The Minnesota Multi Housing Association (MHA)
is a state-wide nonprofit trade organization. With nearly 2,100 members representing more than 250,000 housing units throughout Minnesota, MHA is the voice of the state's multi housing industry.

Legislative Recap 2015

By Todd Liljenquist, Director of Government Relations

Whether people remember the 2015 Session of the Minnesota Legislature for recording the fewest number of bills signed into law since statehood, or for the session in which the legislature passed no tax bill, or for the session of the Capitol reconstruction, or forget the session entirely due to a lack of memorable moments, it was a successful session for the Minnesota Multi Housing Association. A mere eighty bills passed the legislature and, with three bills vetoed by Governor Dayton, only seventy-seven bills were enacted into law during the Regular Session. A one-day Special Session in June resolved the three vetoed budget bills and averted a partial government shutdown.

The 2015 Session was unique for a number of reasons other than just the limited amount of enacted legislation. A state budget surplus of $1.9 billion provided welcome relief from a seemingly endless series of state budget deficits. No tax bill passed the legislature this year which means there will be more than $1 billion to spend in the 2016 Session. For the first time in more than a century, the legislature met in a location other than the State Capitol. The legislature was force to hold its Special Session in two large conference rooms in the State Office Building due to ongoing reconstruction at the Capitol. The entire State Capitol building is planned to be closed for the 2016 Session. The new Senate Office Building will open in January 2016 and the Senate will conduct all of its business in that building which includes space for temporary chambers for both the Senate and the House. However, House leadership has not yet agreed to use the building and may choose to use their existing chamber in the Capitol. The legislature is not scheduled to re-convene until March 8, 2016, which is an extraordinarily late start date even for a non-budget legislative session.

One of the many elements of a successful government affairs program is having dedicated, supportive, and active member involvement in the process. We would like to thank Lisa Moe for providing thoughtful oversight as chair of the Legislative Committee. We would also like to thank Angie French, Sandy Mariotti, Lisa Marvin, and Cecil Smith for their assistance on a CRP initiative pursued by the Minnesota Department of Revenue. 

Detailed explanation of new laws that specifically affect rental housing, as well as a brief discussion of proposed legislation and the ongoing issues they represent follow. 

New Laws

State Building Code Changes

Codifying what has been the practice for multiple building code adoption cycles, the Minnesota Department of Labor & Industry (DLI) shall, beginning with the 2018 edition of model building codes, adopt a new state building code every six years. National model building codes are published every three years so this statutory change will require the agency to skip an alternating code cycle. Under the new law, DLI must adopt the new code within two years of the published edition date. The most recent code adoption process lasted more than three years from initial agency review until the final state building code was published. DLI is provided exceptions to the six-year cycle for advances in construction methods, technology, or where necessary to protect health, safety and welfare of the public or to improve use or efficiency of buildings. In addition, each new model energy code must be acted on even if published more frequently than every six years.

Elevators in residential condominium properties with five or fewer floors may receive an exemption from the building code requirements for phase I and II fire safety operation if approval of the exemption is provided by the local building official and if the elevator was installed prior to January 27, 2007. This exemption is effective retroactive to January 29, 2012.

(Laws of 2015, Chapter 54, Article 1, Sections 6-7, 10)

Minnesota Radon Licensing Act

Contractors installing radon mitigation systems and companies performing radon detection and analysis services must now receive a license from the Minnesota Department of Health (MDH). A law passed in 2013 required purchasers of single-family residences to be provided with a disclosure of certain property information and general radon education materials during real estate transactions. Prior to this session’s change, if a seller or buyer chose to have a mitigation system installed, the radon contractor was not licensed by the state.

(Laws of 2015, Chapter 71, Article 8, Section 24)

Lead Rulemaking

MDH was granted rulemaking authority to oversee enforcement of the United States Environmental Protection Agencies (EPA) Renovation, Repair, and Painting (RRP) program in Minnesota. The EPA’s rules generally affect anyone, except homeowners, who disturb a painted surface on the interior or exterior in pre-1978 housing. Not only do renovation and painting companies contracted by rental properties need to comply with the RRP program but so do rental housing owners and property management employees who engage in work that is covered by the federal rules. An exception to the rules is provided for small surface areas, defined as surface areas totaling no more than 20 square feet on exterior surfaces or 6 square feet on interior surfaces.

