After a decade on the books, a tax credit that has played a crucial role in helping local downtown building owners to afford key maintenance projects is set to expire.
That’s pushed Faribault’s Heritage Preservation Commission, MainStreet Owatonna and other local advocates to ask the legislature to not only extend the credit, but make it permanent.
While 39 states offer a tax credit for historic building preservation, Minnesota’s is among the most generous, covering up to 20% of eligible expenses. As an alternative to the credit, historic building owners can claim a grant, for up to 90% of allowable credit.
The program mirrors its federal counterpart, with an identical discount, similar application process and set of qualifications. Only buildings certified as contributing to a Historic Preservation District or designated on the National Register of Historic Places are eligible. The dollars needed to create Minnesota’s historic preservation tax credit program were provided through the Minnesota Arts and Cultural Heritage Fund, which in turn was funded by the approval of the Minnesota Legacy Amendment in 2008.
Still, the program created in 2010 was considered something of an experiment by the legislature. Legislators initially put a five year sunset on the program, then extended it in 2015 for another half-decade.
“The program has been really successful,” said Karl Vohs, a member of the Faribault Preservation Commission. “It’s gotten buildings that needed to be fixed up repaired in a really sound way, so they could go on to be taxpaying properties.”
Vohs has personal experience with the federal program, though not its state equivalent. Nearly 20 years ago, he acquired a federal historic preservation tax credit to fix up a building he owned in downtown Faribault — a process that he described as paperwork heavy, but helpful.
Across the state, Vohs noted that small- to medium-sized towns have particularly benefited the tax credit. In an attempt to maximize the assistance it receives, Faribault applied to greatly expand the portion of its historic downtown on the National Register of Historic Places.
To assist with the application process, the city hired consultant Dan Hoisington. Under the plans Hoisington has painstakingly put together over the last eight years, around 100 buildings would be included in the new district. By contrast, only the handful of buildings on the 200 block of Central Avenue is designated as part of the National Register of Historic Places, though a city-designated historic district has many more.
Most buildings would be in both the new National Register of Historic Places district and the existing downtown historic district, though some would fall in one and not the other. Following a series of administrative delays, Hoisington completed and submitted the paperwork for the new district last year.
In order to receive state dollars, the district must be approved by the National Register of Historic Places as well as the State Historic Preservation Office. That process, which normally takes around six months to complete, was delayed by the pandemic.
Even though Hoisington is based in Roseville, he tends to eschew Twin Cities area projects for ones in greater Minnesota. Working in small towns throughout the state, he said he’s seen the effects of the tax credit over and over again.
“That little extra carrot from the state has accomplished so much in terms of helping projects to move forward,” he said.
MainStreet Owatonna Director Shirley Schultz is also a big supporter of the program. Schultz said she’s reached out to her legislators to urge them to support the bipartisan bill that would make the tax credit permanent.
Rep. Cheryl Youakim, DFL-Hopkins, and Sen. Jeremy Miller, R-Winona introduced the bill last week with Sen. John Jasinski, R-Faribault, as a co-sponsor. In addition to saving historic architecture, Schultz said the tax credit provides crucial support for small businesses.
“This program has allowed some of our downtown buildings to come back to life as a thriving business,” she said. “Many of our small businesses get their start in those downtown buildings.”
The program’s advocates say the investment has been well worth it. According to an analysis from the University of Minnesota Extension Service, the state tax credit has helped generate more than $3.3 billion in economic activity since it first went into effect.
In fact, the revenue created by the projects is so great that according to an Extension Service analysis of six properties across the state, the program may actually pay for itself — particularly over the five-year period which building owners are now required to claim the credit over.
Of that $16.3 million awarded by the state to those projects, half was returned to state and local governments in tax collections upon project completion. Within just five years tax collections in those cases exceeded the credits awarded.
A survey by the Extension Service found showed just how crucial a role the tax credit has played in making those projects happen. According to the survey, 90% of respondents said they would not have invested in their building projects without the tax credits.
Given the crucial role the tax credit has played in delivering investment, Vohs said he doesn’t understand why legislators wouldn’t renew the credit. However, the polarized climate and strained relationships between Minnesota’s DFLers and Republicans gives him cause for worry.
“We’re in a very disappointing and partisan era in our politics, but looking at this it would be strange for senators or reps to not want to continue the program,” he said. “It’s really been something that works.”