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Erik Burgess, Published December 22 2012

Minnesota state lobbyists: Tip credit won’t fly

MOORHEAD – State lobbyists for Moorhead are warning local leaders that pushing for a restaurant tip credit system during the upcoming legislative session would be unwise.

The City Council has recently been weighing the idea of lobbying for a tip credit in Minnesota to match North Dakota’s. Council members have stated that bringing new restaurants to Moorhead is a No. 1 issue for many residents.

In North Dakota, hourly wages for servers are lower than minimum wage because tips are counted toward income. In Minnesota, employers must pay tipped employees a higher hourly amount, which can be seen as a hindrance in restaurant growth.

But according to a letter addressed to city staff, Moorhead’s two Capitol lobbyists say that pursuing “anything related to a tip credit is high risk,” citing the recent influx of pro-union Democrats into both Minnesota chambers.“No amount of resources or commitment will change that reality,” Kevin Goodno and Tim Flaherty wrote. “The ‘Tip Credit’ in whatever form, raises the ire of the unions. With the current legislative make-up this is problematic.”

Goodno is out of Fredrikson and Byron, a Minneapolis law firm, and Flaherty is from Flaherty and Hood, a St. Paul law firm.

The council allocated up to $10,000 in August for a restaurant study, including analyzing how a tip credit would work here.

Councilman Mark Altenburg said he recently met with Moorhead’s newly elected state representation, and they agree with the lobbyists.

“If we call it ‘tip credit,’ it’ll die. Unions will be up in arms, and it’ll go away,” Altenburg said. “We don’t want to do anything at this point to threaten our Border Cities credits and our disparity credits that (Sen. Keith) Langseth and (Rep. Morrie) Lanning worked so hard to get.”

Altenburg said the results of the restaurant study will be available soon. The study analyzed restaurant growth on both sides of the river.

A tip credit may not be totally out of the question, though, he added. Local legislators are discussing other options, like tucking a similar program into the Border Cities legislation.

“It would be, you know, a ‘hospitality industry disparity tax credit’ or something like that,” Altenburg said.

‘Unstable’ legislative environment

In their letter to the city, lobbyists, Goodno and Flaherty say the overall legislative environment is “unstable,” pointing to changes in Capitol leadership after Democrats gained the advantage in both chambers in the November election.

The lobbyists added that freshmen Moorhead representation could make it difficult for the city to have a powerful presence in St. Paul this session. Longtime District 9 legislators Lanning and Langseth both retired this year.

“We have not faced being represented by a new senator and house member at the same time in at least 30 years,” the lobbyists wrote. “This situation along with a high number of new legislators overall will require greater efforts to educate policy makers on the challenges that Moorhead faces as a border community.”

Along with shying away from a tip credit, the lobbyists note that Moorhead should not pursue state-funded property tax exemption, a program that ends Dec. 31 that Moorhead has been using since the 2009 flood. The city was not successful in having it reinstated last session.

“We do not want to risk Moorhead’s existing programs by focusing on proposals that could undermine support for those programs with certain key legislators,” the lobbyists wrote.

Community Services Director Scott Hutchins said the city has begun a locally funded abatement program to replace the exemption.

“The abatement is a little bit more cumbersome,” Hutchins said. “Taxes are first paid and then rebated back. So that’s why we were inclined to go for the exemption.”

The lobbyists say they will pursue three priorities for Moorhead this session: state funds for flood mitigation, Border Cities funding and monitoring the Disparity Reduction Credit Program. The latter is a business property tax program that helps cities on the border stay competitive with North Dakota. Hutchins called these three “clear priorities” for the city.

Altenburg agreed that Border Cities’ legislation and finishing flood protection should be the city’s primary focus.

“It’s going to be a tough session for us, but I think we’ll come out OK,” he said.

According to council documents, Goodno is paid $20,000 plus expenses during the legislative session, and Flaherty is paid $25,000 plus expenses. For most council members, the fee is worth it. They voted 7-1 on Dec. 17 to approve 2013 contracts for both.

“Based on the complexities of our Border Cities status as well as the complexities of the legislature, this money is well spent,” Councilman Mike Hulett said.

Councilman Luther Stueland was the lone dissenter on the vote. Stueland also voted against allocating money to study a tip credit back in August, arguing that he’d prefer to see the money go toward tax breaks.

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Readers can reach Forum reporter Erik Burgess at (701) 241-5518