You should be good. >> The hour of 12:00 having arrived, I will call the uh Wednesday, June 17th, 2026 Turk meeting to order. We're at this point uh one short of a quorum, so I think we'll just wait a little bit. And to our friends from the Senate, if you want to mute yourself so you don't go viral, um you just push this little button here to the right down and should mute your microphone. >> Thank you, Chair Davids. I rested my my nameplate on it, which is also creating a a permanent mute. >> That is awesome. So, we'll just pause for a little bit until we may have to recruit Mr. Willette up here or Ms. Bears to be the proxy for the commissioner, but we'll just give folks a little bit of time here. >> Commissioner Marquardt says the Zoom link is not working for him. Let's help him troubleshoot. >> It's a very quiet room. >> Mhm. I stopped doing the links, so hopefully >> [clears throat] >> No response. >> [clears throat] >> I wonder if he's calling in. I see a phone number now. Commissioner Markquart, do we have you on the phone? >> Yes, we do. This is This is Commissioner Marquart. >> Great, thank you. >> Sounds like a quorum to me, so we will call the meeting back to order here. Uh >> [clears throat] >> over the Tax Expenditure Review Commission, uh Wednesday, June 19th, 2026. And if we could have uh Ms. Schnabel, uh will you please take the roll? >> Representative Agbaje. >> Present. >> Agbaje present. Representative David. >> Present. >> David's present. Senator Clark. >> Present. >> Clark present. Senator Klein. Senator Curran. >> Present. >> Curran present. Commissioner Marquart. >> Present. >> Marquart present. Representative Robbins excused. Representative Smith. Senator Weber excused. Senator Klein. Representative Smith. Mr. Chair, we have a quorum. >> Okay, we have a quorum. Thank you for that. And I think uh I'll say that uh Representative Smith is also excused. So. Okay, the next order of business to approve the minutes from the last meeting, uh January 20th, 2026 they're before you. Are there any additions or corrections to the minutes that are before us? If not, uh Senator Clark, would you move the minutes, please? >> So moved, Mr. Chair. >> The minutes have been moved. All in favor, say "Aye." >> Aye. >> Aye. Opposed? Motion prevails. Minutes are [clears throat] approved from the January 20th meeting. Okay, so now we will go to the next order of business is in response to a request by Co-Chair Agbaje and myself propose a modification to the commission of procedures previously adopted by the commission 1210 of 25. The proposed change in the procedures is intended to streamline the process by which the commission will determine if it recommends a tax expenditure be continued or repealed or modified after the tax expenditure evaluation has been presented to the commission. Uh Mr. Larson from the LBO will describe the proposed modifications to commission procedures. And you are right up there, Mr. Okay, so please state your name and who you represent for the record, please. >> Chair Davis, Chair Bajji, and members. My name is Christian Larson, I'm the director of the Legislative Budget Office. Within your packets, you should have a document on the title it says on the top it says Procedures of the Tax Expenditure Review Commission as presented December 10th, 2025, revised June 17th, 2026. Uh these are the proposed changes uh for today. This would be the final document that would be approved. And I'll walk you through specifically what changes are being proposed. Uh under powers and duties, items B4, uh it reads at the subsequent Turk meetings after the full evaluation and after a quorum of voting members fill out their individual report, Turk members will discuss the recommendations and vote on whether a tax expenditure should be continued, be modified, or be repealed. The vote will be public. The proposed change would be the adding of a quorum of voting members. It currently reads and after members fill out their individual reports. So, you're adding in this piece that at least five voting members of the commission need to respond with their evaluations for that to be included and have uh move forward with a formal vote on recommendation to the legislature. Uh The second change is the addition of item B6. That reads Turk members may choose to bundle tax expenditures for voting purposes based upon the consensus of members participating in the public vote. Also, additionally, item B7 is proposed. Turk members can move to unbundle one or more expenditures from the bundle to tax Uh I'm Excuse me, let me start over. Item B7 reads, "Turk members can move to unbundle one or more expenditures from a bundle of tax expenditures based upon the consensus of members participating in the public vote." Uh and the ideas behind item six and seven is for some expediency purposes. If a tax expenditure a group of tax expenditures share a similar objective or maybe impact a particular uh intended par- uh group of people um then perhaps it might make sense to for expediency purposes of the commission to vote as a bundle if all all of those tax expenditures would receive the same recommendation whether it be to continue to repeal or modify. Um and then also giving the avenue for a member to say uh yes, we want to hear uh vote on these in a bundle but really I think that one's separate. If we use today's agenda as an example, you can look at the lawful gambling tax expenditure bundle which we will walk through later today. Um you may say yes, we want to take a a single vote on um items 11.1 11.1.01 through 11.1.05 but we want to hold 11.2.01 separately. That's what this tax this this uh update would do and so from there I'll pause for uh member discussion. Happy to answer any questions. >> Thank you, Mr. Larson. Uh questions from members. I I think it's important to note as you did that if there's a bundle, let's say there's four and a member has a issue or question with one of them, we can pull that back with just one member, correct? >> Mr. Chair, that's correct. >> Okay. Okay, questions from members. Or commissioner. Okay, with that um Representative Davids, I will move to adopt the updated tax expenditure review commission evaluation procedures as presented to the commission for consideration on June 17th, 2026. This updated version replaces the previous version adopted on 12 10 of 25 in accordance with Minnesota statute 3.8855. Any further discussion? Hearing none, all in favor say "Aye". >> Aye. >> Aye. >> Mr. Chair, apologies, we need a roll call because we have Senator Koran remote. >> Oh, that would be helpful. Yes, please call the roll. >> Representative Egabje. >> Aye. >> Egabje votes aye. Representative Davids. >> Aye. >> Davids votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Marquart. >> Aye. >> Marquart votes aye. Representative Robins excused. Representative Smith excused. Senator Weber excused. Five ayes, four excused. >> Motion prevails. Thank you very much. Uh let's move on here. Uh review the tax expenditure member evaluation summaries and vote on a recommendation to the legislature the following tax expenditures to be continued, repealed, or modified in accordance uh with statute 3.8855 subdivision five uh for tax expenditure uh evaluations presented on 12 10 2025 and 1 15 26. So, the next order of business is to review the tax expenditure member evaluation summaries from evaluations presented on December 10th and January 15th and vote on recommendations to the legislature for the following tax expenditures to be continued, repealed, or modified in accordance with procedures uh that we just approved. Uh the LBO Director, Christian Larson, will walk us through the tax expenditure evaluation summaries uh for the 13 tax expenditures under four separate bundles as listed on the agenda. Uh with that, let's turn it over to uh Mr. Larson to begin this portion of the agenda. Please state your name for the record. >> Chair Davis, Chair Baji, and members, again, my name is Christian Larson, director of the Legislative Budget Office. The Legislative Budget Office has prepared Turk member evaluation summaries in accordance with the duties outlined in Minnesota Statutes 3.8855 subdivision 59. In accordance with the procedures of the Tax Expenditure Review Commission as updated today. All right, recommendations made today by the commission will be included in the 2026 Tax Expenditure Review Commission annual report. We have LBO and Department of Revenue Tax Research staff available to respond to member questions as needed, as well as Tommy Shepherd of the Carl Vinson Institute of Government from the University of Georgia to speak to the data center equipment tax exemption evaluation if useful. The tax expenditures covered today were presented to commission on December 10th, 2025 and January 15th, 2026. Reports and related documents for the tax expenditure evaluations covered today are found on the reports page of the Tax Expenditure Review Commission website. Uh I've specifically there's two-page summaries for each of the evaluations for those uh for quick reference. The commission has uh Well, it says 13 tax expenditures, but I think today now we have 12 um based on the updated procedures. I'll mention that in a minute. We have 10 tax 12 tax expenditures on the agenda today for a vote on recommendations to the legislature. Each of the tax expenditures has a tabulated summary of member responses. We