14 posts categorized "Community Development"

Historic preservation: This old tax credit

Historic renovation activity over the past few years in Minnesota and Wisconsin points to the power of income tax incentives to spur rehabilitation of old buildings.

By defraying renovation expenses, historic rehabilitation tax credits are intended to save culturally significant structures that would otherwise deteriorate and eventually fall to the wrecking ball. Property owners can apply for a federal income tax credit worth 20 percent of the cost of restoring income-producing buildings, and in many states, state income tax credits that can be combined with the federal credit.

In 2013, the National Park Service accepted applications for renovation projects in Ninth District states (excluding Michigan) eligible for over $60 million in federal and state historic preservation tax credits, most of it in Minnesota and Wisconsin.

An unknown share of projects that received credits likely would have occurred without credits, or with the federal credit alone. In some cases, credits may serve to increase profits rather than provide the minimum return on investment necessary to make the project worthwhile. But data on historic rehab tax credit projects in Minnesota and Wisconsin indicate that more hammers swing on renovation projects when tax incentives increase.

In 2010, the Minnesota Legislature enacted a 20 percent historic preservation tax credit to match the federal credit, which was enacted in the 1970s. In subsequent years, the number of historic renovation projects applying for a tax credit (federal and/or state) rose sharply (see chart), although some of the increase was likely due to improved economic conditions in the wake of the Great Recession. Total estimated renovation costs also jumped.

In Wisconsin, historic tax credit projects surged last year after the state raised its modest 5 percent credit to the same level as Minnesota’s. From 2013 to 2014, estimated costs of active renovation projects swelled sevenfold to over $260 million, according to the Wisconsin state historic preservation office.

This apparent tax credit effect doesn’t necessarily mean that income tax credits are the best mechanism for fostering historic preservation. South Dakota has no historic preservation tax credit, but the state offers to freeze property tax assessments on rehabilitated buildings for eight years. In Minnesota, consumers support historic preservation through sales taxes allocated to arts and cultural heritage programs.

Other forms of financial support for historic preservation in the district and nationwide include rehabilitation grants funded by gaming revenue, the purchase of historic façade easements by cities and tax-deductible private donations.

Historic preservation

U.P. electricity prices tops in district

Households and firms in the Upper Peninsula of Michigan have long complained about expensive power. Civic and business leaders say high electricity rates squeeze family budgets and hamper efforts to foster industrial development in a region plagued by high unemployment.

Angst over the price of U.P. electricity has come to a head this fall. A regional power grid authority has ordered Wisconsin-based We Energies to continue operating an aging coal-fired power plant near Marquette, with costs passed along to U.P. ratepayers. If federal energy regulators approve, U.P. utility customers could see average rate increases of $100 annually to fund operating subsidies for the Presque Isles plant and two other coal-fired power plants in the U.P.

The Michigan Public Service Commission and big U.P. power consumers such as Cliffs Natural Resources—owners of the Empire and Tilden iron mines—have objected to the proposed rate hikes, saying they would further burden utility customers already paying dearly for electricity.

Federal price data show that U.P. residents pay higher electricity rates than those in other parts of the Ninth District and the nation as a whole (see Chart 1). Electricity costs about 20 percent more in the U.P. than it does in Minnesota and about 35 percent more than in North Dakota. But Yoopers pay less than Michiganders overall, and U.P. power is a bargain compared with utility rates in some parts of the country, such as New England.

However, the U.P. average rate obscures wide disparities across the peninsula; residents of some U.P. communities pay significantly more than others to keep the lights on, the result of differing customer densities and, in some cases, reliance on imported power rather than local generation sources. State PSC figures for 2013 show that power producers such as Upper Peninsular Power Co. and the Alger Delta Cooperative Electric Association, which primarily serve customers in the western and central U.P., charge much higher rates than other utilities (see Chart 2).

UP power -- 11-3-14

Minnesota: The land of 10,000 deep-fried things

The annual Minnesota State Fair finished on a high note this year, setting an attendance record of 1.82 million. The state’s fair is known for its unusual popularity compared with fairs of other states, and it is the second-largest state fair in the nation, second only to Texas.

