HomeMy WebLinkAbout20090420 - VI-02Memo
To: Mayor Hicks and City Council Members
From: ,Justin Fortney, Heritage Preservation Specialist for the HPC
Date: April 20, 2009
Subject: Resolution of support for historic tax credits
REQUEST
A state income tax credit for qualifying rehabilitations to historically designated properties has
been introduced by Senator Larry Pogemiller (Minneapolis) in the Senate and by Representative
Paul Marquart (Dilworth) in the House (S.F. 1724 / H.F. 1974). The Hastings City Council has
supported similar tax credits in the past and once again has an opportunity. The attached
resolution if approved, will be sent to Representative McNamara and Senator Sieben to show the
city's support of the proposed tax credit.
With over 170 designated historic properties in Hastings, this proposed tax credit could benefit
many of the citizens directly and indirectly. Rehabilitating designated historic structures in a
manner required by local Heritage Freservation Commissions and the State Historic Preservation
Office are necessary to preserve our valuable architectural history. Following these guidelines
can cost more than similar work on modern buildings. The property owners currently
rehabilitate and maintain their historic properties for the benefit of the community while
receiving no compensation for their investment in the communities' heritage.. This tax credit
would alleviate some of the burden that historic property owners carry, but should also create
jobs., raise property values, and provide the State a return on investment as it has done in other
states.
TAX CREDIT DETAILS
As currently proposed, a taxpayer who incurs costs for the rehabilitation of an eligible property
may take a credit against their Minnesota income tax equal to 25 percent of the total costs of
rehabilitation. Eligible properties for the credit must either be listed on the national register or
locally designated by an HPC certified by the SHPO (State Historic Preservation Office).
Costs of rehabilitation must exceed 50 percent of the total basis in the property at the time the
rehabilitation activity begins and the rehabilitation must meet standards consistent with the
standards of the Secretary of the Interior for rehabilitation as determined by the SHPO.
ATTACHMENTS
Resolution of support
Proposed tax credit HF. 1974 (SF. 1724 currently has identical language)
Fact sheet (summary and benefits of the proposal compiled by the Preservation Alliance of Minnesota)
THE CITY OF HASTINGS
DAKOTA COUNTY, MINNESOTA
Resolution No.
A Resolution of the City Council of the City of Hastings
In Support of the
Minnesota Income Tax Credit for Rehabilitation of Historic Structures
WHEREAS Minnesota Senate File 1724 and House of Representatives File 1974
will enable a state income tax credit equal to 25 percent of the
qualified costs of rehabilitation on certified historic residential and
commercial properties; and
WHEREAS The CITY OF HASTINGS AND ITS HISTORIC PRESERVATION
COMMISSION supports the need to preserve Minnesota`s physical
heritage, promote economic development of its historic areas,
encourage the appropriate rehabilitation of underused or vacant
historic properties, and believes SF 1724/HF 1974 will significantly
advance these objectives.
NOVA THEREFORE BE IT RESOLVED; That the CITY OF HASTINGS AND ITS
HISTORIC PRESERVATION COMMISSION support Senate File
1724 and House of Representatives File 1974, and directs that a
copy of this resolution be forwarded to the Minnesota Senate and
House of Representatives and the legislative delegation for the City
of Hastings.
Adopted by the City Council of Hastings, Minnesota, this 20~ day of April, 2009.
Ayes:
Nays:
Absent:
Paul J. Hicks, Mayor
ATTEST:
Melanie Mesko Lee, City Clerk (seal)
03/16/09 REVISOR 7RM/fIII 09-3173
This Document can be made available
in alternative formats upon request State of Minnesota
HQUSE QF REPRESENTATIVES
l~~T~~1ixT>; .1974
S~~oN HousE FILE No.
March 23, 2009
Authored by Marquart
The bill was read far the first time and referred to the Committee on Taxes
1.1 A bill for an act
1.2 relating to taxation; providing an income tax credit for expenditures for historic
1.3 structure rehabilitation; requiring a report; proposing coding for new law lit
1.4 Minnesota Statutes, chapter 290.
1.5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.6 Section 1. [290.0678] CREDIT FOR HISTORIC STRUCTURE
1.7 REHABILITATION.
1.s Subdivision 1. DeSnitions. (a) As used in this section, the terms defined in this
1.9 subdivision have the meanings given.
1.10 (b) "Certified historic structure" means a property located in Minnesota and listed
1.11 individually on the National Register of Historic Places or a historic property designated
1.12 by either a certified local government or a heritage preservation commission created
1.13 under the National Historic Preservation Act of 1966 and whose designation is approved
1.14 by the state historic preservation officer,
1.1s (c) "Eligible property" means a certified historic structure or a structure in a certified
1.16 historic district that is offered or used for residential or business purposes.
