A new tax incentive offered by Rhode Island is expected to help breathe new life into many of the state’s forgotten historic buildings.
The tax credit, approved by lawmakers earlier this year, will offset 30 percent of the cost for developers to restore historic building. The program starts Jan. 1.
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For Ted Barrows the tax break will bring his dream of restoring the century-old Hotel Belvedere in Bristol a bit closer to reality.
“This is encouraging people to undertake restorations that otherwise might not have happened. For investors, the credits make the projects attractive because the return on investment is higher,” said Barrows.
Barrows said the tax credit coupled with a similar federal tax credit – providing tax breaks of up to 20 percent of the cost of renovations – will absorb half of the total costs to do restoration work on the building. He said he expects his project to approach $7.9 million.
Rhode Island’s historic building tax credit program is among the most generous in the nation.
State officials hope the credits remove some of the financial challenges that developers of old buildings have faced for decades. Whether it’s a vacant downtown Providence building or an old textile mill along the Blackstone Valley, officials say the structures are valuable to the state’s economy.
“Remember that when developers work on these buildings they are buying materials and paying sales taxes to the state. When they hire workers they are generating income tax for the state as well,” said Edward Sanderson, executive director of the Rhode Island Historical Preservation and Heritage Commission, a state agency.
The additional revenues for the state could absorb the projected cost of $16.6 million for the state to offer the credits.
“This is good for the state as a whole,” Sanderson added.
There are approximately 900 Rhode Island buildings that are listed with the national and/or state register of historical places, which is a requirement to receive the tax credits.
For years, owner-occupied homes have been able to take advantage of tax credits to improve historic buildings. The new credit is geared toward buildings that generate income, whether through residential or commercial leasing.
Sanderson said his office is currently drafting regulations that will govern the criteria for getting credits as well as the application and review process.
So far, there are basic guidelines for the tax credit program. For example, Sanderson said projects would have to meet historical preservation standards set up by the state and federal government.
Applicants will also need to submit to the state a detailed description of the proposed renovations, along with architectural drawings. A key, Sanderson said, is showing a plan to restore what is historically valuable. Credits will not apply to new construction.
“The credits are for people who treat historic buildings correctly. It’s not for people who damage historic buildings with bad workmanship or alterations that take away from the historic value,” he said.
For example, Barrows would like to apply the tax credits to the expense of replacing a restaurant area on the top floor of the Belvedere Hotel that was destroyed in a 1928 blaze.
“It’s not new construction. It’s a key feature that we want to restore to make it look just the way it did when the building was built,” he said.
Like most projects in need of cash, Barrows is not interested in using the credits to lower taxes. He plans to sell the credits to a third party, possibly a bank, to raise capital.
After buying the credits from a developer at a reduced rate, the third party uses the credits to lower its own taxes.
“I think 75 cents per dollar would be very reasonable,” said Barrows.
Cliff Wood of Cornish Associates in Providence, which owns several historic buildings including the Alice Building in downtown, said it remains to be seen what the market will pay for the credits.
“Are they worth 90 cents or 60 cents on the dollar? What is the value of the credit? That’s the question,” said Wood.
Wood said, in any case, the tax program is a step in the right direction for the state.
“When you are working with historic buildings you need to be creative. You can’t go to one source. You can’t just rely on loans,” he said.
Stanley Weiss, who owns several historical downtown properties, said the credits are helpful, as are the low interest rates these days, but there could be a greater obstacle stopping building restoration in coming months – the slowing economy.
“I’ll tell you in a couple of months how important the credits are to us. The credits won’t matter if we don’t have a market for these buildings,” he said.
For more information on the state’s historical building tax credit, visit the Rhode Island Historical Preservation and Heritage Commission’s Web site at www.rihphc.state.ri.us.