The fair’s popularity has continued to grow slowly and steadily over time, with only occasional and modest declines in annual attendance (see chart). One of the reasons for this steady attendance pattern likely has something to do with simple population growth. Since 1990, the Minnesota State Fair has typically attracted the equivalent of about one of every three residents (fluctuating modestly between about 31 percent and 36 percent of the state population in a given year). As the population has grown, so too has State Fair attendance.

That doesn’t, however, explain why the Minnesota State Fair is popular to more of its residents than those of other states. For example, attendance at the Wisconsin State Fair represents fewer than one in five state residents. The State Fair of Texas attracts about 2.8 million visitors (over 24 days, compared to Minnesota’s 11 days). Still, that works out to barely one in 10 residents of the Lone Star State.

State Fair attendance -- 10-15-14

Census says: Bakken growth floating a lot of boats

It’s official: Williston and Dickinson, N.D., registered two of the nation’s highest rates of growth in both population and aggregate income for population centers with at least 10,000 people.

That’s according to new American Community Survey (ACS) five-year estimates, released in December by the U.S. Census Bureau. The latest estimates, which are derived from surveys conducted over a five-year period spanning 2008 to 2012, confirm that population and income growth in the Bakken region of North Dakota and Montana is rapid and widespread.

Williston’s rates were, by far, the highest of all 955 of the metropolitan and micropolitan areas tracked by the Census Bureau, with a 6 percent increase in total population and a 20 percent increase in aggregate income from the 2007-2011 to the 2008-2012 estimates.

And these growth rates, while topping the list, likely understate growth in more recent years as Bakken activity accelerates, and do not include changes after 2012. For instance, in a separate data release, the Census Bureau estimated Williston’s population changed by 25.3 percent from April 1, 2010, to July 1, 2012.

The ACS five-year estimates, while not as timely as other data sources, report a wealth of demographic and economic information at the Census tract level. These tracts generally have a population size between 1,200 and 8,000 people. The 13-county Bakken region has 36 Census tracts, all of which are considered non-metropolitan because they do not overlap with a Census designated major metropolitan area. An analysis of median family incomes reveals that Williston and Dickinson have registered large gains, but so too have the more rural regions of the Bakken (see Figure 1).

In 2006-2010, only three Bakken tracts had a median income of 120 percent or more of the statewide (non-metro) median. However, just two years later, 10 additional Bakken tracts surpassed this 120 percent threshold to be classified as upper-income. Over this period, all but one of the Bakken Census tracts improved their median income position (in other words, shifted right in their distribution in Figure 1 into higher income ratios).

 Bakken income Fig 1 -- 3-6-14

 The distribution of growing income can also be seen geographically, as more Census tracts shift into the darker blue upper-income category (see map).

But not all Census tracts improved their income position. In fact, one Census tract, on the northwestern edge of the Fort Berthold Indian Reservation, remained low-income, or less than 50 percent of the statewide non-metropolitan median (see red-shaded tract). The median family income reported in this tract was the only one in the Bakken region whose five-year average dropped from 2007-2011 to 2008-2012, and it has fallen in each of the last three ACS five-year averages. However, for the Fort Berthold reservation as a whole, incomes have been rising at rates similar to the rest of the region.

Bakken income Fig 2 -- 3-6-14

Broadly speaking, ACS data also imply that incomes are keeping up with rising rents. As noted above, Williston was at the top of the national list for population and income growth, with Dickinson not far off the pace. However, neither city was in the top 10 nationally for growth in median rent (despite robust rent increases of 9 percent and 8 percent, respectively, in Williston and Dickinson). As a result, ACS estimates imply that the percentage of renter households considered highly burdened (housing costs greater than 30 percent of income) in the Bakken actually declined from an average of 34 percent of renters in 2006-2010 to an average of 31 percent in 2008-2012. Over that same period, the proportion of highly burdened renters increased from 45 percent to 46 percent in the non-Bakken portion of Montana and decreased from 42 percent to 40 percent in the non-Bakken portion of North Dakota.

However, other evidence points to rising housing burdens in the Bakken. Median rent for all renter-occupied housing units averaged $534 in Williston during the five-year period 2008-2012, according to ACS estimates. But much higher rents were recently reported for at least one segment of the Williston rental market.

