Discussions about reducing the state’s historic tax credit are making some developers wary – to the point that one project, involving the reuse of a major manufacturing complex on the Pawtucket/Central Falls line, has already been canceled.
The developer, Urban Smart Growth, set up a regional office in Pawtucket about a year ago precisely because of the appeal of Rhode Island’s 30 percent historic tax credit, created by legislation in 2001, said Ron Wierks, the group’s director of East Coast operations.
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Combined with the 20-percent federal tax credit, the state credit can subsidize half of a project’s cost. Since Urban Smart Growth, a California-based developer, came to Rhode Island, it had started four projects valued in total between $80 million and $100 million, Wierks said.
The projects are the Eagle Street Factory, in Providence; the Worcester Mills, in North Providence; and the former Hope Webbing complex in Pawtucket. All involve restoring old mills and turning them into residential and mixed-use developments.
A fifth project – the one the developer has now killed – would’ve turned the Paramount Cards factory into a 300,000- to 400,000-square-foot complex with a mix of residential, office and retail space, at a cost of about $20 million, Wierks said.
“Without these tax credits, we can’t do anything with these buildings,” Wierks said. “We won’t buy anything if we know the rug is going to be pulled out from under us. Right now there is no way to know, no way to plan.”
Talk of cutting the historic tax credit is not new, but it’s intensified in the face of a $300 million state budget deficit. In his budget for fiscal 2007, Gov. Donald L. Carcieri didn’t specify how to cut the program, but he encouraged discussion of potential adjustments.
“Rhode Island has one of the most generous tax credits in the country,” said Jeff Neal, spokesman for Carcieri. “Unfortunately because of those tax breaks, that amount of revenue is not coming into the state budget to fund other programs.”
The state budget office estimates the historic tax credit will cost the state $43.9 million this fiscal year, $64.1 million in 2007 and up to $260.2 million by 2011, said Paul Dion, chief budget analyst. A report issued last October said that since the state implemented the program in 2002, it had provided about $85 million in historic tax credits for completed projects.
“The governor believes that the program could continue to succeed even if the tax credit was lower than it is today,” Neal said. “There is no intention to enact any changes that would impact a project that is already under way.”
Economist Ellen Frank, of the Poverty Institute at Rhode Island College, said all the state’s tax credit and exemption programs should be examined to determine whether they are cost-effective, specifically because the budget is tight this year.
“Everything needs to be on the table,” she said. “The governor proposed a budget that will significantly cut Medicaid. He proposed cuts to state employee benefits. A lot of very important programs are being cut.”
But Scott Wolf, executive director of Grow Smart Rhode Island, which promotes policies to curb sprawl, preserve open space, and encourage the redevelopment of urban areas, said some governmental officials are “assuming that the program only has costs and no benefits.”
Grow Smart measured the benefits of the program by hiring a consulting firm to study the economic impact of about 111 proposed and active projects last year. Results showed that developers benefiting from historic tax credits generated 3,000 permanent jobs, added $242.5 million to the state’s tax base and generated $5.47 for every $1 spent on historic tax credits.
“The tax credit program is a great example of Rhode Island capitalizing on one of its key assets,” Wolf said. “We shouldn’t be shooting ourselves in the foot while other states are looking into expanding their tax credit programs.”
Some worry if the state significantly alters the tax credit, developers like Urban Smart Growth will move to other states that provide higher tax credits for redeveloping dilapidated urban sites.
“That’s what scares me, that this might scare these people away,” Pawtucket City Councilman Paul Wildenhain said. “It’s been an incentive the city has utilized that has enormous benefits for taxpayers. It will be a shame if we don’t continue on down that road.”
Wierks said Urban Smart Growth plans to finish current projects but is looking into redeveloping in states with more stable tax credit programs. He said he thinks the income generated from projects more than offsets the cost of the tax credit program because of the jobs and increased tax base it creates.
Restoring old buildings, many of which are brownfields, costs more than bulldozing and rebuilding, he said. Many times the sites are urban. They are surrounded by blue-collar working neighborhoods; therefore, the standard return on investment is not as high.
Wolf said states like Massachusetts, North Carolina and South Carolina are considering expanding their tax credit programs.
“I don’t think [the historic tax credit] could be reduced substantially without discouraging developers,” he said. “We wouldn’t automatically reject proposals for minor tweaking. We just don’t want to see any drastic cutbacks.”