received responses from five members for each of the tax expenditures, and not all items in the forms were responded to. So, you not won't necessarily see a total of five responses for each statement in the tabulated results for each tax expenditure. Following a brief walk through of the tabulated results for each tax expenditure, the commission will consider making recommendations to the legislature for the various tax expenditures, some of which may be voted on as a bundle as described in the procedures of the Tax Expenditure Review Commission as updated today. Members will have the ability to make a recommendation on individual tax expenditure and not include a tax expenditure within a bundle if the commission so chooses. From there, I'll move on to the very uh the first tax expenditure in your packet. Uh that's tax expenditure 7.2.01, the credit for small brewers. I'll walk through this document briefly. If you would like me to go through it in more thoroughly, please let me know and I can I can do that. Uh so the credit for small brewers is a credit from the alcoholic beverage tax. It has an estimated annual revenue loss of $1.7 million in FY26. It was adopted in 1985 and does not have a sunset date. The objective of the credit for small brewers is to promote development and survivorship among small brewers. Uh just for reference on this first document as we walk through it, uh uh members have the ability to respond to what they think is trying to be accomplished with this tax expenditure. In this case, you see job creation and job maintenance, uh investment in particular industries, and competitiveness and strategic positioning of of businesses in Minnesota. Um I will skip the measurement and effectiveness rate rating summaries um and move on to the recommendation to the legislature. Um One member suggested that tax expenditure be continued as is, two suggested that it be repealed, and two suggested that it be modified. From there, I'll turn it back over to the chair for member discussion before moving on to other tax expenditures within this bundle. >> Thank you, Mr. Larson. Member discussion on the credit for small brewers. >> Mr. Chair. >> Uh Chair Agbaje. >> Um maybe this is where we could use our new procedures. It seems like the first two uh expenditures had five had the quorum had met the quorum, but the last one didn't. So maybe we could vote as a bundle for credit for small brewers and microdistillery credit, and then leave out the small winery credit for next time. >> That's That's a good idea. Um so let's make that into a motion. >> Okay. >> Representative uh Chair Agbaje moves uh that we uh remove at this time the small small winery credit. >> Mhm. >> Any discussion for members? All in favor say aye. Aye. Opposed. >> Mr. Chair, you've got folks online. I'm so sorry. You need a roll call. >> Yeah, please take the roll. >> Representative Agbaje. >> Aye. >> Agbaje votes aye. Representative Davids. >> Aye. >> Davids votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Markworth. >> Aye. >> Markworth votes aye. Representative Robins excused. Representative Smith excused. Senator Weber excused. Five ayes, four excused. >> Motion prevails. So, now we should take 7.2.01 and 7.2.02, the credit for small brewers micro micro distillery credit. Uh Chair Agbaje, would you like to move that? >> Yeah, I would um based on kind of the results that we got, it looks like people either want to change this or take it away. Um I don't know if folks feel strongly about making a recommendation to the legislature that we actually just go ahead and repeal these. Maybe that, you know, might light a fire under the legislature about what they actually want to do about it. So. That would be my motion, but I would leave it to the rest of the committee to see what they have to say. >> Discussion to the Agbaje motion. So, your motion is to vote to repeal. >> Yes. >> Okay. Discussion for members. >> Thanks, Chair. >> Chair. Senator Clark. >> Yeah, thank you, Chair Davids. I think we just had gotten through the summary of the first item, correct? Um the the second so, 7.2.02, the micro distillery credit. I'm wondering if there's anything additional in that that you'll want to to comment on or just >> Very good, Senator Clark. Mr. Larson, could you please explain the 7.2.02 micro distillery credit? >> To the dividend members, happy to do so. Again, my name is Christian Larson for the record. It the micro distillery credit is again a credit from the alcoholic beverage tax. It has an estimated annual revenue loss of $600,000 in FY26. It was adopted in 2014 and does not have a sunset date. The The objective of the micro distillery credit to promote the development and survivorship of small producers in the craft distillery market. Moving forward to the recommendation to the legislature, one member suggested it be continued, two suggested it be repealed, and two suggested it be modified. Again, there's comments for members to review as part of the member feedback on these on this tax expenditure. >> Okay, discussion on this one, Senator Curran. >> Thank you, Mr. Chair. I I agree with Co-Chair Bajji. I I think we should I would I would agree with the motion to repeal it and drive a little legislative action or a more thorough review. >> Okay, other comments for members, discussion? Okay, Chair Bajji renews her motion to bundle 7.2.01, 7.2.02, and the motion is to repeal. If you please take the roll. >> Representative Ikpoh Bajji. >> Aye. >> Ikpoh Bajji votes aye. Representative David. >> Aye. >> David's votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Curran. >> Aye. >> Curran votes aye. Commissioner Marquart. >> Nay. >> Marquart votes no. Representative Robbins excused. Senator Smith excused. Senator Webber excused. Four ayes, one no, three excused. Four excused, pardon me. >> The Ikpoh Bajji motion prevails. And again, what we've done members is we basically are just uh we didn't vote on the small winery credit. Okay, item next, we have lawful gambling tax expenditures bundle. Uh Mr. Larson. >> Mr. Chair, if I may ask a question, would you prefer that I walk through each of these in order and then turn it over for member discussion or would you like me to pause after each one? >> Chair Baji, go through them all. >> Let's go through all of them. >> Okay. >> And then when when you're done, members can ask questions on each specific item if they'd like. >> Okay. Uh so now we are moving to the lawful gambling tax expenditure bundle. Um starting with tax expenditure number 11.1.01, bingo at certain organizations. Uh this has an estimated annual revenue loss of less than $50,000 per year. It was adopted in 1985 and does not have a sunset date. The objective of the bingo at certain organizations tax expenditure is to simplify compliance with and enforcement of lawful gambling and reduce administrative burden. Uh in terms of recommendations, all five responses to the evaluation suggest that this tax expenditure be continued. Uh for tax expenditure 11.1.02, bingo at fairs and civic celebrations. This has a less than uh this has an estimated annual revenue loss of less than $50,000 per year. It was adopted in 1984 and does not have a sunset date. The objective of the bingo at fairs and civic celebrations tax expenditure is to simplify compliance with and enforce law enforcement and with and enforcement of lawful gambling and reduce administrative burden. Once again, all five response respondents to the evaluation template suggested that the tax expenditure be continued. For tax expenditure 11.1.03, infrequent bingo occasions. It has an estimated annual revenue loss of $100,000 in FY26. It was adopted in 1984 and does not have a sunset date. The objective of the infrequent bingo occasions tax expenditures to simplify compliance with and enforcement of law lawful gambling and reduce administrative burden. And members again responded with that the tax expenditure be continued with a five members responding with that recommendation. On tax expenditure 11.1.04, smaller raffles. This has an estimated annual revenue loss of $300,000 in FY16. It was adopted in 1984 and does not have a sunset date. The objective of the small raffles tax expenditure is to simplify compliance with and enforcement of lawful gambling and reduce administrative burden. And again, members suggested that five members suggested that the tax expenditure be continued. Tax expenditure 11.1.05, lawful gambling under certain conditions. This has an estimated annual revenue loss of $2.9 million in fiscal year 26. It was adopted in 1986 and does not have a sunset date. The objective of the lawful gambling under certain conditions tax expenditures to simplify compliance with enforcement of lawful gambling and reduce administrative burden. Uh in this tax expenditure, four members suggested that the tax expenditure be continued. One suggested that it be modified. And the final tax expenditure of this bundle, 11.2.01, the credit for certain raffles. This has an estimated annual revenue loss of less than $50,000. It was adopted in the year 2000 and does not have a sunset date. The objective of the credit for certain raffles tax expenditure is to is to direct a higher amount of net raffle proceeds used effective exclusively to relieve the effect of poverty, homelessness, or disability than would occur but for the credit. And the five respondents to this tax expenditure evaluation