The State of State Historic Tax Credits

By Renee Kuhlman posted 01-13-2017 16:27

  

Like the federal government, 34 states currently use Historic Tax Credits (HTCs) to encourage the redevelopment and preservation of qualifying historic buildings. By amplifying the federal HTC, state credits help protect states’ unique heritage while creating new jobs and places to house new businesses.

An Impressive Record

In 1994, a year after Richard Moe became president of the National Trust, there were eight states with HTCs. Under Moe’s leadership, the formation of strong, effective statewide preservation organizations became a priority that also resulted in the creation of strong, effective state incentives. A mere eight years later, in 2002, 23 states offered tax credits for rehabilitating historic buildings. Fast-forward to 2014: 35 states offered HTCs!

This remarkable expansion was the result of preservationists working hand-in-hand with developers, mayors, architects, downtown business owners, Main Street managers, realtors, contractors, and economic development officials. The success becomes more extraordinary when compared with the progress of other state-level real estate incentives. Today’s 34 state HTC programs compare favorably to the 18 state Low Income Housing Tax Credits (LIHTCs) and 12 state New Market Tax Credits (NMTCs).  

The road to success has not been without setbacks. Michigan lost its HTC in 2011—despite the fact that the credit was putting underused and abandoned buildings back into productive use—when the state eliminated all of its tax credits. Inexplicably, California Governor Jerry Brown vetoed an HTC bill that was unanimously passed by the entire legislature in 2014. In 2015 Indiana allowed its commercial credit to lapse because, with a miniscule program cap of $400,000, it was too small but retained its tax credit for homeowners because it was effectively encouraging rehabilitation activity. Also in 2015, under a tidal wave of support created by the leadership of Governor Pat McCrory and Secretary of Natural and Cultural Resources Susan Kluttz, North Carolina brought back its HTC after letting it lapse the previous year. Hopefully, the same reversal will be seen in 2017 in Alabama, which did not renew its program despite overwhelming support from the majority of its state legislators.

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The Gorman Company renovated an 1882 brewery in Milwaukee, Wisconsin, and turned it into the Brewhouse Inn and Suites, creating approximately 111 jobs during the rehabilitation. Today the 90-room extended-stay hotel employs 28 people (10 part time), plus another 51 (25 part time) at the restaurant/bar. | Photos courtesy of The Brewhouse Inn and Suites

Developments in 2016

Despite the challenges, advocates made good progress in educating their elected officials about the incredible leveraging power of the states’ investments in HTCs.

Illinois: Advocacy led by Landmarks Illinois, AIA Illinois, and five pilot cities ensured a one-year extension of the River Edge Historic Tax Credit, a state program available only to qualifying buildings in Aurora, East St. Louis, Elgin, Peoria, and Rockford. The 25 percent tax credit, which had been set to expire at the end of this year, will now continue to generate construction jobs and new businesses. The extension bill has passed both houses and was signed into law by Governor Bruce Rauner.

Virginia: Over the summer, the Joint Subcommittee to Evaluate Tax Preferences met to discuss Virginia’s highly successful, uncapped 25 percent HTC. A strong coalition came together under the leadership of Preservation Virginia to inform officials about the program’s success. In August a dozen advocates representing Main Streets, architects, realtors, contractors, bankers, mayors, nonprofit organizations, and redevelopment companies offered testimony about the effectiveness of the tax credit in a packed committee room in Richmond. On September 22 the Joint Subcommittee to Evaluate Tax Preferences agreed to the coalition’s request to delay taking action until more analysis of the Virginia Historic Tax Credit’s performance could be completed. Preservation Virginia and the Home Builders Association of Richmond are currently raising funds for two new studies of the incentive. In December Governor Terry McAuliffe unexpectedly proposed a $5 million per taxpayer cap on the credit, which has leveraged private capital to create new jobs and businesses across Virginia.

Alabama: Studies are also playing a role in Alabama. The Alabama Historic Rehabilitation Tax Credit expired in 2016 after a three-year run, despite a study by Novogradac & Company that showed a $3.90 return for every dollar allocated. The extension bill had strong support from Alabama legislators who saw the rehabilitation projects get underway in both small towns and larger cities like Birmingham and Mobile. Unfortunately, Alabama Senate President Pro Tem Del Marsh held up the proposed seven-year extension, citing concerns that the state’s treasury would be hit with the entire $60 million in credits at one time. Although legislators let the incentive expire, they did hire a researcher to evaluate the effectiveness of the program.

Oklahoma: In a huge win, preservationists successfully fended off an effort to cut the state’s HTC during the legislative session. Advocates showed legislators that the tax credit actually helps address the state’s estimated $900 million budget shortfall by generating more jobs than new construction and helping pay back the state’s investment during the initial construction period.

Kentucky: In 2016 advocates attempted to get the $5 million aggregate cap removed from the Kentucky credit, and they are planning to do so again in 2017. In August I joined State Historic Preservation Officer Craig Potts and developer Steven Michael of Hudson Holdings to present information to members of the Kentucky Appropriations and Revenue committee. The legislators’ perceptive questions showed their interest in understanding the leveraging impact the state’s credit had on private investment in the state’s historic buildings.

Additionally, this year the National Trust helped advocates in several states, such as Arizona, Idaho, and Florida, lay the groundwork to pursue HTCs.

Looking Ahead

Maps have always been a useful way for preservationists to quickly illustrate the impact of HTCs, and now Novogradac offers a great new tool for the federal HTC program. The National Trust is helping the company explore an overlay for state HTCs. (Learn more from this recent webinar about new advocacy tools).

West Virginia’s redevelopment of historic properties lags behind its neighbors Kentucky, Ohio, Pennsylvania, and Virginia due in part to its paltry 10 percent state HTC. Exciting efforts are underway to educate West Virginia legislators and ask them to support increasing the incentive to 25 percent of qualifying rehabilitation expenses. Today advocates in West Virginia are effectively combining 21st-century tools, like a website illustrating the benefits of the proposed change, with old-fashioned advocacy in the form of organizing events around the state.

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Through the combination of community donations and state and federal HTCs, the Simon Theater in Brenham, Texas, re-opened as the Barnhill Center in February 2016. | Photo by Kathlyn Dragna

West Virginia is just one of many places where preservationists will be hard at work in 2017. Advocates in Arizona, California, Idaho, and Tennessee are “taking the temperature” of their legislatures to determine whether the time is ripe for pushing for state HTCs. Due to high demand in both states, Connecticut preservationists will likely request an increase to the state’s $31.7 million capped program, just as advocates in Massachusetts are requesting an increase in their $50 million annual program cap. Alabama advocates want to see their state HTC return while those in Texas, Virginia, and West Virginia are working hard to make sure legislators understand the significant role their state credits play in attracting private capital to redevelopment projects.

Now is also the time for those who have developed strong advocacy muscles on behalf of their state HTCs to engage federal legislators to protect the federal HTC. The same arguments that swayed state officials will be effective at the federal level: HTCs create jobs, spur new economic investment in abandoned and underused buildings, and keep our historic buildings in productive use.

With an impressive 20 years of progress, the redevelopment community—from Main Streets, to mayors and property owners, to preservationists—can be justifiably proud of their advocacy record for HTCs. Working together we will continue protecting, enhancing, and putting in place new state HTCs while ensuring the bedrock upon which these programs are built—the federal HTC—remains intact during tax reform in the next Congress.

Renee Kuhlman is the director of Special Projects, Government Relations, and Policy at the National Trust for Historic Preservation.



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