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Developers lobby for historic Minn.tax credit extension

MINNESOTA — The Minnesota Legislature will likely extend the Minnesota historic tax credit’s sunset date, but the length of that extension will depend on negotiation between the state House and state Senate.

The credit provides 20% reimbursement of qualified cost to redevelop properties listed on the National Register of Historic Places.

To qualify for the tax credit, a project must be on the National Historic Register, it must be income-producing, and it must be a substantial rehabilitation project.

The tax credit was originally created in 2010 during the height of an economic recession. The tax credit was one method to stimulate building projects.

The nonprofit Rethos has worked nationwide to repurpose historic buildings using historic tax credits. Rethos Executive Director Heidi Swank said the tax credit was successful in stimulating employment, had a positive impact on Minnesota’s economy over the last 11 years and it remains a popular option for developers.

Before the historic tax credit became law, Minnesota would see between two and three historic redevelopment projects a year. Now, the state sees between 10 and 14 a year.

The tax credit has proved popular in Minnesota. However, when it was first approved, an expiration date was built into the law. Initially, it was set to sunset in 2015. Legislators extended the expiration date to June 2021.

Swank said she had expected the state legislators to extend the expiration date during the 2020 legislative session, but with the COVID-19 pandemic, the effort took a back seat despite having bipartisan support.

During the 2021 legislative session, the Minnesota House and Senate passed bills to extend the sunset of the historic tax credit, but new sunset dates in the two bills are years apart.

The House bill would extend the tax credit for another eight years. The Senate bill only extends the tax credit for a single year. The Minnesota Legislature will need to reconcile the two bills in committee.

It is unknown if the compromise will be for a short extension or a long-term extension. Rethos is encouraging constituents to contact legislators in support of a long extension.

Swank said developers would prefer the tax credit be approved in perpetuity. The state receives an annual report from the University of Minnesota Extension that gives an economic impact for the credit. The report from Feb. 9 shows that in 2020, the historic tax credit generated $176.5 million in economic activity, including $49.8 million in labor income.

More than 700 jobs were created in 2020, including 330 construction jobs. An average of $9.52 of economic activity was generated for every $1 spent. Projects completed in 2020 will generate an estimated $5.5 million in state and local tax receipts.

A building must be on the National Register of Historic Places to qualify for the tax credit. Any Minnesota building that qualifies for the tax credit would all qualify for the federal historic tax credit. This is also a 20% tax credit. Swank said these types of development projects were one method of bringing federal money back to Minnesota.

Since the sunset date has not been extended by the Legislature, Swank said there has been a downtick in historic development projects across the state. Many are reluctant to start projects without a guarantee of the tax credit.

The tax credit will likely be extended into 2022, but the further out the sunset date, the more time developers have to complete projects.

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