suggest that it be continued. For all of these, there is comments available for member review. And then I'll turn it over to the chair. >> Thank you, Mr. Larson. Uh discussion from uh commission members. >> Mr. Chair. >> Representative Agbaje. >> Um I would make a motion that we continue all six of the of the expenditures in the lawful gambling tax expenditure bundle. Uh the majority of members suggested continuing it, so I think that's a fair recommendation to make to the legislature. >> Thank you, Chair Agbaje. Uh further dis- We have a motion before us. Further discussion to the motion. Anybody online here? No, I think we're good. >> No, no one with a hand up. >> Okay, with that being said, uh Chair Agbaje renews her motion that we take the lawful gambling tax expenditure bundle uh and could we please take the roll? >> Representative of Agbaje. >> Uh I. To be continued. The motion is to be continued. To be continued. To continue the expenditures. I just want to make sure >> Yes, yes. And recommend legislature. Okay, I'm sorry. >> Yes, just wanted to clarify that. Yes, the vote's I. Agbaje votes I. Representative Davids. >> I'm with Co-Chair. I. >> Davids votes I. Senator Clark. >> I. >> Clark votes I. Senator Klein excused. Senator Koran. >> I. >> Koran votes I. Commissioner Marquart. >> I. >> Marquart votes I. Representative Robbins excused. Representative Smith excused. Senator Weber excused. Five I's, four excused. >> And the Agbaje motion prevails. Thank you, Vice Chair or Co-Chair, Vice Chair. >> Mhm. >> Co-Chair Agbaje. I'm sorry. >> No problem. >> Okay, item next, Mr. Larson. >> Mr. Chair, members, uh the next bundle is the residential utility services tax expenditure bundle. Uh and that begins with uh uh tax expenditure 4.1.14, residential heating fuels. This has an estimated annual revenue loss of $199,100,000. It was adopted in 1978, and this is an exemption from the general sales and use tax. The objective of the heating fuels and utility service tax exemption is to lessen the effective tax burden of lower income households and reduce the regressivity of the sales and use tax. Once again, members provided uh responses to uh uh several rating summary statements. Um and in terms of recommendations to the legislature, three members suggest that it be continued, and two suggest that it be modified. There are comments for your review. Moving on to tax expenditure 4.1.15, residential water services. Uh this has an estimated annual revenue loss of $28,900,000. It was adopted in 1978 and does not have a sunset date. This is again an exemption from the general sales and use tax. The objective of the heating fuels and utility services tax exemption is to lessen the effective tax burden of lower income households and reduce the risk of regressivity of the sales and use tax. In terms of member recommendations, four members suggest that it be continued, one suggests that it be modified. And again, there are comments for your review. Uh and then we have tax expenditure 4.1.16, sewer services. Uh this is again an exemption from the general sales and use tax. It has an estimated annual revenue loss of $116,100,000. $116,100,000. Uh and it does not have a sunset date. Uh the objective of the sewer services tax exemption is to lessen the effective tax burden on lower income households and reduce the regressivity of the sales and use tax. And in terms of recommendations to the legislature, three members suggest that it be continued, two suggest that it be modified. And that concludes this bundle, and I'll turn it back over to the chair. >> Thank you. I'll get a motion before so we can discuss it. Uh Representative Davids moves to recommend uh the bundle 4.1 .144.1.154.1 .16 uh tax expenditure be uh continued, and we can discuss that. To be continued in accordance with duties outlined in Minnesota Statute 3. uh 3.8855 subdivision 5. >> Nine. >> Discussion to the Davids motion. >> Mr. Chair. >> I have Co-Chair Bajji. >> Yeah. Um I think that's a perfectly fine motion. I think I would just want to put on the record for the Tax Committee to to consider that we have a number of comments in here, particularly when it comes to the residential heating fuels uh about if, you know, the best way to actually do this. So, this, you know, what I think we all are in agreement that perhaps this is something that should continue, but maybe it should be modified in some way. So, you know, whether or not the uh future tax committees want to actually look at this, I think it's just something to put on the record that they should, you know, look further as they seek to continue this tax expenditure. >> Thank you, Co-Chair Bajji. Senator Clark. >> Thank you, Chair. Uh I'm largely in in agreement with with uh Co-Chair Bajji. I think, you know, to really make sure we understand the objective of this uh for this tax exemption is to lessen the effect of tax burden of lower-income households and reduce the regressivity of sales and use taxes. Uh I think for the folks who are lower income, this is wonderful and and good and necessary. Um For folks who may be higher income, this is not reducing regressivity and not meeting the uh for them. And and so not meeting our the objective that we had set for this. So, I would encourage the tax committees to to continue this with a mild modification to look at the higher income deciles to go, is there a cap? Is there a a uh a different way to provide this because the the part that I I worry in part about with residential water services is we are in in particular and then sewer service as well. We aren't saying that there's a cap on how much water you should use on your your lawn, on your your facility. And that's going to in in part be subsidizing a overuse in some instances. So, should we find a way to, you know, put a cap on it, is what I'd encourage the tax committees to to uh examine a bit versus just all use um of of water, all use of heating fuels to ensure we're not subsidizing McMansions and and larger. Thank you. >> Further discussion from members of the commission. Okay, with that I will renew my motion. Uh please take the roll. >> Mr. Chair, and can you just clarify your motion? >> Yes, yes. Uh we recommend >> [clears throat] >> uh that the bundle tax expenditure should be continued uh in accordance with the duties outlined in Minnesota statute 3.8855 subdivision 5 uh 9. >> Representative Egabge. >> Aye. >> Egabge votes aye. Representative Davids. >> Aye. >> Davids votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Marquart. >> I. >> Marquart votes I, Representative Robbins excused, Representative Smith excused, Senator Weber excused. Five I's, four excused. >> And the motion prevails. Thank you very much. Mr. Larson. 4.2.12 >> Chair members, the final tax expenditure for consideration for recommendation to the legislature today is tax expenditure 4.2.12, the data center equipment exemption from the general sales and use tax. This has an estimated annual revenue loss of $95 million. It was adopted in 2011 and does not have a sunset date. The objective of of qualified data center equipment sales and use tax exemptions is to create jobs in the construction and data center industries. In regards to member recommendations, three members suggest the tax commission be continued, two suggest that it be repealed. I'll turn back over to chair for member discussion. >> Okay, thank you very much. So, let's get a motion before us and then discuss the motion. Whether we pass it or not, that's not our thing. Okay, so on 4.2.12, Senator Clark, could you move to recommend or I I can do it too, I guess. Oh, I got it. Representative Davids moves to recommend the tax expenditure, and we're referring to 4.2.12, data center equipment, to be continued in accordance with the duties outlined in Minnesota Statute 3.8855 subdivision 5 parentheses 9. Discussion for members. >> Mr. Chair. >> Uh, Chair, acknowledge you. >> Yes. So, I think this was one of our more engaging reviews, and so I just want to say thank you to the University of Georgia that helped us out with that. Um, you know, we had a number of comments I think during that review evaluation that we heard and then also based on the evaluation forms that members filled out. It does seem like there's a lot of questions. I mean one of the things I noticed with this tax expenditure is it was really useful at the beginning when it was first implemented. But since then it sort of like plateaued and even decreased in the amount of data centers that are now being built in Minnesota. And so I think it behooves us especially because as this area continues to be a potential for either opportunity or gain that I think we it makes sense for us to actually look at how we structure our data center tax exemption to make sure that we're either actually bringing in business or that we're actually bringing in the types of groups that we want to come to Minnesota. And so for me I think that this expenditure follows kind of like a um an initial interest and then it kind of falls off. And so I I would be really interested in seeing if the legislature can figure out a way to better to figure out if there's a better way to work with data centers especially because across the country so many other people are also trying to either attract or not attract data centers. So where is the best place for Minnesota to be in this space? And so I would actually recommend that I