Sounds unbelievable, right? That a state could double the amount of historic rehabilitation projects in just 30 days?
But according to the Wisconsin State Historic Preservation Office (SHPO), that's just what happened. In 2013 the SHPO processed applications for approximately $45 million in rehabilitation projects. In January 2014, the SHPO saw applications for more than $90 million worth of projects.
Why the surge of private investment in the Badger State?
It's because Wisconsin legislators raised the percentage of their state historic tax credit—not once, but twice in 2013. And therein lies a tale.
|The renovation of the 1924 Northland Hotel in Green Bay with
private investment is being spurred by Wisconsin's new 20 percent state
tax credit and the federal historic tax credit. | Photo by Chris Rand
It all started with the 1920s Northland Hotel in Green Bay. It's the type of hotel found in many mid-sized downtowns. This nine-story, red brick building, which is need of restoration, is one of the cornerstones of the city's redevelopment plan. "Unfortunately, every developer that toured the property said they needed an effective state tax credit to make the numbers work," explains Neil White, Green Bay's business development planner.
So White brought this problem to the attention of local Representative Chad Weininger (R-4th District).
Further south in Fond du Lac, State Senator Rick Gudex (R-18th District) was experiencing the same lag in redevelopment. Home to some amazing redevelopment spawned by the local arts group THELMA, Fond du Lac had several buildings along its main commercial corridor that still needed to be rehabilitated.
These two legislators took their idea of increasing the credit from 5 to 20 percent to the Wisconsin legislature during the regular 2013 legislative session. These lawmakers made a compelling case that the state was losing redevelopment dollars to other states.
During hearings, Wisconsin-based development companies such as The Alexander Company and Gorman & Company said that they were investing their capital and expertise in other states—states that offered 20 to 25 percent historic tax credits (Wisconsin, 5 percent; Missouri, 25 percent; Minnesota, 20 percent; Ohio, 25 percent; Iowa, 25 percent; Kansas, 25 percent; Indiana, 20 percent).
Legislators took their message to heart and authorized an increase of 5 percent in May 2013.
Convinced that a 10 percent credit was not enough to draw private reinvestment into the state's historic buildings, the two legislators called for increasing the percentage rate from 10 to 20 percent. They made a compelling case and secured passage of Senate Bill #4 in a special session of the Wisconsin legislature in October 2013. Governor Walker signed the new provisions for the state's historic tax credit into law shortly after.
This small policy change has yielded huge results for Wisconsin's older towns and cities and for the state itself. Research done by Cleveland State University and a Maryland Governor's task force show that Wisconsin will receive one-third of its investment back before the tax credit is issued. A state tax credit is not issued until the building is placed into service and taxes on new materials and labor are paid during the construction phase. During the operation of the rehabilitated building, state and local governments will see a return on the rest of the investment through business, payroll, sales and property taxes. The Ohio Development Services Agency, which measures the return on Ohio's investment, found that last year, the 80 completed rehabilitation projects resulted in the $1.02 billion reinvestment in 21 Ohio communities and the creation of 2,428 housing units. Overall, the agency estimates that every $1 spent by the state of Ohio on the historic tax credit leverages $6.72 in private and federal investment.
The amazing leveraging impact of the Wisconsin state tax credit is already underway. The same rehabilitation projects are also using the federal credit which means an increase in applications for that program as well. According to Jen Davel, the preservation architect in the state historic preservation office, "As of April 30, we have reviewed $112 million in total project costs which equates to just shy of $22.5 million in state tax credits and also $22.5 million federal tax credits."
|Along with the March 2014 enactment of the Nebraska Job Creation and
Main Street Revitalization Act and the adoption of a state tax credit in
Texas and Alabama in 2013, this Wisconsin policy change is helping to
shine a light on state rehabilitation tax credits as an important
These changes couldn't have come at a better time. States that have effective historic tax credits—like Wisconsin, Nebraska, and Texas—significantly leverage the federal program. With the federal program's uncertain future during tax reform discussions, it's all the more important that these programs are used widely and their transformative impacts communicated to members of Congress.
Today, 35 states offer a historic tax credit for the certified rehabilitation of historic buildings. We need to follow Wisconsin's example and make sure each state credit is a shining example of effective policy. That would go a long way in helping to keep the highly effective federal historic tax credit program in place.
A special celebration is expected later this year for the newly renovated Northland Hotel. The future of Green Bay—along with many other Wisconsin towns and cities—now looks brighter thanks to the leadership of two Wisconsin legislators.
Renee Kuhlman is the director of Special Projects, Government
Relations and Policy at the National Trust for Historic Preservation.#historictaxcredit #RealEstate