Minnesota legislators are raising the metro sales tax to fund housing assistance, devoting hundreds of millions from the state surplus to adding and preserving affordable housing and helping first-generation homeowners afford down payments.

The state House and Senate approved a $1 billion housing bill this week that is headed to Gov. Tim Walz's desk for a final signature. The deal falls short of some DFL legislators' and advocates' early spending goals, but many called it an important step toward meeting Minnesota's dire housing needs.

Throughout the legislative session, Rep. Mike Howard, DFL-Richfield, has compared Minnesota's budget to a gallon of water and said state dollars for housing have amounted to a tablespoon.

"We are putting a couple heaping tablespoons of housing in this budget," Howard said Tuesday. He said the roughly $150 million to $200 million a year the metro sales tax increase will generate is "truly a game changer. This state has never put anything approaching that, in terms of dedicated revenue, to housing."

While $1 billion is more than the state has ever spent on housing, much of the money is one-time cash from the state's budget surplus and will end after the next two-year budget cycle. Only the money from the metro sales tax and another $50 million from the state's general fund, most of which will be devoted to rent aid, will be sustained in future years.

Many GOP members condemned the boost to the metro sales tax at a time of surplus.

"A sales tax increase is going to further hurt those who are hurting the most," said Sen. Eric Lucero, R-St. Michael. He said over-regulation is driving up housing prices and that raising taxes is not the solution.

Some housing-related dollars are also tucked into other big bills moving at the state Capitol, including the tax and health and human services bills, and a potential infrastructure funding package.

Here are five key spending and tax changes in the housing bill.

Metro sales tax hike

Visitors and residents in the seven-county metro area will see a .25% sales tax increase on purchases starting Oct. 1. It won't apply to food, clothing or other items exempt from the state sales tax. The tax increase, which amounts to $1 for every $400 spent, is estimated to generate $353 million over the next two years.

A quarter of the sales tax dollars will go to a state rent assistance account for housing vouchers in the metro. Another quarter will be channeled to housing aid for metro cities, and the remaining half would go to metro county housing assistance.

Rent assistance

About 5,000 households each year will get rent vouchers through the housing bill, said Ben Helvick Anderson, a spokesman for the Bring it Home, Minnesota campaign that advocated for rent aid. The money will help reduce lengthy Section 8 waitlists, he said.

On top of the sales tax dollars, the state will spend $46 million from the general fund to provide rent assistance statewide, a figure that will continue beyond the next two-year budget. The total is far less than the $1.7 billion for vouchers that some advocates and DFL lawmakers originally championed.

"There is 213,000 households who would qualify and could take a voucher. So there's a lot of work to be done," Helvick Anderson said. "But this is a great first step."

Homeowner help

The bill contains $150 million in down payment assistance for first-generation homebuyers. Howard estimated the money will create more than 5,000 new homeowners. They will have to meet certain eligibility requirements, including having a parent who has never owned a home or lost one through foreclosure.

"We have a shameful ownership gap between white households and Black households in Minnesota, and this will target that and be really helpful," said Sen. Lindsey Port, DFL-Burnsville.

Housing creation, preservation

About half of the $1 billion will go to bolstering the state's insufficient housing supply, bill sponsors said.

The biggest portion of that is $200 million in one-time cash for a housing infrastructure program. Another $90 million will be used to buy or rehabilitate so-called "naturally occurring affordable housing," such as some aging, low-rent apartment complexes that could otherwise have been "gobbled up by investors," displacing people, Howard said.

The bill also contains dollars for greater Minnesota workforce housing development, as well as preservation and creation of manufactured, or mobile, housing.

Homelessness prevention

Lawmakers already passed $50 million for the state's Family Homeless Prevention and Assistance Program earlier this year. The program provides families with rent or utility assistance. The housing bill adds another $45 million boost, Howard said.

There is also money to create a partnership between the state housing agency and the Department of Human Services, so people receiving housing help get other services they need, Port said.

"So much of the way that those two [agencies] interact with each other drops people through the cracks when they need services and housing," she said.

Correction: An earlier version of this story misidentified Eric Lucero's office. He is a state senator.