would recommend not to move forward on the motion to continue but rather move forward on a motion either to probably on a motion to modify just because we have so many questions. Thank you Mr. Chair. >> Okay, further discussion Senator Koran. >> Thank you Mr. Chair and I I agree again with the culture of body. I think the the time you know has passed since this was originally put in place and when you look at all of the all the host of issues and is it providing actual incentives not just the job perspective, but a holistic um net benefit to Minnesota? And is it clear? I don't think any of it's clear. It's been waning from a net benefit perspective. And so, I think uh I will support a recommend I won't support the recommendation to to renew, but I think uh to modify as well as I think we're all members of the legislature. There are a whole host of other uh issues that the legislature is dealing with with um people learning that we actually have data centers and there's going to be new data centers. Um how what they look like, how they operate, and to deal with energy and all of the other issues around it. Um I think a recommendation to modify would would also then fit with all of the other issues um that are before us with the data centers. Um so, I will not support the motion to continue. >> To modify. >> Mr. Chair. >> Uh >> Commissioner >> Commissioner Marquart. >> [laughter] >> Thank you very much. I feel like we're back in the days of uh COVID on the house floor with just the phone. I apologize. For some reason I can't get in on the link today. Um I mean, with this issue being uh you know, debated a lot in the last few years and so forth, uh I would go with continue and modify. I actually think if you're just going to modify, in effect, you're continuing and modifying. I don't know kind of how you distinguish the two. So, um I would not approve of just continuing, but I would approve of continuing and modify. So, I know that kind of throws another mix in the things, but uh that's where I'm at on this. >> Thank you, Commissioner Chair Garje. >> Um or actually, go to >> Uh Senator Klein. >> Thank you, uh Chair. I'm noting that uh Commissioner Gomez's hand is down as well. Um I don't think we can do what Commissioner Marquart said. In our rules we have an or between continue, modify, or repeal. But, I to Commissioner Marquart's point, I'm uh I always see modify as including a a continue or even a repeal part in it. So, it can mash it all together. For me on this, uh the the but for statement that came out of the Georgia study saying that 25% of data centers are built because of this tax. So, 75% are not. And I think we're also seeing with data centers now that their business model is to have data centers basically everywhere. They need to be close to they have redundancies across the system. And so, the early need to have an incentive to bring you to a location is waning in need on the business side. They want to be close uh it nanoseconds, microseconds matter in the speed of getting information from uh from the data center to a home or a business. And even at at the speed of which this information moves, it you see it in in stock trade as well. The closer that a stock trading facility is to their data center, be it they see it as an advantage even when it is nanoseconds. So, the the business of Google, the business of Meta is to be close to us. And I don't think they are seeing the need for a uh an incentive as necessary as it was when data centers were first coming online. So, I think that's uh for me part of the the but for, it isn't needed anymore. And then, part of what Senator Koran was talking about some of the the externalities of this. We need to continue to examine. Um you know, we chatted for a a bit this year let's legislative system, legislative session on e-waste. And uh as we're having that conversation as well, so data center equipment exemption that would include some of the the e-waste that uh would result in e-waste here. Are we then also incentivizing the creation of future garbage? And the answer is yes. Um it may be okay, but for me, I am opposed to the the current formation of the continue uh motion. I would supportive of either modify or repeal. Thank you, Chair. >> Okay, uh Chair Gomez. >> Thanks, Mr. Chair. Um I appreciate the chance to offer a couple comments even though I'm I don't get a vote. Um So, this is just it's it's an interesting time to be having this conversation. Um there's obviously an immense pressure on us to um you know, quote unquote compete with other states to offer um giant subsidies, giant piles of public dollars to the largest and most profitable companies that have ever existed literally on the face of the earth. Um those are that's the main beneficiary of this. Um this is an uncapped uh tax exemption. In Virginia, um their data center exemption just passed 2 billion dollars a year. It has become possibly the most contentious issue in their budget conversations. It's sort of you know, they're they're just in a really hard spot. And so, I just want to point out that those were the folks it was paid >> [clears throat] >> um you know, it was like it was like Virginia people paid Virginia uh hired guns that came to tell us about in our committee last year about how amazing this was, right? For that it's like this boon for the state of Virginia. I mean, meanwhile, it is literally blown a multi-billion dollar hole in the side of their budget. Having an uncapped data center sales tax exemption in the current economic climate is an incredible peril to our state budget. There is no other way to think about it. Um this has already grown from its original um from sort of the original revenue estimates that they thought was going to be like 12, 15 million dollars a year. It's over 100. Um these these hyperscale data centers, the one in Rosemount is going to cost us 20 million a year in in subsidies. And just to be clear, that's 20 million a year in subsidies to Meta, which is a giant profitable corporation that pays almost no taxes. Um what the argument that you that you get is, oh well, but this is such a boon for the local communities. Um the the the sales tax base will will um you know, provide all of these benefits and it will lower property taxes for local payers. However, just look around. Look at Hermantown. In Hermantown, uh I think that one I don't remember, that one's maybe an Amazon one. They're looking for local property tax abatements now from the local government. So, they come to the state and they get a state tax tax uh exemption. And and the justification for that is like, oh, it's going to be so good for the local communities. Meanwhile, the companies are having the local elected officials sign non-disclosure agreements, right? So, that they have a contract with the giant corporation, not the voters that voted them in, that they can't tell information to the voters about the deal, right? Which is so undemocratic, it doesn't matter what your political orientation is. Um and you know, so so there's just there are multiple issues with these things. It doesn't matter again what your political orientation is. Communities across the state and across the country are saying no to these things, and I just think it's very important for us to not make decisions to or or even a recommendation to the legislature to continue um a tax policy that truly, if we look around the country at the literal people who came and told us, "This is such an awesome idea." The the the paid shells for the industry who were former lawmakers from Virginia came and told us how wonderful this was. Well, now it's like tearing their state apart. Um this is it's the wrong time to to advance this. We need to be very careful um and thoughtful, I think, about um just about how we move forward with this technology or with with these this kind of infrastructure. Um I have [clears throat] a a study that I that I um brought up during our conversation last year. Minnesota, regardless of tax incentives, is is a very um it is an appealing place to put these to put to put data centers for a number of reasons. Because of our public investment in our public infrastructure, because of our well-educated workforce, because of our power because of our labor um our our our our uh the excuse me, the laborers who build um these facilities are trained and they build things safer and better than most other places in the country. Um We have a lot of clean water here. We have a very good and reliable grid here. Um the tax incentives are kind of the least of the concerns of these multi billion-dollar corporations as they make decisions about where to site these things. And so, we we shouldn't be paying people to do things they will already do. The The study that we got from the University, I think of Georgia, was very clear. Negative ROI on this. Negative return on investment. We have some people who are always saying like we need to run government like a business. Well, you would not spend something spend money on something that gave you a negative ROI in business. Um so, I I I just I really uh appreciate the chance to offer a couple comments. And I know that this is going to continue to be an issue that we discuss moving forward. And we really need to figure out how it is that we put um you know, the people of Minnesota, um our natural resources, our and frankly, the you know, solidness of our of our of our