Unless legislators in St. Paul take action, Minnesota's historic tax credit is slated to expire June 30, and if it does, Duluth will lose a valuable redevelopment tool, according to Adam Fulton, deputy director of the city's planning and economic development division.
Outside of Minneapolis and St. Paul, Duluth is unrivaled statewide in its extensive use of historic tax credits to help foster redevelopment, said Natascha Weiner, a historical architect for the Minnesota State Historic Preservation Office.
"Duluth is so rich in historic resources. You have fantastic historic buildings up there, and there's so much you can do. So many projects are just waiting to happen," Weiner said.
Some pending local redevelopment projects that would be likely candidates for historic tax credits include the former St. Louis County Jail building, Historic Old Central High School and the former armory building, Fulton said.
Fulton noted that the state credit is typically coupled with federal historic tax credit for maximum benefit. Both programs can cover up to 20% of the project cost, although Weiner said the sale of credits to finance work typically falls well short of the 40% threshold.
The federal historic tax credit would remain available regardless of what happens at the Minnesota Legislature this year. But in a 2020 survey of developers who used the historic credits, about 89% of respondents reported they would not have moved forward on projects if not for the state historic tax credit coupled with the federal credit, noted Amy Spong, director of the Minnesota State Historic Preservation Office.
Tom Hanson, an attorney with Winthrop & Weinstine, has been leading the lobbying effort in St. Paul and said bills have been introduced in both the House and Senate, where they have garnered broad bipartisan support. But he's taking nothing for granted, noting that similar bills had been advanced last year, only to be overshadowed by concerns about the emerging COVID-19 pandemic.
"There really isn't anybody at this point advocating against it. The challenge is fighting your way to the top of the heap. But we've got a good coalition," said Hanson, pointing out that other worthy bills are also competing for lawmakers' attention.
Hanson said proponents of the state tax credit can provide compelling data in support of it. A report published Tuesday by University of Minnesota Extension found that in 2020, the historic tax credit led to $176.5 million worth of economic activity, including $49.8 million in labor wages. For every dollar Minnesota spent on the program, the report found that it generated the equivalent of $9.52 in economic activity.
Spong said the economic benefits don't tell the whole story, however.
"This program plays an important role not only in preserving historically significant places and buildings for communities, but it also plays a role in helping with the housing crisis that we hear so much about all over, urban and rural, and also with the challenge of responding to climate change," she said.
"Rehabilitating existing buildings is keeping materials out of landfills. And also rehabbing buildings uses less material, more labor, so the job numbers that have been noted over the life of the program have been really strong," Spong said.
The state historic tax credit first went into effect in 2010, when Hanson was serving as the state's management and budget commissioner under then-Gov. Tim Pawlenty.
"At the time, we were in what everyone calls now 'the Great Recession,' and there was broad bipartisan support to enact that tax credit, because it put people to work and developed very important buildings and provided that extra bit of funding for projects to get over the finish line to get adequate funding," Hanson said.
The initial credit was to expire in five years but it has been extended once already. If bills now introduced are signed into law, sunset language in the legislation will be removed entirely, allowing the state tax credit to continue into perpetuity.
The prospect of the state historic tax credit expiring has led to a recent flood of applications at the Minnesota State Historic Preservation Office. Weiner said the office is on pace to process anywhere from 28 to 33 tax credit applications this year, compared to the typical annual volume of about 14 in the past.
Duluth projects funded with historic tax credits
Alicia's Place, 315 N. Second Ave. W. — 2006.
Oliver Traphagen House (The Redstone), 1511 E. Superior St. — 2006
Bridgeman & Russell Building, 10-16 W. First St. — 2008.
Greysolon Plaza (former Hotel Duluth), 231 E. Superior St. — 2008.
Gimaajii-Mino-Bimaadizimin (former YWCA), 202 W. Second St. — 2012.
Old Duluth City Hall, 132 E. Superior St. — 2013.
Munger Terrace, 405 Mesaba Ave. — 2014.
Duluth Fire Department Engine House No. 1, 101 E. Third St. — 2014.
Carnegie Library building, 101 W. Second St. — 2016.
NorShor Theatre, 211 E. Superior St. — 2018.