According to a recent Apartment Guide blog post, Williston had the highest average entry-level rent in the nation, at $2,394. Entry-level rents for each city were estimated by averaging the rents of the least expensive rental units of each apartment community listed on apartmentguide.com. While the Apartment Guide numbers are not representative of the entire rental market, they are more current than those reported in the ACS. To the extent that Apartment Guide’s estimates reasonably reflect current price pressures in the broader rental market, future ACS rental figures will likely show significant increases in rents and rental burdens in Williston and the Bakken.

Recent past gives mixed signals for expanded mortgage lending

An improving economy and tight rental housing are leading more moderate-income renters to consider homeownership. In response, some community lenders are exploring whether to expand loan programs targeted to this market. With the housing collapse and high foreclosure rates still a fresh memory, new analysis by the Minneapolis Fed shows that the timing of home purchases can play a large role in foreclosure rates, especially when combined with credit scores.

Using data provided by Lender Processing Services (LPS) Applied Analytics, mortgages in Minnesota since 2000 were analyzed to better understand the likelihood of foreclosure. Borrowers with lower credit risk scores at loan origination had higher rates of foreclosure over this period. For example, among mortgages originated in 2003, 1.5 percent of borrowers with a 720+ credit score entered foreclosure within seven years, compared with 4.5 percent of borrowers with scores of 680 to 719 and 9.4 percent of borrowers with scores of 620 to 679 (see Chart 1).

Foreclosures Ch1 -- 10-29-13

Foreclosure rates were also strongly linked to timing. Mortgages originated in 2000 performed better than 2003 mortgages and much better 2005 mortgages with similar credit scores. For mortgages with low credit scores (620 to 679), the foreclosure rate after seven years was just 3.2 percent for mortgages originated in 2000, but reached 26.6 percent for mortgages originated in 2005.

These differences may partly reflect the boom and bust in Minnesota housing prices between 2000 and 2010. As home prices fell after 2007, homes with year 2000 mortgages were more likely to remain “above water”—that is, to have a value greater than the balance due on the mortgage—than homes with mortgages originated in 2003 or 2005. Borrowers with above-water mortgages have both stronger incentives and better options for avoiding foreclosure, such as simply selling. And many more mortgages originated in 2000 may have been refinanced early on, given that mortgage rates fell between 2000 and 2003.

High debt burdens were also linked to foreclosure (see Chart 2). For example, controlling for credit score, foreclosure rates for 2003 mortgages were about 50 percent higher for high-debt borrowers than lower-debt borrowers. For 2005 mortgages, foreclosures were considerably higher for both high- and low-debt borrowers compared with 2003 mortgages. The specific effect of debt levels was present but appears less pronounced, as foreclosures among high-debt mortgages were about 35 percent, while low-debt foreclosures reached almost 30 percent. (A comparison with 2000 mortgages was not possible due to insufficient data on debt-to-income ratios.)

If housing prices rise or at least remain stable over the coming years, the more encouraging performance of Minnesota mortgages originated in 2000 may provide useful guidelines to organizations contemplating new home lending programs. However, the weaker performance of loans from 2003 and 2005 shows the risks that could arise if housing prices or employment fall significantly again.

For related information, see the Minneapolis Federal Reserve Bank’s web page Housing Market and Mortgage Conditions in the Ninth District.

  Foreclosures Ch2 -- 10-29-13

Frac sand mining spurs rural rail

On average, railroads are four times more fuel efficient than trucks. In west-central Wisconsin, which is in the midst of a frac sand boom, that fact has increased business for railroads and spurred reinvestment in long-disused rural lines.

The region is a rich source of fine quartz sand, a vital ingredient in the hydraulic fracturing process that has opened up fresh reserves of shale oil and natural gas in North Dakota, eastern Montana, Texas and other parts of the country. Over the past five years, more than 40 frac sand mines have either opened or expanded their operations in west-central Wisconsin and in neighboring southeastern Minnesota.