general fiscal position Minnesota's budget at the center of these conversations and not the interests of the largest corporations that exist, the interests of the wealthy, um you know, kind of the sort of um uh you know, kind of this this drumbeat of development of of these facilities. Uh those should not be our primary considerations. So, I Thank you, Mr. Chair, for the chance to to to offer some comments. >> And thank you very much, Madam Chair. Uh with that, what I'm going to do for further discussion is I'm going to uh withdraw my motion and put another motion where Representative Davis moves to recommend uh the the uh 4.2.12 tax expenditure be modified in accordance with duties outlined in Minnesota Statute 3.8855 subdivision 5 in parentheses 9. Um discussion to that motion. Uh Chair Abaji. >> Yes. Uh thank you, Mr. Chair. I appreciate you uh withdrawing the previous motion and then putting forward a motion for modification. I do think that that is probably the best place just because as we've heard there are so many concerns about how we do this in Minnesota from budget concerns to environmental concerns to water concerns to are these even the types of businesses that we need to be even further incentivizing in Minnesota because many of them are actually already here. So I think this is a conversation that both tax committees in the house and the Senate should continue on and I think our recommendation to them should be that you need to look really closely at how you would want to move forward with such an such an expenditure if they decide to do so. So I would support a motion to modify. >> Further discussion for members of the commission. Okay, with that can you please take the roll? >> Representative Agbaje. >> Aye. >> Agbaje votes aye. Representative Davids. >> Aye. >> Davids votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Marquart. >> Aye. >> Marquart votes aye. [snorts] Representative Robins excused. Representative Smith excused. Senator Weber excused. Five ayes four excused. >> The motion prevails. Thank you members. We will now move on to LBO presentation of tax expenditure evaluation reports. I want to turn back over to someone. >> Mhm. >> Okay. It looks to me like we have one, two, three four of them. >> I think it's three. >> Or three of them. Okay. Please state your name and who you represent for the record, please. >> [cough] [clears throat] >> I'm Kutcher Davis. >> Abaji and members, for the record my name is Vlad Flueraru and I'm an economist at the LBO. >> Co-chair Davids, Co-chair Abaji and members, for the record my name is Annie LeBeau and I'm a program evaluator with the LBO. >> Welcome to committee. Please proceed. >> Oh yes, thank you. So So today, Co-chair Davids, Co-chair Abaji and members, I'm going to present today evaluation on interest on contributions to a first-time homebuyer savings account. Uh so before I dive into the details of the presentation, so let me give you a brief outline of the agenda. So first, I'm going to provide some background information about the tax expenditure. Next, I will present the data used and the findings of the evaluation. And then after that, I will briefly mention some similar findings from a from from an evaluation from Colorado. And then after that, I will discuss the administrative burden of the tax expenditure and then I will conclude. So now for some background information. So as you all know, housing affordability has been a pressing policy issue or concern across the US and in Minnesota for the last few decades. So to help Minnesotans buy a first home, so the Minnesota legislature enacted a tax expenditure in 2017 allowing Minnesotans to subtract interest on contributions to a first-time homebuyer savings account from the federal adjusted gross income. The beneficiaries of this tax expenditure must be Minnesota residents and the account may be used to pay eligible costs related to the purchase of a first home. For example, costs might include down payment and closing cost. Since the enactment of the subtraction in 2017, on average, roughly 39 returns have claimed the subtraction. And this adds up to a total of 209 unique returns. Uh now some further background information with with respect to contribution. So, um individuals are allowed to contribute up to $14,000 each to the account. And the contribution limit goes up to $28,000 for married joint filers. The total lifetime contribution limit is $50,000 for individuals, and that amount doubles for married joint filers. And the maximum amount of of money allowed in an account is $150,000. Now so on that slide there, so the last bullet point is important um to to draw your attention to. Uh the fact that the Minnesota gets to subtract interest on contributions, not the amount that they contribute to the to the to the account. So, an example would be, let's say that someone, an individual gets to um invest $14,000, which is the maximum amount that you can contribute in 2026 at an interest rate of 5%. So, that individual will get to subtract only $700 uh from the federal adjusted gross income, not the amount that they they contribute, which is the $14,000. Uh next, according to the Minnesota Department of Revenue, if the tax expenditure were to be repealed, the income tax revenue change would be negligible. And then also, according to the tax expenditure budget of 2024, the foregone revenue of the subtraction is less than $50,000 a dollars a year. And if we were to add the total amount of of subtractions claimed by Minnesotans over the life of the tax expenditure from 2017 to 2024, the amount would be a little bit less than $250,000. And the Minnesota Department of Revenue applies a marginal tax rate of 8% to the tax expenditure budget. So, if we were to apply the 8% marginal tax rate multiplied by the $249,176,000, so that would give a total tax benefit of about $19,000. 19,924,000. So, all in all, this is a relatively small, very small tax expenditure. Next, we look at the objective of the tax expenditure. So, as approved by Turk in 2024, the tax expenditure seeks to incentivize Minnesotans to to to save for the first-time purchase of a home. So, next to evaluate the to evaluate the objective statement from the previous slide. So, the LBU relies or as usual on data from the on claims data from the Minnesota Department of Revenue. The LBU relies on home sales uh data from the Minnesota Realtors Association. And finally, the LBU relies on mortgage loans data from the National Mortgage Database from the Federal Housing Finance Agency. Now, so this slide is a summary of the overall findings of the evaluation. So, there are many tables and figures that can be found in the report. Um so, overall from 2018 to 2024, a total of 209 unique tax returns claimed the subtraction. So, this is equal to approximately 39 returns on average a year. So, out of those 209 unique returns that claimed the benefit, only four of them ended up being linked to a home purchase based on the residential homestead database from the Minnesota Department of Revenue. So, again, so to reiterate, so 209 unique claimants from over the life of the tax expenditure, and only four of them ended up buying a home. And this can be explained by the fact that the the average subtraction is $552. And then if you apply the 8% marginal tax rate that the Minnesota Department of Revenue usually applies to the tax expenditure budget, so if you multiply the 8% * 552, so that gives you an average of tax benefit of only $44. So, if when you compare the $44 tax benefit against the average, let's say, medium home sales price of 287 plus or the average mortgage loan of 250,250, so the LBO concludes that the tax benefit is too small when compared to the financial cost of buying a home. So, the the tax benefit provided by the subtraction, which is only $44, is too small to incentivize Minnesotans to buy a first home. So, next we turn to a similar some similar findings from Colorado. So, Colorado has a similar tax expenditure. So, it's fair to say that the Minnesota tax expenditure is a mirror image of the Colorado tax expenditure. So, just like Minnesota, so they they the tax expenditure of Colorado allows residents to subtract only interest, not contributions. And then there was an evaluation of the Colorado tax expenditure. And then to quote from that evaluation, so the first-time homebuyer savings account income tax reduction is not meeting its purpose of encouraging savings for the first-time purchase of a home because it has been used by few taxpayers and provides a small tax benefit. So, this is exactly the same findings for for Minnesota. So, next the LBO briefly looked at the cost of the tax expenditure. So, cost from the perspective of claim claimants or or filers and then cost from the perspective of DOR. So, you for claimants claimants have to use three forms to to file for the for the tax expenditure. So, one form is schedule M1, which is needed to register the account and report any withdrawals from the account and the dates and purposes of those withdrawals to see if they qualify for the for the benefit. Then residents have to use schedule M1M, which must be used for income additions and subtractions, but this form is not exclusive to the first-time homebuyer savings account. And finally, residents have to file an income tax. So, based on those three forms, so the LBO determines that the tax expenditure is not administratively