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Developers push for extension of Minnesota's historic tax credit

The incentive program continues to play an instrumental role in the preservation of historic structures in Duluth and around the state, but it could soon expire.

St. Louis County Jail in Duluth at dusk
The exterior facade of the former St. Louis County Jail in Duluth at dusk in December 2021. The glass blocks now in place are to be replaced with large, operable windows, thanks in part to state historic tax credits that are being used to restore the building.
Clint Austin / File / Duluth News Tribune
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DULUTH — Without further legislative action, Minnesota’s historic tax credit program is slated to sunset on June 30 of this year. But advocates of the tax incentive are working hard behind the scenes in St. Paul to push out that deadline.

Rep. Cheryl Youakim, DFL-Hopkins, has sponsored a bill that would ensure the tax credit remains a redevelopment tool at least through June 2030. And Sen. David Senjem, R-Rochester, introduced a companion bill Thursday.

Developer Meghan Elliott said the state tax credit plays a crucial role in making it possible to tackle complicated and involved projects, such as the ongoing transformation of the former St. Louis County Jail into an apartment building.

121521.N.DNT.OLDJAIL.C01.jpg
Jon Commers, one of the developers of the Burnham Apartments, is framed by the bars of a cell on the fourth floor Thursday, Dec. 2, 2021, at the former St. Louis County Jail in Duluth.
Clint Austin / File / Duluth News Tribune

Elliott said she and her team would have been hard-pressed to move forward with the project, if not for the state tax credit program, which combined with a similar federal program is expected to cover about 40% of the redevelopment costs.

“I am not exaggerating when I say that a project like the jail, and others across the state of Minnesota, absolutely, without a doubt, would not happen without the state historic tax credit,” she said.

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The $8.3 million building rehabilitation is expected to yield 33 additional units of housing for the city of Duluth.

Heidi Swank, executive director of Rethos, a St. Paul-based nonprofit that promotes the renovation and reuse of old buildings, said that for every dollar the state has invested in historic tax credits, it has generated $9.50 in economic activity, for a total of $3.5 billion since 2010.

The state tax credit has been widely used in Duluth for numerous projects, including the Historic Old Central High School, the Board of Trade Building and the NorShor Theatre.

“Except for the Twin Cities area, which is where we are based, we do the second-most amount of projects in Duluth,” Elliott said. “It is really phenomenal to see how much that community has been able to mobilize and take advantage of these credits, which then pulls in federal credits and other resources.”

Swank said investments in historic buildings typically result in a direct boost to the local economy.

“When you’re looking at rehabbing a building, about 70% of your costs for that project are labor costs,” she said. “So, you’re not sending money out of the state. You’re pretty much not sending it very far outside of your own immediate economy.”

Before Minnesota began offering its historic tax credit in 2011, Elliott said the state would typically see about one certified historic rehabilitation project come forward each year, but that count jumped to about 10 projects annually with the additional state incentive.

Swank said Minnesota’s historic tax credit program does a good job of protecting public funds from being wasted.

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“All of the private investment is up front, and the state reinvestment for their small portion of the project that comes back as this tax credit, that doesn’t happen until the project is finished. And that again goes back to safeguarding state dollars and public money,” she said.

“So, if a project doesn’t get completed, the private money is what goes out the door. The state would never put anything in until it was totally completed and certified by the National Park Service,” Swank said.

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A crane blocks First Street in front of the Board of Trading building in Duluth. The crane was brought in to assist with a renovation of the building.
Steve Kuchera / 2019 file / Duluth News Tribune

Last year, with the budget uncertainties of the pandemic swirling and the public safety concerns raised by the murder of George Floyd, the Minnesota Legislature granted the state historic credit program just one more year of funding. But Elliott contends it would be folly to take a year-to-year approach on an ongoing basis.

“After this year, with the uncertainty, if we continue to either do one-year extensions or we lose the program, the reality is these projects won’t happen. Developers, entrepreneurs and building owners aren’t going to pursue them, because none of these projects can be done in a year’s time,” she said.

At best, Elliott said a historic renovation requires two to three years of planning. And some, such as the former St. Louis County Jail, can take more than a decade to bring forward.

Swank pointed out that without the certainty of the state continuing its historic tax credit program much further into the future, many developers may choose to take on projects in other jurisdictions. In all, 34 states offer historic tax credits to match federal credits.

“Having that one-year extension just makes the program in Minnesota look really unstable,” she said.

This story originally contained a misspelling of Meghan Elliott’s name. It was updated at 3:10 p.m. March 12 with the proper spelling. The News Tribune regrets the error.

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The Duluth City Council unanimously passed a resolution to provide an additional $1.5 million in aid.

Peter Passi covers city government for the Duluth News Tribune. He joined the paper in April 2000, initially as a business reporter but has worked a number of beats through the years.
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