA agreed to promulgate a rule that would require commercial buildings to maintain the hydrologic characteristics of a new development site to that of undeveloped land.
Read more
Real Estate Coalition Guide to assist in completion of the EPA's information collection request
| FROM THE CAPITOL
The Budget
With the caveat that deficits and problems facing Minnesotans are not solvable in just one budget cycle, Senate and House DFL leaders are rolling out major budget bills this week. They have indicated that they plan to pass all of the budget bills for the Governor to sign by the end of April.
Summary of the Majority's Proposed Spending and Revenue Changes from FY 2012-13 to FY 2014
Legislation
SF 607/HF 745: Authorizes cities to establish municipal street improvement districts and to apportion street improvement fees, i.e. taxes, on all parcels located in the district. The bill has had numerous very lively hearings in both the House and Senate and will be considered for both omnibus tax or transportation bills.
Twenty-eight organizations have joined the coalition, lead by the Minnesota Auto Dealers Association, to oppose this legislation. Nine of them, including NAIOP Minnesota, testified in opposition to the bill in both the Senate and House this week.
Read the position statement and coalition list
SF 207/HF 208: Authorizes the use of the fiscal disparities (FD) pool to finance part of the expansion at the Mall of America (MOA).
NAIOP Minnesota's position remains the same: This will establish an unwelcome precedent and we are concerned that business properties will ultimately bear the burden of financing these projects. The legislation calls for the MOA's TIF district tax capacity to be distributed as outlined in the fiscal disparities table (link below). Note there is no fiscal disparities (FD) contribution from 2014-2033.
Fiscal disparities table
SF 1563/HF 1724: Repeals the current requirement for truth-in-taxation notices. Instead imposes a requirement for a truth-in-taxation budget meeting to be held on or before September 1 and requires local governments to provide certain budget information prior to and at the meeting.
The Nexus Task Force made a similar recommendation after their fall meetings. This bill will provide a great vehicle for NAIOP Minnesota's expenditure type reporting requirement. Bill authors are open to our suggestions.
The first hearing was on Tuesday night with Mark Haveman, Minnesota Center for Fiscal Excellence (MCFE), testifying in favor of the bill and recommending expenditure type reporting be included in the budget information.
| Faegre Baker Daniels Legislative Update - April 5
- House Property Tax Division Report
- House Tax Committee Action - changing the definition of a domestic corporation and making changes to the corporate franchise, individual income tax, and occupational taxes
- House Omnibus Jobs bill
| United for Jobs Launches Campaign Across Minnesota with TV, Radio, Newspaper, and Online Ads
Effort Will Focus on Spending Accountability
"Before the Governor and legislators ask for more from taxpayers, they need to go line-by-line through the budget, make sure they have cut the waste, and are accountable for every single taxpayer dollar they spend," said David Olson, president of the Minnesota Chamber of Commerce. "If they could save just two cents on every dollar spent, they would save over $700 million ($36.7 billion times .02), thus wiping out the deficit."
To learn more visit www.UnitedforJobsMN.com or follow @UnitedforJobs on Twitter.
Watch a TV ad "Highest"
Press release
Messaging document
Spending reform items
List of United for Jobs Coalition members
| Comparison of Individual Income Tax Burdens by State
Released by The Minnesota Center for Fiscal Excellence (MCFE), this analysis provides a detailed perspective on the structure of income taxation at the state level and how state and local income taxes impact individuals and households with similar incomes differently across the nation.
Why do rankings matter?
In today's world of increased mobility and competition for economic development, states are increasingly watching each other. States must balance the need to provide high-quality services and infrastructure improvements needed to encourage economic growth with the need to be fiscally competitive.
Read the full report
How much 'fairness' is too much?
The state's income tax system is already among the nation's most progressive
"Fairness often is 'politically convenient as an argument to raise more revenue,' the Center's executive director, Mark Havemen, told us. 'It's a lot easier to raise revenue by saying somebody else is not paying their fair share.' "
Read the editorial
St. Paul Pioneer Press Editorial, April 10, 2013
| NAIOP Minnesota gets a little press
Real estate: Cautious optimism
David Kordonowy, the head of Minnesota's NAIOP chapter (and Steiner Development), sees concerns over policy but a more positive outlook for commercial real estate.
"With the change in the party control over at the legislature, we want to make sure that our members are heard and our issues are understood."
David Kordonowy, President of Steiner Development & 2013 President of NAIOP Minnesota
Read more
Minnesota Business Magazine, April 2013
The Fiscal Disparities Program is totally reliant on the commercial-industrial tax base in the metro area and a subject of legitimate concern to NAIOP members and the thousands of business tenants in the buildings they own and manage.
Read more
Minnesota Real Estate Journal, March 2013
| From the Capitol
Budget bills will take center stage in April, when legislators return from the Easter recess.