too administratively burdensome. And then in reference to DOR, so they could not provide a breakdown on the estimated FTEs that is needed to administer the tax expenditure. So, to conclude, the Minnesota tax expenditure was enacted in 2017. It had expenditure that aimed to help Minnesotans buy a first home. And comparing the tax benefits of the of the of the tax expenditure again, which is $44 in tax benefits compared to the financial cost of buying a home. So, the LBO concludes that the tax benefit provided by the subtraction is too small to incentivize the first-time purchase of a home. And then finally, so the LBO had some just a couple of recommendations for the commission. So, one is at least 12 US states have allowed their residents to subtract both their contributions and their interest on contributions up to a maximum amount. So, they the commission might be interested in looking at those at those other structures of this of those tax expenditures in order to incentivize the first-time purchase of a home. And then the second recommendation related to the fact that marginal tax rate for low-income taxpayers uh uh marginal tax rate is lower than for high-income taxpayers. Uh so, low-income taxpayers benefit less from the from the from the tax expenditure. So, it might um So, the commission could look into transforming the tax expenditure into a refundable credit, which would be more which would have a more stimulative stimulating effect um and incentivize Minnesotans to buy a first home. So, with that said, so I would take I would like to take that opportunity to thank the um the Minnesota Department of Revenue for providing us with the data and then sending it in our staff for reviewing drafts. Um and thank you. So, I'm happy to answer any questions that you might have. >> Okay, thank you very much. On number one [snorts] there, we will go to questions now. And then we'll go to number two, and we'll see if we have time for number three. But, questions on item one. To the testify. Uh Chair Gwozdz. >> Thank you, Mr. Chair. And thank you to the LBO staff. Um I guess I'm just So it seems like we only have like 200 people who have this type of account anyway. Do we know how much education or awareness has been put out about this account since it was started in 2017? Or is that when the account was started, or is that just when the tax exemption was started? >> To the testify. >> Co- Co- Chair, Co- Chair Davies, and Co- Chair Agbaje. Yes, so I think they when they when they tax expenditure was was enacted, so there was a campaign um during the first year. But, that's something that's that was discontinued. Um and and and I would add that this small number of of claimants might be due to the fact that the tax benefit is is very small. So, if only 44 $44, so I don't think that the campaign would um boost the the number of of of claimants. >> Chair Gwozdz. >> Uh thank you, Mr. Chair, and thank you for that. Yeah, I mean I think this could be a really good idea, but based on kind of what we've seen here in Minnesota, and I guess Colorado has a similar experience, I would think that this uh needs to be completely restructured. We know that home prices continue to go up. I think here it says the average is about 287, but from the work I've done, you know, it's very much especially in parts of um the metro area and the sub you know, in in the in the city, you see home prices upwards of $300,000 all the time. So, $44 tax credit in a year probably isn't going to be helpful that much, but we have many programs to support people who want to be first-time homebuyers, and so I think if we were to do a tax expenditure program to complement those programs, it would also have to be of a similar hefty weight to ensure that they were um saving enough money or um making enough money back to be able to go towards a down payment or other household expenses. So, um I would definitely hope that this is something that as we go through our individual evaluations that we highly recommend to the legislature that they either modify this or probably repeal this and start over. Thank you, Mr. Chair. >> Thank you, Chair Bajje. Questions from commission members? Other questions? Otherwise, we'll move to number two. Questions? Let's go to number two. >> Okay. Co-chair Davids, Co-chair Bajje, and members, for the record again, my name is Annie Wamu, and I'm a program evaluator for the Legislative Budget Office. >> Welcome to the committee. >> I will be presenting with my colleague, Mr. Fleurmond, on the LBO's evaluation of the Minnesota home mortgage interest deduction. I'll provide some background information about the evaluation, and then pass it off to my colleague to discuss the evaluation findings. To provide some background on the Minnesota home mortgage interest deduction, the Minnesota MID is an itemized deduction. Taxpayers must forego the standard deduction, and mortgage interest is is deductible on up to $750,000 of debt used to buy, build, or improve a principal or secondary residence. If the debt is used for any other purpose, the threshold is $100,000, and if more than one home is involved, the threshold applies to the combined amount of debt. Prior to 2016, Minnesota statutes had followed the federal Internal Revenue Code utilizing modifications to account for any differences between federal and Minnesota laws. In 2017, the Tax Cuts and Jobs Act made amendments to the Internal Revenue Code at the federal level. In 2018, the MID was a separate subtraction in the Minnesota tax return. And in 2019, Minnesota conformed to the TCJA and implemented its own set of amendments for allowable itemized deductions including the MID. The MID has an estimate of annual revenue loss of 49.4 million in fiscal year 2024 and is projected to increase to 74.9 million in fiscal year 2027. If the tax expenditure were repealed and revenue is held constant, each income tax rate could be reduced by 0.023 percentage points. This is an updated estimate from the Department of Revenue Tax Research Division and differs from estimates provided in the 2024 tax expenditure budget. The objective of the Minnesota home mortgage interest deduction is to recognize expenses incurred in generating personal income or wealth and encourage home ownership at all levels of income. I'll now pass it off to my colleague, Mr. Fleurimond, to discuss in more detail the evaluation findings. >> Please proceed. >> So, thank co-chair Richardson and co-chair Bajen members. For the record again, my name is Vlad Fleurimond and I'm an economist with the LBO. So, I'm going to present the findings of the evaluation. With respect to the scope of the evaluation, so the LBO analyzed home mortgage interest deduction claims data from the Minnesota Department of Revenue and then the LBO conducted a literature review um on the impact of the home mortgage interest deduction on home ownership. And finally, the LBO examine the administrative burden of the Minnesota home mortgage interest deductions from the perspective of both uh filers and DOR. So, we first turn to the findings. So, overall set of findings um emerged from our analysis. So, first, uh fewer Minnesotans claim the home mortgage interest deduction after 2017 due to the doubling of the uh standard deduction after the TCJA. Uh the second set of findings relates to the fact that high-income uh Minnesotans disproportionately benefit from the home mortgage interest deduction. Uh uh the third uh finding relate is based on a review of the academic literature um that suggests that the home mortgage interest deduction has no impact on home ownership. And finally, the LBO determines that the home mortgage interest deduction is not administratively burdensome either from the perspective of DOR or from the perspective of claimants. And so, now I'm going to go um over each of those four findings in more detail in the slides that follow. So, the first uh finding So, this is a summary of many figures and um and tables in the report. And then um you can find figures in the appendix of the report. So, overall, itemized deductions dropped after the 2017 TCJA doubled the standard deduction. So, fewer Minnesotans chose um itemized deductions after 2017. So, for example, in 2017, 59% of Minnesotans itemized versus only 6% through 2021-2023. Um a similar downward trend in I in the number of itemized deductions can be observed across all income deciles. Overall in 2017-2023, high-income Minnesotans are more likely to to itemize their deductions. Um so it it might be useful to note that all the provisions of the TCJA, such as the state and local taxes, the SALT deduction cap of 2018, uh might likely might also contribute to the decrease in the number of itemized deductions. So before 2017, there was no cap on on on SALT. Um so the TCJA TCJA imposed a cap on SALT, so that makes it less attractive um for people to to choose to itemize. So the next set of findings, or the second set of findings, relates to the um number of MID claims. Um since fewer Minnesotans itemize after 2017, MID claims also dropped um after 2017, again due to the TCJA that doubled the standard deduction. Um in in 2017, for example, an estimated 7 um 750,000 plus filers claimed the Minnesota home mortgage interest deduction. So that number in 2023 dropped to 118 plus uh filers. Uh so the year 2018-2019 shows the largest yearly percentage decrease at 68%, and so this is consistent with