1.17 (d) "Structure in a certified historic district" means a structure located in Minnesota
1.1s that is certified by the State Historic Preservation Office as contributing to the historic
119 significance of a certified historic district listed on the National Register of Historic Places
1.20 or a local district that has been certified by the United States Department of the Interior.
1.21 Subd. 2. Credit allowed. A taxpayer who incurs costs for the rehabilitation of
1.22 eligible property may take a credit against the tax imposed under this chapter in an amount
1.23 equal to 25 percent of the total costs of rehabilitation. Costs of rehabilitation include,
1.2a but are not limited to, qualified rehabilitation expenditures as defined under section
Section 1. 1
03/16/09 REVISOR JRM/I~III 09-3173
2.1 47(c)(2)(A) of the Internal Revenue Code, provided that the costs of rehabilitation must
2.2 exceed 50 percent of the total basis in the property at the time the rehabilitation activity
2.3 begins and the rehabilitation must meet standards consistent with the standards of the
2.4 Secretary of the Interior for rehabilitation as determined by the State Historic Preservation
2.5 Office of the Minnesota Historical Society.
2.6 Subd. 3. Carryback and carryforward. If the amount of the credit under
2.7 subdivision 2 exceeds the tax liability under this chapter for the year in which the cost is
2.s incurred, the amount that exceeds the tax liability may be carried back to any of the three
2.9 preceding taxable years or carried forwazd to each of the ten taxable years succeeding the
2.to taxable yeaz in which the expense was incurred. The entire amount of the credit must
2.11 be tamed to the eazliest taxable near to which the amount may be cazried. The unused
2.12 portion of the credit must be carried to the following taxable year.
2.13 Subd. 4. Partnerships; multiple owners; transfers. (a) Credits granted to a
2.14 partnership, a limited liability company taxed as a partnership, or multiple owners of
2.15 property shall be passed through to the partners, members, or owners, respectively, pro
2.16 rata or pursuant to an executed agreement among the partners, members, or owners
2.17 documenfing an alternate distribution method.
2.18 (b) Taxpayers eligible for credits may transfer, sell, or assign the credits in whole
2.19 or part. Any assignee may use acquired credits to offset up to 100 percent of the taxes
2.20 otherwise imposed by this chapter. The assignee shall perfect such transfer by notifying
2.21 the Department of Revenue in writing within 30 calendaz days following the effective
2.22 date of the transfer in such form and manner as shall be prescribed by the Department
2.23 of Revenue. The proceeds of any sale or assignment of a credit shall be exempt from
2.24 taxation under this chapter.
2.2s Subd. 5. Process. To claim the credit, the taxpayer must apply to the State Historic
2.2c Preservation Office of the Minnesota Historical Society before a historic rehabilitation
2.27 proiect begins. The State Historic Preservation Office shall determine the amount of
2.28 eligible rehabilitation costs and whether the rehabilitation meets the standards of the
2.29 United States Department of the Interior. The State Historic Preservation Office shall issue
2.3o certificates verifying eligibility for and the amount of credit. The taxpayer shall attach
2.31 the certificate to any income tax return on which the credit is claimed. The State Historic
2.32 Preservation Office of the Minnesota Historical Society may collect fees for applications
2.33 for the historic preservation tax credit. Fees shall be set at an amount that does not exceed
2.34 the costs of administering the tax credit program.
Section 1. 2
03/16/09 REVISOR JRM/HH 09-3173
3.1 Subd. 6. Mortgage certificates; credit for lending institutions. (a) The taxpayer
3.2 may elect, in lieu of the credit otherwise allowed under this section, to receive a historic
3.3 rehabilitation mortgage credit certificate.
3.4 (b} For purposes of this subdivision, a historic rehabilitation mortgage credit is a
3.s certificate that is issued to the taxpayer according to procedures prescribed by the State
3.6 Historic Preservation Office with respect to the certified rehabilitation and which meets
3.7 the requirements of this paragraph. The face amount of the certificate must be equal to
3.s the credit that would be allowable under subdivision 2 to the taxpayer with respect to
3.9 the rehabilitation. The certificate may only be transferred by the taxpayer to a lending
3.io institution, including a nondepository home mortgage lending institution, in connection
3. i i with a loan:
3.12 (1) that is secured by the building with respect to which the credit is issued; and
3.13 (2) the proceeds of which may not be used for any purpose other than the acquisition
3.14 or rehabilitation of the building.