In Wisconsin, many sand mining companies have built facilities adjacent to rail lines—a cost-effective way to ship raw or processed sand, often in “unit trains” of over 100 cars. In response to increased demand, railroads have ramped up their operations and rehabilitated little-used or dormant lines, at a cost of roughly $1 million to $2 million per mile.

Lakeville, Minn.-based Progressive Rail operates a 62-mile line running north from Chippewa Falls to Rice Lake and Almena, in Barron County (see accompanying map). Freight volume has increased fivefold to about 1,800 cars a month since EOG Resources completed a new sand processing plant in Chippewa Falls last December, said company President Dave Fellon. Over 90 percent of that volume consists of frac sand from the EOG plant and other mining facilities along the route.

Rising revenue has allowed Progressive to invest in human capital (payroll has increased from 65 to 100 workers over the past year) and critical line improvements. Fellon said the firm will spend $30 million to $50 million over the next five years on new railroad ties, bridges, loading facilities and other infrastructure.

Canadian National and Union Pacific have also refurbished long-neglected rail lines linking Wisconsin frac sand operations to distant markets. This summer, CN began clearing brush and laying new ties on a 45-mile section of rail between Cameron and Ladysmith to connect existing and proposed sand mines with a main CN line running north into Canada and south to Texas. The railroad backed out of a pending sale to the state that would have let Progressive operate the line, opting to retain ownership of a potentially profitable sand route.

Colorrail-final500

For more on the economic impact of frac sand mining in the district, see the recent article in the July fedgazette.

Rural Minnesota counties still seeing brain gain (yes, with a “g”)

Much is made of the fact that young people are leaving rural communities for jobs and education opportunities after high school. Much less is made of the fact that older households are continuing to move back to many of those same communities, according to new research by Benjamin Winchester, a research fellow at the Extension Center for Community Vitality at the University of Minnesota.

Winchester tracked five-year age cohorts from age 14 to age 65 from 2000 to 2010. He found that nonmetropolitan counties gained population in the 30-49 age range—a continuation of the trend seen in the 1990s, though the pace of growth had slowed somewhat, possibly in part to a slowdown of migration from the recession. Nonetheless, this migration pattern can be seen clearly from a snapshot of three age cohorts moving (generally speaking) from a job-search and career-building mentality to marriage and family-planning mindset (see maps below; due to technical constraints, maps with better clarity can be seen in the report itself).

County-level population change, 2000 to 2010, by age group (25-29, 30-34, 35-39)
Brain gain -- 5-17-12
Source: "Continuing the Trend: The Brain Gain of the Newcomers," University of Minnesota Extension Center for Community Vitality

The research did find that rural counties continued to lose young adults to metropolitan counties, mostly to the Twin Cities. In fact, Winchester found that migration preferences of all cohorts from 2000 to 2010 “are remarkably similar” to those found the previous decade.

One new finding was that micropolitan counties—those counties with regional populations of 10,000 to 49,000—appear to take on cohort migration traits similar to metropolitan counties. This was particularly the case in the southwestern portion of the state, where Winchester said “rural urbanity” appears to be attracting more 30-to-39-year-olds to places like Willmar and Marshall. He also pointed out that these micropolitan gains might ironically “exacerbate the narrative of rural decline,” because as these places grow, a few might reach metropolitan status, thus possibly shifting the migration ledger without any underlying change to the places people are moving to.

This research is an update of earlier research on rural brain gain, which Winchester talked about in a July 2011 interview with the fedgazette.

Some Ninth District regions seeing strong population growth

Nothing screams economic activity like population growth because, as the saying goes, people go where the action is. And if that’s the case, North Dakota is getting a little hoarse because it’s getting more crowded.

The U.S. Census Bureau recently published 2011 population estimates for states and their largest population centers. Among the Ninth District’s 15 metropolitan areas, Sioux Falls, S.D., and Bismarck, N.D., led the population pack with a 1.4 percent increase last year. In fact, every district metro saw at least slight growth, save for Grand Forks, which dropped one-half a percentage point (see Table 1).

