|The $7.7 million conversion of the former 1917 Longfellow School to lofts in Madison, Wisconsin, will receive an estimated $1.5 million in state credits. The popular state program is temporarily halted pending a review by the Wisconsin Economic Development Corporation. | Credit: James Steakley via Wikimedia Commons
Good news! On Monday, July 14, Governor Walker lifted the moratorium on Wisconsin's historic tax credit program. The state was satisfied with the rigorous amount of scrutiny the historic tax credit applications were given by the Wisconsin State Historic Preservation Office. Going forth, the Wisconsin Economic Development Corporation will expand the data it collects from the tax credit applicants to determine the program's economic benefits. The National Trust for Historic Preservation praises Governor Walker's action since it means Wisconsin's historic buildings and older communities will be revitalized as a result.
On June 18, I posted a blog describing Wisconsin's highly successful historic tax credit program, which was recently expanded from 5 percent to 20 percent. This small change doubled the number of historic rehabilitation projects from the previous year—in just 30 days.
On June 23, Reed E. Hall, the chief executive officer of the Wisconsin Development Economic Corporation (WEDC) placed a moratorium on the state's historic tax credit program until his agency has had a chance to review the program's costs and benefits.
It's no exaggeration to say that shock waves went through the development community--both in Wisconsin and in other states. Since the announcement I have received e-mails and calls expressing concerns about what this moratorium means. Many people were surprised that the WEDC placed a moratorium on the program and some wondered how this might affect their own states' rehab tax credit programs.
In the Wisconsin statute, lawmakers assigned the Wisconsin Economic Development Corporation (WEDC) the role of signing off on each historic tax credit application. WEDC is also required to issue a report on the program's results. Other states like Ohio also require that their economic development agency play a role in their state credit program, so it is not unusual for WEDC to be involved in the governance of the state historic preservation program. What is unusual is that in addition to a report on the credit's usage, Wisconsin also requires an assessment of the program's economic impacts. Economic impact assessments require several decisions about which sets of data to measure and what economic impact models to use. For example, these studies can show that new businesses launched in rehabbed buildings draw more visitors downtown to shop and live. We encourage the measurement of post-rehabilitation impacts, in addition to the jobs and taxes generated during the construction phase, so that all of the incredible impacts of the credit are measured.
Right now applications for $35.8 million in tax credits are pending in Wisconsin, which will lead to an estimated $179.5 million invested in rehabilitating the state’s historic buildings. The Wisconsin Economic Development Corporation should be delighted with the program's leveraging power.
Since the original estimate of how much expanding the program would cost was so low ($4 million in additional costs to the state), the WEDC wants to be sure that it has a clear understanding of the program's costs as well as its many economic benefits. For this reason, the National Trust is encouraging the WEDC to look at other states with uncapped programs to see how they have balanced the costs and impact of these credits on the state’s economic growth.
Minnesota's program, which is also uncapped and in place since 2010, has returned the state's investment eight-fold. According to a 2012 report for the Minnesota Historical Society, economists found that every dollar of the state's investment generated $8 in economic activity in Minnesota.
Economists looking at Virginia's uncapped program found that it had created more than 31,000 full and part-time jobs and generated an estimated $133 million in state and local tax revenues during its 17-year existence.
Interestingly, researchers have also found that one-third of a state's investment is recouped during the construction phase alone—before the state even issues the tax credit. According to the Governor's Taskforce on the Maryland Heritage Structures Rehabilitation Tax Credit program, "During their construction periods alone, the 407 projects generated an estimated $83.7 million in state and local taxes—effectively paying down more than one-third of the state's total $213.9 million tax credit investment." Cleveland State University found that, "While the pay out of the [Ohio Preservation Tax Credit Program] tax credits occurs only after the developer completes the redevelopment project, the state of Ohio recovered $0.31 of every dollar invested prior to the disbursement of any tax credits funds."
The National Trust has offered to be a resource for the WEDC as it measures the program's results. Regardless of which economic model the agency uses, we typically advise state agencies to calculate the increase in both state and local tax revenues and to examine the economic impacts in both construction and post-construction phases of a rehabilitation project. Calculating the economic benefits after occupancy requires knowing the "end use" of the proposed rehabilitation project. Hotels, because of occupancy taxes and large numbers of staff, return the state's investment more quickly than apartment buildings, which only have 1 or 2 employees at the most.
Moreover, the catalytic impacts of rehab projects on the surrounding neighborhood can also be measured. The National Trust recently released the first-ever study on the catalytic impacts that federal historic tax credit projects have on the surrounding neighborhood. Donovan Rypkema of PlaceEconomics studied the neighborhoods surrounding six rehabilitation projects in Georgia, Maryland and Utah. He found that the historic tax credits increased the number of construction permits, business licenses, property values and in some cases, population, in the study areas.
The National Trust and its partners are working to ensure the federal historic tax credit remains in place during congressional tax reform discussions. State programs like Wisconsin's hugely popular tax credit are critical to showing congressional leaders that these tax incentives pay for themselves while generating jobs, increasing the tax base, and preserving our heritage.
While WEDC initiates its review, buildings that were set to be rehabilitated are again placed in limbo. The timing of the review is uncertain, and without this critical piece of the financing, rehabilitation projects are on hold until the state historic tax credit is available again. This delay is troubling since historic buildings left vacant are subject to vandalism and decreased deterioration as time passes.
We can only hope that Wisconsin follows the example of Kansas, Minnesota, Missouri, and Virgina and retains its uncapped program that has been so successful at leveraging private investment in historic buildings throughout the Badger State.
Renee Kuhlman is the director of Special Projects, Government Relations and Policy at the National Trust for Historic Preservation.