Oversight of the program is currently provided by the EPA but the federal agency has recommended that outreach and oversight of the program be moved to the state level in order to improve effectiveness. MDH was granted rulemaking authority to implement oversight of the program in 2009 but the agency was unable to finalize rules at that time for a variety of reasons. The state agency sought and was granted reauthorization of its rulemaking authority this session. It is expected that MDH will convene an advisory committee, as was done in 2009, to provide input into the rules. MHA will participate in those discussions when they occur.

(Laws of 2015, Chapter 71, Article 8, Sections 27-33)

Workforce Housing

A 2014 pilot program permitted developers in two northern Minnesota counties to apply for grants to fund construction of multifamily workforce housing in those counties. This year several new proposals were discussed which proponents believe would spur development of market-rate apartments in Greater Minnesota communities. To that end, the legislature passed two workforce housing initiatives this year.

In some Greater Minnesota communities, job growth and business expansion has occurred but, due to a multitude of factors, housing development has not kept pace with job growth. Lack of private investment in these projects has been the most significant hurdle for many of these projects. One of the reasons investors have been reluctant to put money in some of these projects is that even before project construction is completed the property may be valued for significantly less than the cost of construction. This dynamic has made it extremely difficult to secure private financing for some of these projects.

The legislature allocated a one-time appropriation of $1,373,000 for fiscal year 2016 for the pilot program created during the 2014 session. Program requirements were also changed to increase the maximum grant award from the lesser of $400,000 or 10% of the rental housing development project cost, to $1 million or 25% of the project cost. This additional money and program changes are intended to assist finalization of any projects remaining from the pilot program in Pennington and Roseau Counties.

A grant program for workforce housing development with broader statewide application and funding was also created. The new program will be administered by the Minnesota Department of Employment and Economic Development (DEED) and will provide grants to cities and communities to build market-rate housing in low-vacancy areas outside the seven-county metro area that exhibit a need for greater rental housing. Appropriations for the program were provided at $2,000,000 each year. Grants under the program cannot exceed 25% of the project cost, and a city, local government, business, or non-profit must match at least 50% of the amount of the grant.

Proposals discussed during the 2015 session to address Greater Minnesota workforce housing issues were wide-ranging and expansive. None of the following proposals were enacted into law but they evidence the range of ideas entertained by the legislature in addressing this issue. The newly-created grant program was proposed to be funded at $20,000,000 annually with an additional $30,000,000 annually going toward a workforce housing tax credit program which would go to investors in workforce housing construction projects. Another proposal created an Office of Workforce Housing in DEED. Still another idea created a new class of tax increment financing (TIF) district for workforce housing wherein cities would need to meet certain criteria in order to qualify for creation of the TIF district.

(Laws of 2015, 1st Special Session, Chapter 1, Article 1, Section 2; Article 2, Section 2)

 

Property Taxes

Passage of a tax bill is not required by law and, in a highly unusual move for a budget year, the legislature chose not to pass one this year. Without a tax bill there were no statutory changes directly impacting property taxes. A nearly $2 billion surplus caused most observers to believe that the legislature would use at least some of the surplus funds to provide tax relief to Minnesotans, but passage of a tax bill was caught up in legislative negotiations over other issues, including transportation financing.

Proposed tax bills in each of the legislative bodies took very different forms. The House proposed cutting over $2 billion in taxes by phasing out the statewide business property tax, phasing out the tax on Social Security income, and providing a credit for residents with student debt. The Senate proposed cutting taxes by $460 million over the biennium by expanding the child care tax credit for families and increasing local government aid and county program aid. In light of there being no tax bill, existing tax codes will continue in the same formulation which all but guarantees a larger state budget surplus next session, and with that surplus and nearly $1 billion unspent funds from this session, significant tax reductions will undoubtedly receive serious consideration next year.

