Landmark renovation tax credit injected billions into state economy, study finds


The Minnesota Legislature, in rare bipartisan fashion, could pass this session a multi-year extension of the state’s 20% Historic Buildings Tax Credit that has helped save underused and abandoned structures from Ely in Minneapolis and Winona.

The tax credit, first enacted in 2010 and renewed twice, generates some of the best returns on tax expenditures of any state program.

It has also boosted employment and nearby investment, according to developers and a January study.

“I’m optimistic the legislation will be included in the House and Senate tax bills,” said Joe Bagnoli, a Winthrop & Weinstine attorney who represents nonprofit preservation groups. The Minnesota Cities League and unions also support the bill.

A 2021 study by the University of Minnesota Extension found that more than 170 projects over the past decade under the appropriations have generated approximately $5 billion in economic activity, 28,480 jobs and 1.9 billion dollars of related labor income.

That boils down to an estimated return of $11 on every dollar of 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 wouldn’t have happened 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 expenditures that are never reviewed.”

Besides return, the review also showed that 85% of construction budgets went to labor and not construction materials, she said. “There is less energy and waste involved.”

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 expiration date to 2030 and allow the credit to be taken all at once, instead of five years. The promoters pulled through last year with only a one-year extension due to budget constraints.

Sen. Jeremy Miller, who leads the Republican caucus, is also a supporter of historic revitalization appropriations and is from Winona, which has benefited from it.

Economic analysis shows the value of expenditures is recouped within a few years through rising property values ​​and increased state and local taxes, said Erin Hanafin Berg of Rethos, formerly the Preservation Alliance of Minnesota.

The projects, on the whole, pay for themselves through increased property taxes within seven years, according to the expansion study.

For projects underway in fiscal year 2021, developers said they spent $890 million, including $693.4 million in labor salaries that supported 9,660 jobs. The $124 million in tax expenditures for credits last year generated $1.4 billion in related overall economic activity in Minnesota, according to the study.

The projects cover Minnesota.

Renovations have included a former elementary school converted into housing in Winona, an abandoned high school and a YWCA that were converted into apartments in Duluth, and the Faribault Woolen Mill.

The abandoned Ely State Theater building sold for $2,750 in 2014. By 2021, after redevelopment, the building’s assessed value had risen to $162,900.

The U extension estimates that the developer’s $2 million investment generated a total economic impact of $4 million. The project got just under $400,000 in tax credits.

The largest tax credit project to date is the $375 million renovation of the old Dayton Department Store building in downtown Minneapolis. This project received approximately $70 million in federal tax credits.

Federal-state historic certification allows developers to sell up to 20% of the project’s value in the form of federal and state tax credits to sponsors, typically financial institutions. The credits offset taxes over five years, and funds derived from the credits can only be used for materials, labor and services that preserve historic features.

Developers generally view historic projects as risky because the buildings are often in poor condition and require expensive investments – from structural reinforcement to new windows, HVAC systems and technologies, as well as careful restoration touches.

“Without a meaningful expansion of Minnesota’s historic tax credit, we stand to lose billions of dollars and tens of thousands of jobs,” said Meghan Elliott, architect and founder of tax credit consultant New History. for historic projects since 2008. “There are dozens of projects that will come to a complete halt if the legislature does not act to protect historic credit.”

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