the TCJA story that doubled the standard deduction. So overall, the percentage of MID claimants in each income decile decreased from 2017 to 2021. So the next set of findings relates to the um the income distribution of beneficiaries. So the the the moral of the story is that high-income Minnesotans benefit more from the from the um Minnesota MIMID. So, in 2017, 30% of filers in the highest income decile claimed the MIMID compared to only 5% of filers from the lowest income decile. From 2019 to 2023, so 10 to 16% of filers in the highest decile claimed the MIMID compared to only 1% of filers in the lowest income decile. Um and one of the numbers were in 2019, the lowest 70% of all tax filers received only 22% of MIMID benefits. And then in that same year, the highest 9% of tax filers received over 50% of the MIMID benefits. So, again, um to summarize this slide is that so high-income Minnesotans benefit more from the from the Minnesota home mortgage interest deduction. So, the next set of findings relates to the impact of MIMID on home ownership. So, for that, so the LBO relies on a review of the academic literature, which is uh voluminous. Uh so, a 2018 report from the Federal Reserve Bank of St. Louis finds that the home mortgage interest deduction encourages the purchase and construction of larger homes. And a 2017 US Congressional Research Service report concludes that the home mortgage interest deduction is ineffective in promoting home ownership because down payments, not mortgages, are a higher barrier to home ownership. Uh more more from the from the literature from the literature. So, handsome and 20 12 um fou- found that the MIMID increased the size of home purchase, but no relationship exists between um the home mortgage interest deductions and home home ownership. And then finally on that slide, so Hilber and Turner um concludes that the home mortgage interest deduction is um an ineffective policy to promote home ownership. So, more more from the academic literature, so Glaeser and Shapiro in in 20 and 2003 um concluded that the home mortgage interest deduction is a poor instrument for encouraging home ownership because it is targeted at the wealthy who are almost always home owners. And now shifting gears, for example, to other countries, so Buist and company in 2013 um concluded that the home mortgage interest deduction does not increase home ownership rates in European countries. And in other examples from any European countries so um by Gruber and company that that um has a precisely estimated zero effect of of of the um home mortgage interest deduction on home ownership in Denmark. And then finally on that slide, so there was an evaluation in Oregon that um of the state level MID um in Oregon that found that the um home mortgage interest deduction is regressive and does not encourage home ownership. So, um to summarize those two slides, so the previous slides in in in that this slide and so there [laughter] there is overwhelming evidence from the academic literature that the home mortgage interest deduction does not encourage home ownership. Next, so we turn to the um administrative burden of the of the home mortgage interest deduction. So, based on the eligibility criteria, the number of supporting documents needed to receive this incentive, so the LBO um concludes that the this tax incentive is not too administratively burdensome. Um so, taxpayers have to use one form, which is schedule M1SA for for itemized deductions and there is no income threshold and no additional filing is required. And then from the perspective of the Minnesota Department of Revenue, so approximately 0.5 FTE is needed to look at specific issues with the M1SA form. So overall, this is not a tax expenditure that is administratively burdensome. So to conclude, so the Minnesota legislature enacted the MID way way way back in 1933. And that that tax expenditure has a dual objective. So one is to recognize expenses incurred in generating income or wealth and then the second objective is to encourage home ownership at all levels of income. So to repeat the four findings of the evaluation, so one is MID claims decrease after 2017 due to the doubling of the standard deduction. Second, high-income Minnesotans receive most of the MID benefit. Third, the academic literature suggests that the home mortgage interest deduction does not have any impact or does not incentivize home ownership. And finally, the LBO determines that the MID is not administratively burdensome. So I would like to take this opportunity to thank the our colleagues from the Minnesota Department of Revenue for providing us the data and then from Senate and House staff for reviewing drafts. And and so thank you. I'm happy to answer any questions that you might have. >> Thank you very much for the presentation, both of you here. Uh questions for either of the testifiers from commission members. Okay, thank you very much. Uh what we're going to do, members, is we're going to skip number three for now. That's a little longer presentation. I don't want to cut that short at all. So, that'll be moved to the next meeting, but we uh I'd like to go to item six uh on the agenda here. The next order of business uh is a presentation on three tax expenditure initial reviews to be followed by a member vote on the proposed objective statements. Uh at this point, I'll turn over to uh Mr. Larson. >> Uh Chair Davidson and members, I'll give a brief description of what we're going to cover here because uh this particular group of the commission hasn't done this yet. So, just a reminder of what the initial reviews are, and then I'll turn over to LBO staff to walk us through the initial reviews. But, um So, Minnesota statute 3.8855 subdivision 4A requires an initial review for each tax expenditure. An initial review includes the commission identifying an objective for each tax expenditure and allows for possible metrics for evaluation to be identified. So, to to kind of support this effort, the LBO reviews the legislative record to develop an objective statement. So, if there's something stated on the record that says this tax expenditure is is trying to accomplish X, we just mark that down and send it to and present that to you all so that you understand that that's what's trying to be accomplished. If that's not that straightforward, we will then uh review um similar legislation in other states and see if there's an objective defined for for similar legislation in other places. I will also review industry and academic literature to see if there's discussion on the topic of what is trying to be accomplished with whatever piece of of um whatever tax expenditure we're looking at. At that point, the commission will consider an objective proposed by the LBO. Uh you all will then make an adjustment any adjustments you want to the objective statement and then take a vote to approve that objective statement. Once an objective statement is approved, the LBO can then move forward uh to perform a full perform a full evaluation on behalf of the commission and then we'll come back and present similarly like we just did. Um so from there I will turn back over to you, Chair. >> Okay, thank you very much. Uh let's start with uh one metropolitan agricultural preserves land. Who would like to start with that? Please state your name and uh who you represent for the record, please. >> Yep. Chair Davids, Chair Bajaj, members. For the record, my name is Thomas Rainey and I'm a program evaluator at the LBO. >> Allow us one moment to get the slides set up, please. >> Okay. Uh I will be summarizing three tax expenditure initial reviews today. Um first the metropolitan agricultural preserves land, which is a preferential valuation provision within the property tax. And second, the metropolitan agricultural preserves credit. And third, we have the special use valuation, which is a preferential valuation provision within the the estate tax. And for each initial review, I'll be summarizing some brief background uh information, the proposed objective statement, as well as some basic uh uh performance measures that could be used in a full tax expenditure evaluation. So, agricultural land in the seven-county metropolitan area is eligible for preferential valuation if it is within an agricultural preserve. To qualify, the owner of land that is in a long-term agricultural use must receive approval of the local unit of government and must sign a covenant that the land will remain in agricultural use. Generally, the land must be at least 40 acres and be used in the production of agricultural products. Wetlands, pasture, and woodlands accompanying such land also qualify. Land in the Metropolitan Agricultural Preserves Program, or Ag Preserves for short, is valued according to its agricultural use, not the amount it would likely sell for on the open market. For example, when land designated as Ag Preserves in a high-growth residential area is valued based solely on its agricultural use, not based on the substantially higher value it would command if sold to a land developer for its highest and best use, again in this case, residential development. Ag Preserves designation continues until either the landowner or the unit of government exercising planning and zoning authority initiates the withdrawal process, although land must be committed to the program for a minimum of 8 years. The proposed objective of the