3.1s (c) In exchange for the certificate, the lending institution must provide to the
3.16 taxpayer an amount equal to the face amount of the certificate discounted by the amount
3.17 by which the federal income tax liability of the lending institution is increased due to its
3.is use of the certificate in the manner provided in this section. That amount must be applied,
3.19 as directed by the taxpayer, in whole or in part, to reduce:
3.20 (1) the principal amount of the loan;
3.21 (2) the rate of interest on the loan; or
3.22 (3) the taxpayer's cost of purchasing the building, but only in the case of a qualified
3.23 historic home that is located in apoverty-impacted area as designated by the State Historic
3.24 Preservation Office.
3.25 The lending institution may take as a credit against the tax due under this chanter an
3.26 amount equal to the amount specified in the certificate, if the amount of the discount
3.27 retained by the lender exceeds the amount by which the lending institution's federal
3.2s income tax liability is increased due to the use of a mortgage credit certificate, the excess
3.29 shall be refunded to the borrower with interest at the rate prescribed by the State Historic
3.30 Preservation Office. The lending institution may carry forward all unused credits under
3.31 this subdivision until exhausted. Nothing in this subdivision requires a lending institution
3.32 to accept a historic rehabilitation certificate from any person.
3.33 EFFECTIVE DATE. This section is effective for taxable years beginning after
3.34 December 31, 2008.
Section i. 3
03/] 6/09 REVISOR 7RM/IIII 09-3173
a.] Sec. 2. DETERMINATION OF ECONOMIC Il1IPACT.
a.2 The Minnesota Historical Society shall annually determine the economic impact
a.3 to the state from the rehabilitation of eligible property for which credits are provided
a.a under section 1 and report on the impact to the committees on taxes of the senate and
a.s house of representatives.
Sec. 2.
S.F. 1724 / H.F. 1974
IVlinnesota Historic Structure ~c Community Reinvestment Tax Credit
Strengthening Minnesota's Economy by Reinvesting in Historic Places
A coalition of cities, property developers, construction industry representatives, and nonprofit organi-
zations is actively promoting proposed legislation that would allow a credit on state income taxes
equal to 25 percent of the qualified cost of a historic rehabilitation of residential orincome-producing
properties. The proposed legislation, similar to provisions in 30 other states, would encourage private
investment in historic properties in both urban and rural Minnesota, generating jobs and stimulating
economic development within existing communities.
How Does It Work?
• Allows credit on state income taxes equal to 25% of the qualified cost
of a historic rehabilitation.
• Parallels federal historic preservation 20% tax credit, creating more
development opportunities in Minnesota and leveraging millions of
dollars in federal monies not currently flowing into our state.
• Useful for both commercial and residential property, developers and
homeowners. Federal credit is for income-producing properties only.
Economic and Social Benefits
• Creates jobs and economic activity far beyond level of tax credit.
~ Historic rehab is more labor intensive than new construction with
ti0-70% of the investment in labor rather than materials.
~ Increased labor costs creates more lobs than new construction re-
sulting in greater income and sales tax revenue. In Missouri, the
costs of the credit was recouped in additional payroll taxes alone.
~ State tax credits have spurred more than $1 billion in economic ac-
tivity in states like Maryland, Missouri, and Virginia.
• Replenishes tax base by increasing payroll, sales, and property taxes.
~ Encourages private investment in vacant or underutilized buildings
putting neglected properties back on the tax rolls at a higher value
and catalyzing investment in surrounding areas.
• Leverages more federal resources for the state.
~ Minnesota ranks 22nd in the nation in leveraging federal rehabilita-
tion tax credit funding ($45M in FY2007); Missouri leads the nation
($534M in FY2007) due to their strong state rehab tax credit.
• Preserving historic structures is sustainable development.
~ Reusable natural resources, or `"embodied energy;' invested in the
building are not wasted by being thrown into a landfill. Encourages
reinvestment in previously developed areas and infrastructure.
• Rehabilitation creates affordable housing by:
~ Helping first-time and moderate-income buyers through the mort-
gage credit provision. A Lender uses the tax credit for CRA pur-
posesand allows the owner to buy down their rate or mortgage.
~ Encouraging development of low-income rental housing when
partnered with the federal low-income housing tax credit.
• Supports community efforts to capitalize on history as their unique
identity to attract residents, businesses, and tourists.
STATE REHAB TAX CREDITS AND
JOB CREATION
In Minnesota, historic rehab
projects would create 5.7 more
jobs per $1 million in output
than manufacturing and 2
more jobs per $ 1 million than
new construction.
