Rhode Island’s 3-year-old historic tax credit is a mighty economic engine, pumping $795 million in economic activity into the state, generating jobs and returning many once-forgotten properties to the tax rolls, according to a study by a real estate consulting company.
The study by Columbia, Md.-based Lipman, Frizzell and Mitchell is based on the 111 projects enrolled in the program as of Sept. 23, 2004. It was commissioned by Grow Smart Rhode Island.
The study is expected to hush calls to eliminate or reduce the program.
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“In addition to preserving great historical assets of the state, (the credit) also produces state and local revenue and continued community revitalization,” said Scott Wolf, executive director of Grow Smart. “These projects tend to have significant catalytic effects.”
The tax credits give economic incentives to stimulate the redevelopment and reuse of the state’s estimated 900 historic commercial properties. Owners of the properties can earn state income tax credits equal to 30 percent of rehabilitation costs.
Every $1 of state tax credit investment produces $5.47 in total economic output, according to the study. Since its inception, the program has created approximately 5,334 construction jobs earning $185 million in wages. The study estimated the tax credits add $242.5 million to the tax base of local communities, generate $179 million in additional property tax revenue and produce $42 million in sales and income tax revenue.
Seventy-five percent of the projects utilizing the credits are in neighborhoods where the average family income is below the state median of $52,781, according to Grow Smart. “They’re generating investment where it’s most needed,” Wolf said.
According to the study, the total cost to the state in tax credits as of September was $145 million. Last summer, officials expressed concern about the amount of tax revenue the program was producing, and proposed a moratorium on the credits until the program’s impact could be studied further, but that idea was eventually dropped. Still, the program has critics.
“We hope what the Legislature is seeing, plus the report, will convince them that the benefits of this program far outweigh any immediate costs,” Wolf said. “We want to make sure (they see) that the tax credits are not an appropriate item to be cut.”
Twenty percent of the state’s expenses are recouped before they are even incurred because, by law, the credit is not provided until the project gets its certificate of occupancy, the study said. By that time, the state will have already collected construction-related income and sales tax totaling $29 million for the 111 projects.
There are approximately 180 projects utilizing the tax credits for a total of more than $800 million in potential investment, Wolf said. The program has become more than House Majority Leader Gordon D. Fox, the bill’s author, ever hoped.
“There has been wide support for it but in tough budget times some were concerned” with the cost to the state, he said. “That’s the value of the study; it shows that the program is even more of a phenomenal success than I thought it would be a few years ago. It’s a good program and it deserves to stay the course.”
The tax credits have spawned redevelopment projects in mills in Providence, Pawtucket, Cumberland, West Warwick and Bristol. The program has also created a concentration of projects downtown, attracting out-of-state and local developers to historic buildings like the Masonic Temple downtown, which will be redeveloped as a hotel, and a group of historic retail buildings that Cornish Associates is redeveloping as lofts and apartments. Many of these projects, the study found, would not be financially feasible without the credits.
“It has produced such a ripple effect in Downcity that we think this gives the decision-makers the information that they need,” Wolf said.
But Tony Thomas, partner of The Foundry Associates, said he has reservations about the program’s increasing popularity.
“I think it’s a great program and certainly we wouldn’t have moved forward without the credits,” he said. “But I wouldn’t want to see the program result in over-building, because everyone gets hurt.”
