The Minnesota legislature in this session could, in a rare bipartisan fashion, pass a multi-year extension to the state’s 20% historic building tax credit, which has helped save unused and abandoned buildings from Ely to Minneapolis and Winona.
The tax credit, which first took effect in 2010 and has been renewed twice, delivers some of the best returns on tax expenditures of any government program.
It has also boosted employment and neighboring investment, according to supporters and a January study.
“I am optimistic that the legislation will be included in the House and Senate tax bills,” said Joe Bagnoli, an attorney for Winthrop & Weinstine who represents nonprofit conservation groups. The League of Minnesota Cities and unions also support the bill.
A 2021 study by the University of Minnesota Extension found that the 170+ projects completed under the loans over the past decade generated an estimated $5 billion in economic activity, 28,480 jobs and $1.9 billion -Generated dollars in related labor income.
That works out to an estimated return of $11 for every $1 in state tax credits.
A related mapping project showed that 53% of projects in Minneapolis, St. Paul and Duluth are in older, low-income neighborhoods.
Developers say most of these projects would not have materialized without the tax incentive.
“The University of Minnesota report helps,” said Rep. Cheryl Youakim, DFL-Hopkins, who is the lead author of the House legislation. “We have tax breaks that are never reviewed.”
In addition to the ROI, the review also showed that 85% of construction budgets were spent on labor rather than building materials, she said. “It uses less energy and waste.”
Gov. Tim Walz has signaled his support, as have several key Republicans and Democrats in both houses.
The House bill will soon be joined by a similar Senate measure sponsored by Republican Dave Senjem of Rochester and DFLer Kari Dziedzic of Minneapolis. Both would extend the expiry date to 2030 and allow the loan to be drawn down in one lump sum instead of over five years. Proponents were successful last year with just a one-year extension due to budget constraints.
Sen. Jeremy Miller, who leads the Republican caucus, is also a proponent of historical revival credits and hails from Winona, which has benefited from them.
Economic analysis shows that the value of spending will be recouped within a few years thanks to rising property values and increased state and local taxes, said Erin Hanafin Berg of Rethos, formerly of the Preservation Alliance of Minnesota.
According to the expansion study, the projects will pay for themselves within a total of seven years through increased property taxes.
For ongoing projects in fiscal 2021, developers reported spending $890 million, including $693.4 million in labor wages supporting 9,660 jobs. Minnesota’s $124 million in tax spending on the loans last year resulted in related economic activity totaling $1.4 billion, the study said.
The projects include Minnesota.
The overhauls included an old elementary school converted to housing in Winona, an abandoned high school and YWCA converted to housing in Duluth, and the Faribault Woolen Mill.
The abandoned Ely State Theater building sold for $2,750 in 2014. By 2021, the building’s estimated value had increased to $162,900 after redevelopment.
The U Extension estimates that the developer’s $2 million investment generated an overall economic impact of $4 million. The project received nearly $400,000 in tax credits.
The largest tax credit project to date is the $375 million renovation of the former department store building in downtown Dayton in Minneapolis. This project has received approximately $70 million in government tax credits.
Federal historical certification allows developers to sell up to 20% of project value as state and state tax credits to limited partners, typically financial institutions. The loans accrue taxes over five years, and the loan funds can only be used for materials, labor, and services that preserve historical characteristics.
Developers generally view historic projects as risky as the buildings are often in poor condition and require expensive investments – from structural reinforcement to new windows, HVAC systems and technology to thorough restoration work.
“Without a significant expansion of Minnesota’s historic tax credit, we will lose billions of dollars and tens of thousands of jobs,” said Meghan Elliott, architect and founder of New History, a historic projects tax credit consultant since 2008. “There are dozens of projects there , which will grind to a halt unless lawmakers act to protect the historical asset.”