Will ‘Superman’ revive tax credits?

SAVING THE DAY? The Industrial Trust Tower, known as the “Superman” building locally, is set to become vacant. Cornish Associates head Arnold “Buff” Chace Jr. says tax credits will be needed for the structure to be transformed. / PBN FILE PHOTO
SAVING THE DAY? The Industrial Trust Tower, known as the “Superman” building locally, is set to become vacant. Cornish Associates head Arnold “Buff” Chace Jr. says tax credits will be needed for the structure to be transformed. / PBN FILE PHOTO

Smart-growth and economic-stimulus arguments haven’t convinced state leaders to bring back Rhode Island’s historic-tax-credit program for the past four years, but perhaps the sight of Providence’s tallest and most recognizable building vacant will.
The historic Industrial Trust Tower is set to lose its remaining Bank of America workers this spring just as supporters of the historic-tax-credit program make their latest push to bring the program back in the state legislature.
If the so-called “Superman” building is going to be transformed into a mixed-use apartment building, as developer Cornish Associates would like, supporters say state tax credits will be essential to make it work.
“It will require state historic credits,” said Cornish Associates President and CEO Arnold “Buff” Chace Jr., about a 111 Westminster St. redevelopment project. “One of the realities is the costs of projects in Providence are 80 percent to 90 percent of what it costs in Boston, but the rents are half of Boston’s. As a straight-up deal, they do not work, so as a community we have to decide whether we want to make them competitive.”
The future of the Superman building is only one of the reasons historic-tax-credit supporters are optimistic in 2013.
For the first time since the program was suspended in 2008, a proposal for restoring it has been included in a governor’s budget and both the House speaker and Senate president have said they want to bring it back.
Gov. Lincoln D. Chafee’s proposal would restore the program largely as it was when it was put on ice, offering credits worth 25 percent of the approved rehabilitation costs of buildings as long as they comply with state and federal historic-preservation rules.
There are dozens of prominent, old buildings across the state that could see their chances of restoration boosted significantly by tax credits, a number that will likely increase in May when developers holding leftover credits will lose them if they don’t show construction progress. The program was suspended because of its cost during a budget crisis, and to make the credits affordable going forward, Chafee is tapping a pool of money left over from those abandoned credits to pay for new projects.
Already, $25.9 million in credits have been abandoned in the program’s history with another $150.1 million in previously approved credit still active and waiting for projects to be completed, according to figures from the R.I. Division of Taxation.
But the provision that allowed developers to bank their credits in 2008 came with a May 15 deadline to prove they have spent at least 10 percent of their qualified rehabilitation expenses.
If they haven’t reached that 10 percent benchmark, they not only lose their credits, but a fee for holding onto them that was worth 3 percent of qualified expenses.
The state collected $27 million in holdover fees after the program was closed to new applicants.
According to a list from the R.I. Historical Preservation and Heritage Commission, which certifies projects, only 10 of 34 projects with eligible outstanding credits are known to have started work.
Developers are not required to notify the commission when they begin work, but Executive Director Edward Sanderson said it was unlikely that many projects, especially the larger ones, had begun without his finding out.
Projects approved for tax credits known to be under way include the Arcade in downtown Providence, the Equitable Building in downtown Providence, Poirier’s Diner on Providence’s west side, the Dyer Block in downtown Providence (possibly complete), Anthony Mill in Coventry, Pocasset Mill in Johnston, and the Weekapaug Inn in Westerly, (which was completed last fall.)
In total, those projects were estimated to generate $24.6 million in historic credits, with the Anthony Mill the biggest chunk at $7.5 million, according to commission figures. (The division of taxation does not release information about specific projects, or share them with the commission, which estimates based on applications.) The projects with no record of having started construction have been authorized for tax credits worth up to $122 million that could, if the Chafee budget plan were approved, flow back into the pool of new projects.
The concept of using the abandoned credits was introduced last year in a proposal by a coalition of historic-credit backers to bring the program back.
“It is not a carbon copy, but appears to have some similar elements to what we were working on last year,” said Scott Wolff, executive director of GrowSmart Rhode Island, a leader in the push to bring the credits back. “What is significant is the governor is showing some real leadership by proposing something concrete. In the past he has supported it conceptually but not backed a specific proposal of his own.”
Although the governor’s proposal takes elements from previous historic-credit initiatives, Wolff said he doesn’t know if GrowSmart will end up supporting it, as the group is working on its own plan for the coming fiscal year.
A part of the Chafee proposal that Wolff said is a potential concern is a requirement for projects costing $10 million or more to hire only contractors with certified apprenticeship programs, which would limit potential contractors and make the cost of large projects prohibitive, Wolff said.
During last year’s tax-credit debate, a Senate bill would have attached a prevailing-wage requirement on historic projects that was seen as a costly give-away to unions.
Before the tax credits were suspended, the program was dogged by its cost and the fact that some recipients, including social clubs and some single-family houses, didn’t include a significant community benefit. To make sure the credits go toward projects that stimulate the economy, Chafee’s proposal would make social clubs ineligible, along with homes with less than four units.
Another complaint with state tax credits of all shapes is that a chunk of every tax dollar used goes to brokers who buy credits below face value and sell them to companies with large state tax liabilities.
Chace said during the recession, when corporate earnings and tax bills were down, developers could only get about 80 cents per dollar on their credits, but that figure has risen again to just under 90 cents.
Wolff said he and other credit supporters share concerns about tax dollars going to middlemen and are looking at changes that would allow the state to offer a direct grant to developers instead of a tax credit.
Minnesota has such a plan that offers a grant of between 90 cents and 93 cents per dollar, Wolff said.
The list of stalled projects that stand to lose their tax credits if they can’t meet the May deadline and the program is not restarted is significant.
It includes the former South Street station on Eddy Street in Providence, also known as the Dynamo House, which was the largest project approved for historic credits with four separate phases expected to cost $137.2 million and generate $34.3 million in credits, according to the commission list.
The original plan for the old riverfront power station has been scrapped and no new plan has been discussed publicly by the property’s owner.
Providence Foundation Executive Director Daniel Baudouin said he was happy to see a historic-tax-credit proposal in Chafee’s budget.
“It is putting people back to work with something that pays back the community with taxes, urban revitalization and places for people to live and work,” Baudouin said. “In downtown Providence we have a number of buildings that need to be rehabbed and maybe between five and 10 where ownership would be willing to do it if the program was in place.” •

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