An effort to continue Minnesota’s primary tax break for restoring historic buildings has bipartisan support at the state House and Senate — and little organized opposition.
That still isn’t enough to make supporters of the measure comfortable.
Backers of the extending the provision, technically known as the Minnesota Historic Structure Rehabilitation State Tax Credit, worry that lawmakers — with pandemic response and passing a budget being the major priorities of the 2021 session — might lose sight of addressing the credit, which expires June 30. A similar bill was introduced in 2020 but then disappeared after a single hearing (along with a lot of other issues sidelined when COVID-19 hit).
“The pandemic requires a lot of focus and a lot of brainpower by the state, so we want to make sure that, given the urgency of the timeline now, that this is something on everybody’s radar screen,” said Erin Hanafin Berg, the policy director of Rethos, the nonprofit formerly known as the Preservation Alliance of Minnesota.
The credit, which provides a 20 percent tax credit for the cost of qualified historic rehabilitations and parallels the federal rehabilitation tax credit, was initially part of a 2010 jobs package passed in response to the Great Recession. Back then, the rationale was that more of the money spent on renovation projects tends to go toward labor than to materials, and the construction industry had been hit especially hard during the downturn.
The credit was renewed in 2015 until 2021, and two measures introduced this session, House File 727 and Senate File 685, would remove the sunset and make the credit a permanent part of the tax code. The federal tax credit does not have a sunset.
Rep. Cheryl Youakim, the Hopkins DFLer who is the sponsor of the House version, ties the renewal of the tax credit to the pandemic, arguing that its loss could hamper construction projects that employ tradespeople.
“It’s not just helping save history, which is important,” she said. “When you rehab an old building, not only are you reusing and not creating more materials, you also use apprentices and labor more,” she said. Preservationists estimate that 80 percent of the money spent on restoration projects is for labor.
The Senate version of the bill is sponsored by Sen. Jeremy Miller, R-Winona, and has bipartisan support — tripartisan if you consider Senate Capital Investment Committee Chair Tom Bakk of Cook, who has declared himself an independent. Other sponsors hail from areas that have made wide use of the tax credit: Kari Dziedzic, DFL-Minneapolis; David Senjem, R-Rochester and John Jasinski, R-Faribault.
Thirty-five states have a similar credit to foster restoration projects. “We really think this is an essential program that has shown its relevance and its economic benefits to the state and one that should be continued,” said Rethos’ Berg.
Berg said 130 Minnesota projects have used the credit since 2011. A fiscal note prepared for a similar bill in 2020 estimated the cost at $30 million per year. Completed projects that took advantage of the credit included the Faribault Woolen Mills, the renovation of a New Ulm school for workforce housing, the State Theater in Ely, the Castle Community in Rochester and the Keg and Case project in St. Paul.
Berg said the Ely project in particular spurred renovation projects on northern Minnesota city’s Sheridan Street block once the theater reopened. She said local property tax collections increase once buildings are brought back, and some projects have managed to move vacant properties from local government ownership to private ownership — and onto the tax rolls.
The state credit dovetails with the federal tax credit. Projects must meet federal preservation guidelines and the credit is based on the approved costs of the restoration, not the land or the purchase price. It can now be claimed over five years, a change as part of the 2017 federal tax bill. Because the state credit is refundable, a taxpayer with no tax liability — or a tax bill less than the value of the credit — would receive money back from the state.
“What usually happens is developers use this as a way to bring capital to the project because they have to fund all the work upfront,” Berg said. “They have outside investors who will purchase those tax credits at the completion of the project but will provide the capital at the beginning to get the project done.”
The state Historic Preservation Office is required to do an annual report on the uses and cost of the credit. The 2020 report was posted Tuesday.
“Eleven properties received approval for the historic tax credit between July 1, 2019 and June 30, 2020,” the report found. “Almost half (five) of these projects were located in Greater Minnesota (Duluth, Fergus Falls, Mankato, Owatonna, and Winona); the others were in the Twin Cities. Developers report planning to invest $119.1 million to complete their rehabilitation projects, including site improvements, roofing, and upgrades to interior work
“In total, projects planned with support from the Minnesota Historic Rehabilitation Tax Credit will generate an estimated $176.5 million in economic activity in fiscal year 2020,” the analysis stated. “This includes $49.8 million in labor income. It will also support 720 jobs.”
What’s the case against the credit, if any?