Population -- Metro table 1

The Census is also gathering and publishing more data on smaller, so-called micropolitan regions, of which there are 41 scattered across the Ninth District. There was wide variation in population growth among these regions (see Table 2), and total growth for micro regions was slower than for district metros (0.6 percent versus 0.9 percent, respectively). Roughly one-quarter (10) of micro regions saw population declines. But six micro regions saw stronger growth than the top metro areas. Half of them are in western North Dakota, where Minot and Dickinson grew by 3 percent or more, and Williston grew an astounding 8 percent last year.

Migration and demographics play important roles in population change, as people move into and out of communities, while the existing population experiences both births and deaths. Unfortunately, new population statistics don’t tell us how many of each occurred in various communities. Communities in Ninth District states harbor fairly similar demographics in terms of age and fertility rates that would make local population change from births and deaths reasonably consistent and predictable in a given year.

Migration is likely the biggest factor in population performance, particularly among outliers. In western North Dakota, it’s clear people are migrating to the oil patch for jobs—a topic covered in depth in the April fedgazette online later this month.

Population -- Micro table 2


 

Flood affects business, banking in the Ninth District

Many communities in the Ninth District were hard hit by flooding this past year (see past reports in the fedgazette). But banks in district states report that, in general, the impact on local economies will be modest overall, according to a fall survey by the fedgazette.

A total of 86 banks responded to the (nonscientific) survey, including 52 from the Dakotas and Montana, which saw the worst flooding. In terms of their local economies, bankers reported that agriculture and retail sectors in general have been hit the hardest. For example, 15 of 25 Montana bankers reported adverse flood impacts on agriculture, and 44 percent of North Dakota bankers said retail has been negatively affected, along with about one-third of bankers in North and South Dakota regarding the transportation sector. Construction saw a mixed response, with roughly equal (and small) numbers of bankers stating there were negative and positive effects from flooding.

But those difficulties were not necessarily flowing through to bank business to the same degree. A large majority of respondents across district states said that loan repayments from existing clients have not been negatively affected across major portfolio areas (construction, agriculture, commercial and industrial, and commercial real estate; see Chart 1). Agriculture saw the highest reports of repayment problems (36 percent in Montana; 24 percent in North Dakota). Among the minority of banks reporting repayment issues with any loans (about one in three), many said they restructured loans or made other accommodations in loan terms.

Flood bank charts 1&2 -- 12-8-11

Maybe more importantly, bankers said they expected little change in future loan repayments (see Chart 2). Agricultural loans were again the area of biggest concern. In terms of loan demand, most banks reported no flood-related changes; in fact, slightly more banks saw an increase in loan demand related to the floods compared with those reporting a decrease.

The survey was conducted in cooperation with state banking associations, who passed the survey along to an estimated 750 members. While overall results appear modestly positive under the circumstances of widespread flooding this summer, results likely vary significantly among individual communities, given the different localized effects of flooding.

Community orgs report struggles among low and moderate income

The current state of the economy is a daily topic of discussion on the news and at dinner tables across the country. Of particular importance to Community Development offices within the Federal Reserve System is the economic state of low- to moderate-income (LMI) communities.

Existing government data provide some insight into how these communities are faring. However, many of the factors that play an important role in their economic health, such as job training opportunities, the availability of affordable rental housing or business owners’ ability to access credit, are not measured well through existing data sources.

To provide a more comprehensive read on LMI community conditions in the Ninth District, the Minneapolis Fed’s Community Development department has launched Community Insight, a semi-annual survey of community development and service organizations that serve LMI communities. The survey is designed to capture their perspectives on changes in local employment, housing, consumer finance and business conditions.

According to the survey, most Ninth District LMI communities experienced deteriorated economic conditions in the second quarter of this year compared to 12 months prior. The most pervasive signs of economic stress among LMI communities were increased demand for financial counseling, decreased availability of affordable rental housing and reduced access to credit for business owners (see Charts 1-3 below).

Survey responses also revealed some positive signs, including increased homeownership opportunities for LMI buyers with good credit and an increase in the number of micro-businesses.

The baseline survey conducted during the months of May and June 2011 contains responses from 335 organizations representing more than 180 cities and townships across the Ninth District. For more on the survey and its findings, view the full Community Insight report.

Community Insight charts -- 10-27-11