Growing support for extending tax credit to fix Minnesota's historic buildings

Minnesota's divided Legislature is worlds apart on many tax proposals this session, but both parties are coming together behind the scenes around a little-known provision to rehab the state's crumbling historic buildings.

The DFL-led House and Republicans in the Senate both support extending Minnesota's historic rehabilitation tax credit, which is set to expire on June 30. First created a decade ago to help generate jobs after the Great Recession, the credit is needed again, advocates of extending it say, as Minnesota reckons with the economic toll of the COVID-19 pandemic.

"That was the big concern back then during the Great Recession that we need to create jobs, and we are seeing a lot of those same concerns right now," said Heidi Swank, executive director of Rethos, the state's largest historic preservation advocacy organization. "Small businesses nationwide tend to be in older buildings, so the tax credit is a great way to support them after we know they've been hit so hard by the pandemic."

Under current law, the 20% tax credit can go toward the rehabilitation of a structure listed on the National Register of Historic Places or one that contributes to a Registered Historic District. It aligns with a federal historic tax credit that has no sunset.

Since the state credit was passed a decade ago, it has benefited 144 projects across Minnesota, including the revitalization of the Dayton's department store in downtown Minneapolis, the transformation of an 1855 brewery building into the Keg and Case marketplace in St. Paul and the restoration of Ely's Historic State Theatre.

During that time, developers have invested $1.9 billion in projects and the tax credit has supported 18,650 jobs in Minnesota, according to an annual University of Minnesota study on its economic impact. The study found for every $1 the state spends on the tax credit, $9.50 is generated in the private sector.

Meghan Elliott, founding principal at New History, a historic preservation consulting company based in Minneapolis, said the state did one to three rehabilitation projects each year before the tax credit was passed. Afterward, the number grew to 10 to 12 projects each year.

"The tax credits are our number one tool to help our clients in the private sector," said Elliott. "Most of these projects just wouldn't happen without it."

Between July 2019 and June 2020, the state approved 11 projects for the historic tax credit, according to the latest university report, generating 720 jobs and an estimated $176.5 million in economic activity during the 2020 fiscal year. Nearly half of those projects were in greater Minnesota.

In addition to revitalizing old buildings, historic rehabilitation projects in smaller communities also can spur other development and improve the tax base. In 2015, the rehabilitation of the Latsch Building in downtown Winona prompted at least three other historic rehab projects in the same corridor. Newer buildings have moved into the area as well, including office spaces and housing.

"There's been a large amount of redevelopment in the downtown area and I think a lot of it has stemmed off the redevelopment of these historic buildings," said Sen. Jeremy Miller, R-Winona, who sponsored a provision this session to extend the tax credit indefinitely.

"A lot of these historic buildings are very cool-looking from the outside, but the inside needs a lot of work," Miller said. "The costs of these projects can be so expensive without the credit."

There's heated debate over taxes this session. Democrats propose raising taxes to pay for services.

Republicans have drawn a line in the sand against raising any new revenue. And even though both parties support the historic tax credit, they don't agree yet on how long it should be extended. The Senate GOP tax bill, released this week, extends the tax credit for one year, while the House's tax package includes an eight-year extension.

The House and Senate will try to hash out the differences between their respective tax bills in the coming weeks. Lawmakers are trying to pass a balanced budget by the time the regular session adjourns on May 17.

Miller said he thinks it's good to periodically revisit tax credits to make sure they're working, but he's optimistic that, given all of the data on benefits of the historic tax credit, lawmakers will agree on an extension longer than one year.

Rep. Cheryl Youakim, DFL-Hopkins, proposed an indefinite extension of the credit. She said one year is not long enough to give developers confidence that they should embark on a big project. The credit was extended once before in 2015.

"The construction industry moves from project to project. When you have these lined up and they can go from one project to another to another, they can really maintain their workforce," Youakim said.

"These are really good, sustainable jobs. If there's anything that COVID showed us, it's that we really need to have an economy that has more of those."

Briana Bierschbach • 651-925-5042

Twitter: @bbierschbach