Numerous tax changes impacting rental housing were proposed and debated this session but did not become law. A perennial favorite proposal for municipalities was introduced and received serious discussion in the Senate. The street improvement districts proposal authorizes cities to create districts of any size or shape and tax the properties in the district for street, bridge, sidewalk, sewer and transit infrastructure construction, reconstruction and upgrades, and maintenance. Under the proposal, cities could impose ongoing charges of any amount without any limitation on the size of the fee, or how it would be apportioned among the various classes of property. A large coalition ranging from business organizations to non-profits to religious organizations opposed the proposal which ultimately failed to pass out of the Senate State and Local Government Committee. The authority was included in an initial version of the Senate transportation bill but was ultimately removed in future versions.

Reinstatement of a program that provides for a delay in property valuation increases due to home improvements was not included in the omnibus tax bill of either body. “This Old House” is a program that was phased-out of state law but would have been reinstated under this proposal. The mechanism has the ultimate effect of shifting the amount of valuation increase from the improved property onto all other properties in the taxing jurisdiction. Proposals in both legislative bodies would allow not only certain single-family homes to participate in the program but also certain businesses and apartment buildings. Discussion of this property tax mechanism occurred in both bodies but the proposal failed to gain serious consideration in either body.

The Minnesota Department of Revenue included in its policy bill a proposal which requires rental property owners to submit a copy of the Certificate of Rent Paid (CRP) to the department, in addition to giving a copy to the resident, in the content, format, and manner prescribed by the commissioner. Although the proposal was not enacted into law due to the fact that there was no tax bill, MHA will engage with the department on this issue if it chooses to continue to pursue this proposal.

Proposals NOT Enacted into Law

The following proposals were not enacted into law this session but represent issues which impact the rental housing industry and may be encountered in future legislative sessions.

1.      Notice period bill. A bill prohibiting enforcement of lease notice provisions that provide different notice periods for the tenant and the landlord passed to the Senate floor but did not receive a hearing in the House.

2.      Termination of lease due to infirmity or illness. A proposal allowing residents to terminate their lease based upon their infirmity or illness with a two months’ notice was introduced in both the House and the Senate but did not receive a hearing in either body.

3.      Required posting of pest control reports. The Minnesota Department of Agriculture proposed requiring all pesticide applicators to post a complete record in a public area of multiple-unit dwellings that a pesticide application was made on the property. The agency removed the provision from the department policy bill and will convene meetings over the interim to discuss the issue with interested parties.

4.      Mandatory lead testing, disclosure, and abatement. A bill requiring testing of all residential rental units built before 1978 every five years for the presence of lead-based paint or lead hazards was introduced in both bodies but failed to receive a hearing. Under the proposal, test results need to be disclosed to current residents and prospective residents, and if lead-based paint or lead hazards are found, then interim controls or lead abatement measures need to be completed.

5.      Vulnerable and Older Adult Financial Abuse Protection Act. The Minnesota Department of Commerce proposed requiring all department-regulated entities and their employees, including real estate brokers and salespeople, to report suspected financial exploitation of vulnerable or older adults; regulated entities would face a penalty of up to $5,000 for failure to report. All regulated entities were also required under the proposal to provide ongoing training, prepared by the department, to employees on recognizing the signs of financial exploitation of vulnerable and older adults. The proposal was included in the original department bill but was not included in any bills which passed to the floor of either body.

6.      Restrictions on resident criminal background check. A proposal prohibiting management from requesting criminal background information on the rental application and only allowing management to request the information once a rental unit is offered contingent on the criminal background check did not receive a hearing in either body.

7.      Expansion of eviction record expungement authority. Three proposals expanding the authority for expungement of eviction records failed to receive a hearing. One proposal automatically expunged all eviction records after three years and prohibited reporting of eviction actions until final disposition of the case. Another proposal broadened the reasons for expungement, while a third proposal mandated expungement if the parties agree to a settlement that includes expungement of the eviction record.

8.      Separate gas and water service meters in new construction. Mandating the building code to require natural gas and water service, in addition to electrical service, to be separately metered to individual dwelling units in newly-constructed buildings containing two or more units failed to be heard in either body.

9.      Additional single-metered building requirements. A bill broadly expanding the duties required of owners of single-metered buildings did not become law.

10.  CIC regulations. Significant changes to the laws governing common interest communities did not receive a hearing in either body. The proposal created an office of ombudsman for common interest communities where disputes could be investigated and potentially resolved, established a common interest community calendar program in district court, and required all associations to establish a dispute resolution process or use a statutorily-prescribed process.

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