The CUB Tax Credit Gains Momentum

The Catalyzing Underutilized Buildings (CUB) tax credit bill was introduced in the Minnesota House as H.F. 457 and in the Senate as S.F. 768. The House bill, with lead author Rep. Bobbie Harder (R, Henderson Township) has been heard by two House committees: the Housing Policy and Finance Committee on Feb. 19, 2025 and the Taxes Committee on March 4, 2025. Rethos has been leading a statewide coalition to build support for this proposal, so Director of Policy, Education, and Outreach, Erin Hanafin Berg, provided testimony at both hearings, as did St. Paul Mayor Melvin Carter and Dan Collison, representing Sherman Associates. Click the links to watch the full hearings or read an excerpt from each hearing below.

Housing Committee hearing:

Other testifiers will speak to how this bill will meet the needs of their communities, so I want to take this opportunity to share some information about a housing bill that you may not have realized you extended in 2023 – the Minnesota Historic Structure Rehabilitation Tax Credit. Our organization led a lengthy grassroots effort to establish this credit during the Pawlenty administration in 2010, and we’ve advocated for its extension twice since then. We keep close tabs on its effectiveness so that we can share the highlights with policy makers, our members and supporters, and the state at large. The University of Minnesota Extension prepares an annual economic impact study which demonstrates that the historic tax credit regularly returns over $9 in economic impact for every $1 that the state puts into the credit. The annual studies do not focus on the housing impact, so we’ve pulled together some of that information ourselves.

By our estimation, this tax credit has created nearly ten thousand new apartment units since 2010. Recent examples of historic buildings converted to housing include a casket factory in St. Paul, an armory in Stillwater, a storage facility in Moorhead, state hospital buildings in Fergus Falls, and a factory that made compression sprayers in Hastings. And then there are the schools – in Winona, New Ulm, Cloquet, Duluth, Sandstone, and International Falls – where the conversion of the Alexander Baker School into apartments is the first multi-family development in that city in over forty years.

It’s important to keep in mind that all of these projects happened to buildings that are listed in the National Register of Historic Places, a small subset of existing buildings to be sure. These buildings are, in most cases, 50 years old or older and meet strict criteria in terms of their historic significance and federal standards for their rehabilitation. We know that there are many more types of vacant and underutilized buildings – that are newer, or not historically significant, or too modified to qualify for the National Register. We know that the financing sometimes just doesn’t make sense. We know that local communities are often fearful of what will happen when a local landmark becomes an eyesore and a burden, so they decide to just bury the past and move on rather than figure out how to adaptively reuse. We know of buildings like this that are needlessly demolished every day.

We know that a tax incentive like the CUB Credit works because we’ve seen its success with the state historic tax credit, and we can imagine the possibilities for a whole range of other kinds of properties. More empty schools, shuttered nursing homes, idle factories, dwindling church congregations, and of course, office buildings in small and large cities and suburbs alike.

I urge you to support this bill and to work with your colleagues in the Taxes Committee to make it a priority for passage this session. Thanks again to Rep. Harder and for the opportunity to testify.

Taxes Committee hearing:

I want amplify Mayor Carter’s thanks for reinstating and extending the historic tax credit during the 2023 session. The annual economic impact study for the historic tax credit was released just last week, and it once again shows that this kind of tax credit program offers an incredible return on investment for Minnesotans.   For historic tax credit projects that gained approval in fiscal year 2024, the State of Minnesota will award almost $58 million in tax credits – which is matched by Federal historic credits. The nine projects approved in FY2024 will generate 591 and a half million dollars of economic output, meaning that for every dollar the state is investing in these projects, there will be 10 dollars and 25 cents in economic activity. While these projects are underway, the developers, their suppliers, and workers will also pay sales, property, and income taxes - and the analysis shows that these taxes will recoup for the state up to 43 percent of the historic tax credit amount by the time the project is completed. Once the building is put back in service, the increased property values mean that projects often end up paying back more in taxes than was awarded in historic tax credits within five to 10 years.

FY2024 was the first year that the historic tax credit was available again after a one-year lapse, and 9 projects were approved. In most prior years, the number of projects ranged between 12 and 14. I think that demonstrates that it is a bit more difficult to get these kinds of projects financed in the current interest rate environment, and yet we will hear from other testifiers that there is a need for tools to reuse a growing number of vacant and underutilized buildings in communities of all sizes.

It’s important to keep in mind that the historic tax credit program requires that buildings are listed in the National Register of Historic Places. These buildings are, in most cases, 50 years old or older and meet strict criteria in terms of their historic significance and federal standards for their rehabilitation. We know that there are many more types of vacant and underutilized buildings – that are newer, or not historically significant, or too modified to qualify for the National Register, and that is why we are promoting this new tax credit.

We need a new incentive like this to help communities reuse their existing building assets. The alternative is increased vacancy and disinvestment, local landmarks that become eyesores, and needless demolitions at a time when our communities have such acute needs for housing and commercial reinvestment to stabilize our property tax base.

We know that a tax incentive like the CUB Credit works because we’ve seen its success with the state historic tax credit. We have every reason to expect the same kind of economic impacts for this proposal and we can imagine the possibilities for a whole range of properties put back to use – like vacant schools, shuttered nursing homes, idle factories, nearly empty churches, and of course, office buildings in small and large cities and suburbs alike.

I urge you to support this bill and to make it a priority for passage this session. My thanks to Rep. Harder and Rep. Kozlowski for co-sponsoring this bill and to all of you for the opportunity to testify.