Metropolitan Agricultural Preserves Act is to encourage agricultural use retention on land specifically located in close proximity to the Minneapolis-Saint Paul Metropolitan Area. The objective statement is based on uh language used to describe the program in the Minnesota Department of Revenue's Auditor-Treasurer Manual, and corroborates language of the enacting bill. Some potential metrics and performance measures are as follows: Ag Preserves property values over time, median and average amounts by which preferential valuation reduced tax liability, the longevity of properties in Ag Preserves, a review of land preservation policies in other states, the geographic geographic distribution of Ag Preserves land, and tax shifts due to the program. I'll pause here to take questions on Ag Preserves land and for members to vote on the proposed objective. >> Okay, questions from members on one. Thank you for that, Mr. Rainey. Senator Clark. >> Thank you, Chair. Um in terms of the geographic boundaries Seven-county metro area, okay. Thank you. I just wasn't finding it fast enough. Thank you. >> Chair Agbaje. Okay, questions from other members. And I'll be making a motion to vote on the proposed tax expenditure objective for consideration on the second page of the handout on this. Uh so, Representative Davids moves to adopt the proposed tax expenditure objectives for those tax expenditures presented to the commission for consideration on 6 17 26 by the Legislative Budget Office for the purpose of evaluating those tax expenditures and directs the LBO to proceed with the tax expenditure evaluations in accordance with Minnesota Statute 3.8855. Discussion to the Davids motion. And you can read what the objective is right on your sheet there. >> And that's just for the first one. >> Yeah, we're just doing the first one. Yep, just the first one. Any further discussion? Please take the roll. >> Representative Agbaje. >> Aye. >> Agbaje votes aye. Representative Davids. >> Aye. >> Davids votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Marquart. >> Aye. >> Marquart votes aye. Representative Robins excused. Representative Smith excused. Senator Weber excused. Five ayes, four excused. >> Thank you. The motion prevails. Let's go to item next. Mr. Rainey, the Metropolitan Agricultural Preserves Credit. >> Uh Mr. Chair, again for the record, my name is Thomas Rainey with the LBO. One moment, I'll I the slides pulled back up. So, in addition to the preferential valuation discussed on the previous slides, uh property in the egg preserves program also receives a property tax credit. The credit is based on the difference in tax computed at the local uh tax rate and the tax computed at 105% of the previous year's statewide average uh local tax rate for property in townships. And the minimum credit is $1.50 per acre. Each metropolitan county imposes a $5 surcharge on the registration of mortgages and deeds, half of which is deposited in the county's conservation fund to reimburse taxing jurisdictions for revenue foregone by the tax credit. If this revenue source is in inadequate, the balance is covered by the Minnesota conservation fund. If both sources are inadequate, the remainder is covered by the state general fund. The egg preserves land and the egg preserves credit share the same proposed objective. To encourage agri- agricultural use retention on land specifically located in close proximity to the metropolitan the Minneapolis-Saint Paul metropolitan area. Again, the objective statement is based on language used to describe the program in the Minnesota Department of Revenue Auditor Treasurer Manual and corroborates the original language of the enacting bill. Uh similar metrics proposed for egg preserves land could be used to evaluate the egg preserves credit. Um such as egg preserves property value over time, the median and average amounts by which preferential uh valuation reduced tax liability, the longevity of properties in egg preserves, a review of land preservation policies in other states, and the geographic distribution of egg preserves land. I'll pause here to take question on the egg preserves credit and for members to vote on the proposed objective. >> Thank you, Mr. Rainey. I think uh we should be discussing this when we have a motion before us. So, I will move uh to adopt proposed tax expenditure objectives for uh those tax expenditures presented to the commission for consideration on 6/17/2026 by the Legislative Budget Office for the purpose of evaluating those tax expenditures uh and directs the LBO to proceed with tax expenditure evaluations in accordance with Minnesota Statute 3.8855. Discussion from members. Any hands up here? Uh please take the roll. >> Representative Akbaje. >> Aye. >> Akbaje votes aye. Representative Davids. >> Aye. >> Davids votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Marquart. >> Aye. >> Marquart votes aye. Representative Robbins excused. Representative Smith excused. Senator Weber excused. Five ayes, four excused. >> And the motion prevails. Let's go to item next, the special use valuation, Mr. Rainey. >> Chair Davids and members, um so the last initial review presentation is a special use valuation, which is a preferential valuation provision within the estate tax. So, property is generally included in an estate at its fair market value on the date of death. Uh fair market value is a property's value based on its best possible use. Uh however, property which is used in a farm or other closely held business may be valued at its farm or business use value, even though it is less than the market value. Specified conditions must be met in order to qualify for this treatment. The Minnesota estate tax applies to all assets of a decedent, including real property, before they are distributed to their beneficiaries. The value of a Minnesota taxable estate is multiplied by a graduated tax rate between 13% to determine tax liability. The decrease in value to this to due to the special use valuation tax expenditure cannot be more than a specified amount, which is indexed for inflation and is $1,390,000 for deaths in 2024. The estate tax is administered by the Minnesota Department of Revenue. The proposed objective of special use valuation is to help preserve family-owned farms and closely held businesses by lessening the burden of estate tax with the intent to encourage heirs to continue farming. This objective of special use valuation was not explicitly stated in the Minnesota legislative record, but there is a stated objective for similar federal for a similar federal provision. Depending on available data, the LBO may consider the number of properties that qualify for special use valuation over time, the median and average property values that have qualified, an overview of similar policies in other states, and use of land following inheritance. I'll I'll stop here to take questions on special use valuation and for members to vote on the proposed objective. Thank you. >> Okay, thank you very much, Mr. Rainey. Um I will make the motion so we have something that we can discuss. Um I will >> Uh Representative Davis moves to adopt the proposed tax expenditure objectives for those tax expenditures presented to the commission for consideration on 6/17/2026 by the Legislative Budget Office for the purpose of evaluating those tax expenditures and directs the LBO to proceed with tax expenditure evaluations in accordance with Minnesota Statute 3.8855. Discussion from commission members. >> Now, please take the roll. >> Representative Egabaje. >> Aye. >> Egabaje votes aye. Representative Davis. >> Aye. >> Davis votes aye. Senator Clark. >> Aye. >> Clark votes aye. Senator Klein excused. Senator Koran. >> Aye. >> Koran votes aye. Commissioner Marquart. >> Aye. >> Marquart votes aye. Representative Robbins excused. Representative Smith excused. Senator Weber excused. Five ayes, four excused. >> And the motion prevails. Thank you very much, members. And we we're going to wrap it up at this point. Maybe Mr. Larson could go over the what we have so far on the agenda for the next meeting. You will be notified of any changes. >> Uh chair, members. So, the next meeting we have will will come back to the um tax expenditure evaluation that we did not cover today. The mortgage registry tax expenditure evaluation figure which are loans and government housing and deed transfer tax expenditures. We also have the open space tax expenditure evaluation that will be presented. We will have the voting on the tax expenditures that were presented today. And then we'll have initial reviews as well. Um and just an additional announcement for the members. So, previously we sent out some fillable PDFs after each meeting with the ability to respond in those fillable PDFs. We have updated that now to have a it's like a it's an online software that allows for survey data to be collected. And so, we'll email you with a link. From there you can go in and just submit your your evaluation review in that within that link. If you'd rather print out a copy and and fill out paper copies, certainly you can do that as well. As well, and we can run over and and pick that up from your office if that's what you prefer. >> Okay. And thank thank you for that. So, that's how we'll proceed. Uh anything for the good of the order, Chair Egabaje? >> No, thank you so much. >> Okay, with that, good government all the time. We are adjourned.