Governor's Plan
- Raises taxes by $1.8 billion (8% increase)
- Increases new spending by $1.2 billion
- Raises personal income taxes to 9.85% on 54,000 filers (21,000 businesses), 4th highest rate in nation
- Raises corporate taxes by $297 million (15% increase), retains 3rd highest rate in nation
House Majority Plan
Raises taxes by $2.57 billion (10% increase)
Increases new spending by $1.1 billion
New income tax surcharge of 11% on income > $500,000, 2nd highest rate in nation
Senate Majority Plan
Raises taxes by $2 billion (8.5% increase)
Increases new spending by $1.4 billion
Raises personal income taxes, possibly on top 5% of incomes
Minnesota Chamber's comparison of the 3 plans
Minnesota’s “outlier” status if these proposals become law:
Personal income taxes—4th highest rate in the nation
Corporate income taxes—3rd highest rate in the nation
Minnesota is already an outlier on business property taxes:
Effective rates for an urban commercial building: top 5 in nation
Effective rates for a rural commercial building: 6th in nation
Effective rates for an urban industrial building: 10th in nation
Effective rates for a rural industrial building: 12th in nation
"Minnesota has a lower margin for error in being a significant outlier on business taxes and costs than other 'high tax, high service' peer states."
Finding Our Balance: Taxes, Spending and Minnesota Competitiveness
Analysis of 10 national competitiveness studies offers perspective on striking a balance between public investments and business costs.
Minnesota Center for Fiscal Excellence, February 2013
Press Release
Executive Summary
| Faegre Baker Daniels Legislative Update - March 22
- More budget details
- Health insurance exchange
- Silica sand mining regulations
| NAIOP Minnesota organizes meeting with District 44 legislators Senator Terri Bonoff and Representatives Sarah Anderson and John Benson and invites members of MSCA and the Minnesota and TwinWest Chambers of Commerce
"Overall, legislators were favorable on all/most of our concerns. The question remains: Can they influence their respective caucuses? They all expressed how important it was to hear from business leaders and job-creators."
Judy Johnson, TwinWest Director of Government Affairs
| From NAIOP Corporate - Working Hard on Your Behalf
A "carried interest", also known as a "promoted interest" or a "promote" in the real estate industry, is a financial interest in the long-term capital gain of a development given to a general partner, usually the developer, by the limited partners (investors). It is paid if the property is sold at a profit that exceeds the agreed upon returns to the investors. Carried interest has traditionally been treated as a capital gain for tax purposes.
Supporters of eliminating capital gains treatment for carried interest intend to pursue the effort in the 113th Congress in connection with any deficit reduction measures.
NAIOP opposes a tax increase on "carried interest" from capital gains rates to ordinary income rates that is intended solely as a revenue-raising measure or as a punitive attack on certain industries.
Read more
| Register Your Project by April 12 for the 2013 Awards of Excellence
Recognizing excellence in Minnesota commercial real estate, the Project Registration period is now open for the 30th anniversary of the NAIOP Minnesota Awards of Excellence. With 13 potential categories - including Hospitality, Mixed Use and Multi-Family Apartments/Condominiums - it just takes a few minutes to turn-in the abbreviated Project Registration form. This year's Awards of Excellence will be given on September 19 in the DQ Club Room at TCF Bank Stadium. View Details | Download Project Registration Form
| From the Capitol
Two bills add an additional tax/fee on property
SF 606/HF 511 - Authorizes local units of government to levy a "recreational facilities fee," i.e. a tax to finance parks, playgrounds, trails, recreational complexes, etc.
- Has not had a hearing in the House or Senate.
SF 607/HF 745 - Authorizes cities to establish municipal street improvement districts and to apportion street improvement fees, i.e. taxes, on all parcels located in the district.
- Passed on a party line vote in House Government Operations and Transportation Policy.
- "City managers love this idea."
- Has not had a hearing in the Senate.
A bill changing the Fiscal Disparities Program
SF 207/HF 208 - Authorizes the use of the Fiscal Disparities Pool to finance part of the expansion at the Mall of America.
- The bill has been heard in both the House and Senate Tax Committees. No votes taken.
- Pat Mascia, Duke Realty, and Michele Foster, Foster Real Estate Advisory Services, both members of the Fiscal Disparities Task Force, testified on behalf of business property owners.
| "Legislators really remember personal stories about the impact of proposed tax and policies on their businesses. They use those examples in committee discussions and floor debates."
House Minority Leader Representative Kurt Daudt
Guest speaker at the March Public Policy Committee meeting
| Demonstrating what can happen if the business community galvanizes with one voice
Governor Dayton dropped the B2B (business-to-business) part of his budget proposal.
A great big thank you to everyone who communicated with the Governor and their legislators.
A special thank you to public policy committee members who stepped up to the plate:
- Using various real project and development scenarios, calculated the impact on the CRE industry.
- With that information, briefed CEOs in advance of a meeting with the Governor.
- Mark Nordland, Nordland Partners, testified in the House Tax Committee.
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