Although the Minnesota Legislature enacted several property-related laws during the recently completed session, the biggest news for the state's real estate industry was a change that didn't happen.

New measures affecting mortgage lending, government contract bidding, construction-related injuries, appraiser licensing and others made it past the legislative finish line and were signed into law by Gov. Mark Dayton.

But Dayton vetoed the bill with potentially the biggest impact on commercial property owners — the omnibus tax bill — which, among other things, would have brought Minnesota's income tax structure into conformity with the federal Tax Cut and Jobs Act of 2017.

Kevin Dunlevy, a partner with Beisel & Dunlevy law firm in Minneapolis and specialist in real estate, said that one of the things the conformity bill would have also done is brought Minnesota law in line with more generous new federal standards on two items greatly affecting commercial property owners — bonus depreciation and Section 179 expensing.

"These are among the big tax benefits for commercial real estate that are contained in the federal bill," he said.

Under the new federal law, any commercial property acquired and placed into service after Sept. 27, 2017, is eligible for 100 percent bonus depreciation in that year. An extra kicker is that for the first time, this 100 percent expensing is available for both new and used property.

Section 179 expensing, meanwhile, was expanded to allow property owners to write off as expenses long-term improvements such as roofs, heating, ventilation and air-conditioning, fire protection and alarm and security system. It also boosted the maximum amount from $500,000 to $1 million.

The state conformity bill would have followed these federal standards, thus eliminating the need for the current Minnesota addback and subtractions. The irony is that both Dayton and GOP legislative leaders supported these measures, even as the overall tax bill was vetoed for other reasons.

Dunlevy, however, said he is a skeptic about greatly expanding the tax benefits for commercial property owners. He recalled the real estate bubble and savings-and-loan crash of the 1980s as he explained why.

"There, you had a lot of developers building new apartments basically as tax shelters and, when those benefits were taken away in 1986, those properties couldn't cash-flow. That was part of what led to the S&L crisis," he said. "Now, I don't know when or if these current tax benefits will disappear, maybe never. But I feel we're headed down that same path."

Meanwhile, a handful of significant real estate-related measures did indeed pass the Legislature and were signed into law, Dunlevy noted.

Probably the most important of them is a new law affecting residential property owners who want to use the Property Assessed Clean Energy (PACE) program to finance the upfront costs of making energy efficiency improvements or adding solar panels.

This state program was originally established in 2014 for commercial, industrial, nonprofit and multi-housing properties. It works by allowing building owners to take out loans financed as a special property tax assessment secured by a lien against the property and collected through a property owner's local taxes.

A bipartisan coalition of legislators and energy efficiency advocates pushed to establish a residential PACE program as well, adding Minnesota to a very small list of states offering one. But there was problem: Because property-tax liens have priority over liens placed by a mortgage lender in the event of a homeowner sale or default, the Federal Housing Administration in December joined Fannie Mae and Freddie Mac in no longer insuring new mortgages on properties with PACE assessments.

The priority of the PACE liens also worried consumer advocates that some borrowers could fall into tax delinquency and lose their homes as a result. Thus when the Legislature established the new residential PACE program this session, it did so with a provision making the PACE liens subordinate to an existing mortgage and all other existing liens on a property — even though that could make it less attractive for lenders to participate.

Dunlevy, however, predicted there will likely be court challenges over this since tax liens "have always had first priority."

Don Jacobson is a freelance writer based in St. Paul. He is the former editor of the Minneapolis-St. Paul Real Estate Journal.