A total of 6,871 jobs and $60
million in tax revenue was cre-
ated in the first four years of
Missouri's tax credit.
in Rhode Island, direct con-
struction employment gener-
ated by rehab credit projects
was 5,334 over two years.
Historic rehab employed 9,248
construction workers in Mary-
landover the past 12 years
due to a strong state credit.
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Pace/Wayne Hotel, Gookston
~!acant for over 20 years, the County-owned
Palace Hotel is in pre-development by Metres
Plains at $5 million cost The state fax credit d
could move the pro%ect forward creating 76 con-
struction%obs and 24 affordable housing units.
STATE REHAB TAX CREDITS AND
RETURN ON INVESTMENT
What is Eligible?
The tax credit would be available for a property that is any of the following:
• Listed on the National Register of Historic Places.
• Certified as a contributing element of a National Register Historic District.
• Certified as historic by local heritage preservation commission or Certified
Local Government.
Proposed Legislation
The proposed legislation, based on a highly successful Missouri law
passed in 1997, provides an income tax credit for expenditures for historic
structure rehabilitation. A taxpayer who incurs costs for the rehabilita-
tion of an eligible property may take a credit against the tax imposed in
an amount equal to 25 percent of the total costs of rehabilitation. The
costs of rehabilitation must exceed 50 percent of the total basis in the
property at the time the rehabilitation activity begins, and the rehabilita-
tion must meet standards consistent with the standards of the Secretary
of the Interior for rehabilitation as determined by the State Historic Pres-
ervation Office of the Minnesota Historical Society. Bills have been intro-
ducedthis session by Senator Larry Pogemiller in the Minnesota Senate
(S.F. 1724) and Representative Paul Marquart in the Minnesota House
(H.F. 1974).
Why Should We Act Now?
Minnesota is one of only 11 states in the nation without a state rehabilita-
tion tax credit amongst states taxing income. We are the only such in the
upper Midwest without this incentive, thereby losing development dollars
to our neighbors.
In the past 30 years, we have lost scores of historic buildings to deteriora-
tion and neglect because rehabilitation costs did not make them attrac-
tive to development. Many of them are in older residential neighbor-
hoods, small-town main streets, and urban commercial cores. Reinvest-
ing inour historic properties creates more jobs, stimulates the local and
state economy, and is a sustainable practice that promotes community
vitality.
Although the federal preservation tax credit provides incentives for reha-
bilitation, most projects cannot be accomplished using federal credits
alone. As a result, without a state credit, Minnesota receives lower fed-
eraltax credit investment per-capita than other states. Now is the time
to augment the federal historic tax credit with a state credit to stimulate
jobs and grow our local tax base by reusing existing infrastructure.
Fad Sources:
Donovan Rypkema, The Economics of Historic Preservation, 1994.
Minnesota State Historic Preservation Office.
National Trust for Historic Preservation website, www.preservationnation.org.
Taylor & Weber, Historic Preservation Tax Credit Study, Humphrey Institute of Public Affairs, University of
Minnesota, 2004.
A 2009 study by the Abell
Foundation showed that in
Maryland $8.53 is returned for
eve 1 invested through the
state tax credit.
In Maryland, 1/3 to 1/2 of the
state's tax credit investment is
returned riot to the state re-
leasingthe funds.
Rhode Island leverages $5.35
in total economic output for
every $1 invested.
In Missouri, $4.00 is returned
to the state for $1 invested.
STATE REHAB TAX CREDITS AND
ECONOMIC IMPACT
A total of $1.74 billion in total
economic activity in the 12
years of Maryland's credit.
In Virginia, over $1.454 billion
in economic activity from 1997
to 2006.
In Missouri, $1.373 billion in
total economic activity in the
11 years of the state credit.
Rehab credit activity totaled
$484.91 million in the first two
years of Rhode Island's credit.
State tax credits in Wisconsin,
Iowa ,and North Dakota incen-
tivize moving development
dollars out of Minnesota.
>-~:
_~ t
;; R ,
Renaissance Box, St Paul
Vacant since 2006, awaiting rehab by Aeon
of $16 million investment. State tax credit
could be key to final package.
/, ~ Preservation Alliance of Minnesota • Bonnie McDonald, Executive Director
~ 219 Landmark Center • 75 W. Fifth St. • St. Paul, MN 55102 • Phone: 651.293.9047 x104
'~, % www.mnpreservation.org • bmcdonald@mnpreservation.org
~.%