Historic tax credits spur development across U.S.

While Rhode Island legislators mull an annual cap for the R.I. Historic Preservation Tax Credit program, at least one New England state is seeking to expand a similar program.
Maine’s Tax Rehabilitation Coordinator Mike Johnson said developers are now offered credits of up to $100,000 per year, “which, essentially, makes it useless. Right now, we’re working on expanding that quite a bit, probably more to where Rhode Island is.”
Proposed expansions have failed during past years, but this year, there’s “a lot of momentum toward this” in the state legislature, Johnson said.
An expansion, he said, would draw developers to Maine.
During the last 11 years, 29 states have started historic preservation tax credit programs – including the 2003 establishment of the Ocean State’s credit – and a few states have changed their programs in attempts to maximize the economic benefits they get and still ensure taxpayers and developers know what to expect each year, said Renee Kuhlman, director of special projects with the National Trust for Historic Preservation (NHTP) Center for State and Local Policy, based in Washington, D.C.
The 29 states offer credits varying widely in style and size, which has caused some developers to move state to state, she said.
Depending on what a developer is looking for, states offer differing annual caps. And some states have per-project limits.
To date, Rhode Island hasn’t imposed any limits. But Gov. Donald L. Carcieri – in his FY 2008 Supplemental Budget proposal introduced in January – has proposed retroactively capping the current year’s credit at $20 million and capping each subsequent year’s, until 2017, at $40 million.
That cap would be relatively large, according to NTHP statistics. Some states offer annual limits as low as Georgia’s $5,000-per-project limit.
At a R.I. House Finance Committee hearing earlier this month, Ted Sanderson, executive director of the R.I. Historical Preservation & Heritage Commission, told committee members that many of those small-cap state programs don’t function well as economic drivers.
“A number of states have, in my view, adopted programs that are sort of historic preservation credits in name only,” Sanderson testified. “They provide so low incentive – in some cases incentives in the vein of $50,000 or $100,000 would be the maximum – that if you’re trying to rehabilitate one of Rhode Island’s textile mills, a project that might be a $10 million or $20 million project,” such a credit wouldn’t provide motivation.
States that have enacted annual caps – including Maryland – have introduced a “level of uncertainty” that many developers aren’t willing to work under, Kuhlman said, adding, “If it’s capped, somebody’s going to go away without anything. … It really is one of the worst things that a state could do to such a successful program as the Rhode Island program.”
Harry K. Schwartz recently retired as vice president of public policy for NTHP, but he now volunteers at the Center for State and Public Policy. He was working in Maryland when that state instituted a cap during 2003 on the 20-percent Heritage Structure Rehabilitation Tax Credit.
“The cap was very effective in killing the program,” Schwartz said in an interview with Providence Business News last week. Since the cap has been in effect, the state legislature each year has awarded the program a different budget. That has led to a “period when the program was changing almost every single year,” Schwartz said. “Before that, it was one of the strongest programs in the country before Rhode Island got started.”
Maryland Preservation Officer Collin Ingraham said the state now also has a $3 million per-project cap. Because most applicants don’t want to start their projects until they are approved for the credits, “that’s created an issue where a lot of our small and mid-sized developers can’t participate at the rate that they were before.”
Between 1998 and 2003, the program issued $89 million in commercial tax credits that resulted in another $356 million in private investment, according to a 2004 report compiled by a Maryland governor’s task force.
Maryland capped its program because the awarded credits were varying each year, which had caused uncertainty in the state legislature’s budgeting process, Ingraham said.
In Rhode Island, Carcieri has proposed the cap in an attempt to close a portion of the state’s budget deficit – projected at a total $450 million for the current and next year.
The cap, Kuhlman said, would make Rhode Island less attractive to outside developers, like Struever Bros. Eccles & Rouse. SBER was working mostly in the Baltimore area until the cap was instituted there. And since 2003, it has invested more than $500 million in seven Rhode Island projects.
While Rhode Island offers credits of up to 30 percent, the average credit level for state programs is 25 percent, Kuhlman said.
But when the Maryland cap was introduced, developers didn’t flee to only Rhode Island, Ingraham said. Many went to Virginia or North Carolina, both of which don’t have annual tax credit caps, Schwartz said.
North Carolina has offered uncapped 20-percent commercial and 30-precent residential credits since 1998, said David Christenbury, the state’s preservation architect and tax credit coordinator. The program has been so successful, that it’s now offering a third type of credit – started during 2006 – that covers mill restorations and industrial projects, he said.
For the 1,174 projects completed between 1998 and 2006 – of which 412 were commercial properties – North Carolina has issued $657.27 million in credits. The return on that investment, calculated by Christenbury and his staff, has been 39,000 new full-time jobs and an added $2.1 billion to North Carolina’s economy.
North Carolina’s investment-to-return ratio – about $3.20 for each $1 invested – is below what Grow Smart Rhode Island estimates as Rhode Island’s economic return. For every $1 invested, the state gets back $5.35, according to a study released during September 2007.
State historic preservation programs haven’t been around for long – Missouri, the oldest, celebrated its 10-year anniversary during 2007, Kuhlman said. Two of the most recent, Kentucky and Oklahoma, were started during 2006. In Rhode Island and elsewhere, state credits are used in addition to the 20-percent credits offered through the National Park Service instituted during 1976. That program has “leveraged more than $30 billion in private investment,” according to the U.S. Department of the Interior.
In New England, New Hampshire is the only state to not offer rehabilitation credits.
In Vermont, the program is capped at $1.6 million in credits each year, said Tax Credit Coordinator Chris Cochran. “The caps ultimately cripple the program, in my opinion,” he said, “because there’s risk.”
Neighboring Massachusetts instituted a program during 2003 with a $10 million-a-year cap, said Brian McNiff, spokesman for Mass. Secretary of State William Francis Galvin.
“It started at $10 million, then it went to $15 million, then it jumped to $50 million,” he said. “Of course it’s a popular program. … I know that a year ago there were requests for $80 million in tax credits. With the $50 million-per-year cap you can see it’s competitive.”
Approval of a Massachusetts development can take up to nine months, Sanderson said recently.
McNiff said there’s a chance for further growth in the Massachusetts program.
“I suppose if it becomes more popular and there’s more pressure from people looking to make use of it,” he said, “then the people will be asking the legislature to expand it.”
But even a high cap likely won’t draw many developers to a state, Schwartz said, citing the $30 million cap that was in place during the year that Struever Bros. Eccles & Rouse started operations in Providence. •