Governor’s office defends historic tax credit cap

With a deficit this fiscal year of $150 million and a projected $384 million shortfall in the fiscal year beginning July 1, the state cannot continue paying up front for economic stimulus through the Historic Preservation Investment Tax Credit program, State Budget Officer Rosemary Booth-Gallogly says.
“Basically, this program … creates economic activity during the construction period and hopefully over the life – 20, 30, 40 years, the useful life – of the project,” Booth-Gallogly told the House Finance Committee last week. “Unfortunately, the cost to the state happens up front. And that’s why we’re trying to cap it – so we can try to spread that cost to the state over a four- or five-year period.”
The proposed cuts to the program are part of Gov. Donald L. Carcieri’s 2008 Supplemental Budget proposal, presented on Jan. 17. Carcieri proposed limiting the program’s annual credits to $20 million for the FY 2008 – a retroactive cap – and to $40 million annually through FY 2017.
The credits wouldn’t be available after that.
“With respect to the termination of that program, I think overall the result of this will be around $461 million worth of credits – just a lot of taxpayer dollars that have gone to support these historic tax structures,” Booth-Gallogly said.
House Fiscal Advisor Michael O’Keefe explained that, if Carcieri’s proposal passes, the approved credits that exceed annual caps will be shifted to subsequent years. In determining which projects can use its credits during each year, “the oldest credits, those that have the least amount of life left on them, would get the priority.”
Booth-Gallogly added, “We’ll be getting to more marginal projects as time goes on.” That means that, according to Booth-Gallogly, by 2017 approved credits will not annually top the $40 million cap.
One of the main concerns for developers – who flocked to the hearing – is that the retroactive cap will kill projects that are already under way. While the fiscal 2008 cap is proposed at $20 million, R.I. Historical Preservation & Heritage Commission Executive Director Ted F. Sanderson has already approved about $36.1 million for the current year. And he expects to see at least another $7 million in projects come through his office.
Sanderson’s office now issues initial and final project approvals, but under Carcieri’s proposal another approval would be tacked on, coming through Tax Administrator Dan Sullivan. Sanderson would make a recommendation and Sullivan’s office would decide which projects – based on completion date – are eligible for the credits during a certain year.
Sullivan said his office “will be studying these types of programs and we plan on making recommendations to not only this committee, but the General Assembly. And the governor may be modifying the program, extending it and focusing it where we really think we get the best return for our investments.”
“So, I assure you that within the next year, we’re going to be studying this program and coming up with potential alternatives for the program,” he said.
To date, the program has awarded $161 million in credits for 150 completed projects, according to a study commissioned by nonprofit Grow Smart R.I. The return in total economic output – through jobs, construction spending and new tax revenue – has so far been $5.35 for each $1 the state invests, according to the study. And the 127 other approved projects are set to draw another $300 million in credits.
Grow Smart R.I. estimated that in total, with projects now planned through 2012, the program will serve as a driver to bring more than $2.4 billion in economic activity into the state.
If the program is not capped this year, the budget deficit would have to be closed through cuts to other programs. “We’d be short $24.8 million this year, $21 million next year, almost $50 million over two years,” said O’Keefe. “And your outlook forecast will look much worse than what it currently does.”
The committee took no action on the proposal, which was discussed as part of Carcieri’s supplemental budget.
Rep. John A. Savage (R-East Providence) said he understood “the reasoning for limiting the exposure, [but] I’m not sure I fully understand, or fully agree, with the reasoning for the termination. I think that’s still within our control.” •