Few in Rhode Island would question that the state’s historic preservation investment tax credit has fostered development. There are so many concrete examples, from the Masonic Temple’s transformation, to mill conversions from Woonsocket to West Warwick.
But for a while now, the credit’s steep cost – more than $60 million per year – and the state’s deepening fiscal crisis have led some to argue that the credit might be too generous, that Rhode Island just might not be able to afford it.
As a result, developers have worried that this key part of their projects’ financing could be pulled away from them anytime, wrecking their plans.
On Monday, in an effort to strengthen support for the tax credit well before it gets targeted again in the next General Assembly session, Grow Smart Rhode Island and other supporters of the credit released a new report quantifying the program’s impact on the state.
The report, commissioned by a 57-member group that calls itself the Coalition for Neighborhood & Economic Renewal and includes businesses, municipalities and civic groups, was produced by Lipman, Frizzell and Mitchell, a Columbia, Md.-based consultancy, updating a similar study by the same firm released in March 2005.
The study shows that from 2002 through 2012, the credit will cost the state $460.16 million in tax revenue and generate $2.46 billion in economic activity – that is, $5.35 for every $1 invested. In addition, the program is expected to add $767 million to the tax base of local communities and generate $297.6 million in additional property-tax revenue over the next 20 years.
Moreover, the report, as well as a separate analysis from Grow Smart, show that the credit has helped create thousands of new housing units – including more than 750 subsidized affordable units – and is responsible for the cleanup of dozens of contaminated sites or brownfields. In fact, 65 percent of the total investment in completed and planned projects is going into such sites in 15 communities.
“This is the single best economic development and neighborhood revitalization tool the state has seen in decades,” said Scott Wolf, executive director of Grow Smart, in releasing the report. He added that in its first five years alone, the credit had helped foster “more investment in historic restoration than in the previous 25 years combined.”
There are 28 states offering some percentage of rehabilitation credit – including five of the six New England states – and no state has lowered its level of credit since 2005, the report notes.
Rhode Island’s credit covers 30 percent of eligible renovation costs, with the requirement that the projects fully preserve the historic character of the building (the R.I. Historical Preservation and Heritage Commission closely monitors each project). Add the 20-percent federal credit, and a developer can count on a 50-percent government subsidy on those costs.
Lance Robbins, principal of Los Angeles-based Urban Smart Growth, the developer of Hope Artiste Village in Pawtucket, where Monday’s press conference making the report public was held, said he wouldn’t have undertaken that $32 million mixed-use project without the state credit.
Robbins has also invested in other industrial properties in Rhode Island because of the credit, totaling 2 million square feet.
But what if the credit were to be reduced? In the last legislative session, state Sen. Stephen D. Alves, D-Warwick, chairman of the Senate Finance Committee, advocated reducing it to 20 percent, for example, but the measure didn’t succeed.
Asked what would happen if the credit were reduced, Wolf and Edward F. Sanderson, director of the historical preservation commission, noted that there’s a 2.25-percent processing fee that already cuts into the value of the credit.
“If we went down to 20 percent, the effective rate would be just under 18 percent, because of that 2.25 percent processing fee, which goes directly to the state’s general fund,” Wolf said. “For a $50 million project, that’s more than $1 million.”
“I think it would reduce the number of projects that could be completed and it would be burdensome to both for-profit and nonprofit developers,” said Wolf. He also noted that the easiest properties to redevelop have already been snatched up, so those that remain are likely to be costlier, and thus need subsidies even more.
In Massachusetts, an annual cap of $50 million is put on the state credit, but In Rhode Island there is no limit on the number of projects that can be accepted to the program each year – although being on the National Register of Historic Places is a condition. But limiting the scope of eligible projects would also be detrimental, Wolf said. Sanderson agreed.
“As much as they have to get my approval, they still have to go to the bank with a viable plan,” said Sanderson. It’s less likely for a developer to take those steps it they are unsure whether the credit will be available to them. “If you don’t know you have the credit, you don’t know you can finance the project.”
In Rhode Island, about 90 percent of the issued credits have been used in neighborhoods where average household income is below the state median, said Wolf.
“Without any conscious targeting of this program, it is going almost entirely to the areas in the state where the economic need is the greatest,” he said.
According to the report, the 150 completed Rhode Island projects total $535.25 million, with $160.57 million in tax credits. The 127 in-progress and pending projects represent an investment of $998.63 million with tax credits of $299.59 million.
A large part of Rhode Island’s return is income and sales tax revenue from new jobs – estimated at 7,200 permanent jobs once all the current projects are completed. Both Rhode Island residents and nonresidents are sending about 18.3 percent of the state’s investment back into the state coffers.
“Those benefits are really jobs. More people are working because of this program,” said Joseph Cronyn, a partner with Lipman Frizzell & Mitchell. “Both in construction jobs and jobs that are created in buildings like [Hope Artiste Village], where people are going to be living and working.”
Municipal officials support the credit for similar reasons.
“Being the mayor of a city that was once littered with dozens of abandoned old mills that presented genuine fire concerns, I can emphatically state the optimal word in the title of this state program is ‘investment,’ ” said Pawtucket Mayor James E. Doyle. •