Inside the issue
Inside the issue
This update comes from Michael Phillips, Public Policy Manager at the National Trust Community Investment Corporation (NTCIC).
The legislative environment in Washington has intensified as the Trump Administration moves past its 100th day in office. Today the House passed the American Health Care Act by vote of 217-213. If passed by the Senate, it could bring up to $1 trillion in baseline revenue, which would act as a partial offset to reducing the corporate tax rate. Overcoming this legislative hurdle, even if the legislation fails to advance in the Senate, creates new momentum in the House to tackle tax reform legislation.
In the tax reform debate, attention shifted to the Administration on April 26th after the White House released its “Core Principles” for tax reform. National Economic Council Director, Gary Cohn and Treasury Secretary, Steven Mnuchin, highlighted an aggressive cut to corporate and individual tax rates to encourage growth. Beyond “Eliminat(ing) tax breaks for special interests,” the document provides few details about how the Administration would pay for its proposed rate cuts and is silent about how it would treat specific community development credits. The text of the White House document can be found at: http://www.marketwatch.com/story/full-text-of-trump-administration-tax-reform-principles-2017-04-26
In the House and Senate, tax reform remains a critical priority. The Ways and Means Committee is continuing its lead role in developing legislative language for a tax reform bill. In late April, Republican members of the Committee participated in a retreat to find common ground on several outstanding questions that must be resolved before tax legislation moves forward. Despite calls for greater leadership by the Senate to move the tax reform process forward and strong opposition by some Republican Senators to a House-devised Border Adjustment Tax, there has been little indication the Finance Committee is working quickly to assemble its own version of comprehensive tax reform.
Since the Administration announced it had pivoted its legislative priority to tax reform, there have been many statements about when legislation would be signed into law. Details about the scope and structure of tax reform will be forthcoming, according to the Administration, but the window to complete tax reform appears to run between October 2017 and March of 2018. Many in Washington view the Administration’s statement of tax reform principles as the beginning of a negotiation process.
The Administration’s engagement presents an important opportunity to advocate for the Historic Tax Credit with the House, Senate, and the Administration. Now is the time for stakeholders to engage and make the case for the HTC with Congress and the Administration. The future of the historic tax credit in tax reform will depend on the ability of advocates, both in DC and at home, to share the value and need for this economic development incentive. Please make plans to engage your member of congress on behalf of the HTC.
The Carroll Building | Waterbury, CT
Just as the case in Kentucky, Connecticut has an aggregate cap on their state historic tax credit. And the demand for these tax credit dollars far outweighs the supply. The last three years has seen funds fully reserved quickly with the last year being fulfilled in the first four months of the fiscal year.
In the April 2017 issue of the Novogradac Journal of Tax Credits, MHA Northeast director Albert Rex takes a look at the history of the Connecticut Historic Rehabilitaiton Tax Credit program and gets insight from some of the key players in the state.
Read the full story here |
Connecticut Looks at Boost to Annual Cap
This St. Paddy’s week, America’s urban areas are crawling with green-clad revelers drinking green-colored beverages. No doubt that many of these merry-makers will be patronizing pubs in historic buildings and main streets that have benefited from historic preservation efforts. They may not be painted green for the occasion (although there may be a few), but these buildings are often considered ‘the greenest buildings,’ a term coined by American architect and sustainability expert Carl Elefante (FAIA, LEED AP) when he declared, “The greenest building is the one that is already built.”
Preservationists are quite familiar with ‘the greenest building’ argument for adaptive use of historic buildings. This concept was originally perpetuated during the energy crisis of the 1970s and phrases like “embodied energy” and “carbon footprint” became part of the preservation lexicon. In the 1980s, the National Trust for Historic Preservation created the famous poster of an old building in the shape of a gas can to convey the idea that building reuse was a good way to conserve energy. It was effective and iconic.
Today, our better understanding of climate change and how our actions contribute to environmental shifts has deepened the issue, linking sustainability with responsibility. The popularity of LEED ratings and energy-efficient materials in building development are the realization of what is marketable, what is socially responsible, and what is financially beneficial over time for developers and end users alike.
Historic preservation and adaptive use are inherently sustainable practices, not only because of the aforementioned embodied energy of the structure but also because of building characteristics that encourage innovative sustainability strategies. “Because many historic buildings were built before climate control was widespread, they showcase great regional climatic adaptation and strategies for passive thermal comfort regulation. Many lessons on how to reduce energy consumption are archived in the historic buildings around us,” says Amalia Leifeste, AIA, assistant professor at the Clemson University/College of Charleston Graduate Program in Historic Preservation. “Sustainable strategies can be gleaned from an understanding of past practices and introduced to new construction or, better yet, capitalized on or re-introduced to existing buildings.”
In addition to being ‘green’ by sustainability standards, there are myriad tools that incentivize reuse and help developers achieve valuable equity for these projects. The federal historic tax credit awards up to 20 percent of qualified rehabilitation expenses for eligible income-producing buildings and at the moment 33 states have historic tax credit programs that mirror or resemble the federal program. Some states and local municipalities utilize tax abatement programs. Cities like Los Angeles, Phoenix, and St. Petersburg, Florida are using local ordinances to reward developers reusing buildings with shorter and streamlined permitting approvals and relaxing zoning and code requirements that apply to new construction. This is a forward-thinking approach to encouraging the sustainable practice of reuse.
The economic benefits of historic building reuse not only benefit developers but also extend to local business owners, residents, and municipalities themselves. Time and time again, the rehabilitation of a single building – be it a landmark mill or a main street storefront – can be the spark for greater economic development in a community, bringing with it more jobs and tax dollars. The creation of housing, affordable or otherwise, is another common use of historic buildings that can stimulate the economy of a locale.
As American cities turn green this week, look around at the historic buildings and the inherent green they represent for energy, for equity, and for economic development. If you are holding a green beer while you ponder this, all the better.
Congress believes that the rehabilitation and preservation of historic structures and neighborhoods is an important national goal. Congress believes that the achievement of this goal is largely dependent upon whether private funds can be enlisted in the preservation movement.
- Tax Reform Act of 1976
A new president. An energized Congress. An aggressive approach to legislative reform. We have seen these themes dominate newspapers for the past month. In addition to the new administration, much has been made about legacies – that of the outgoing president and those of presidents past that are invoked for comparison’s sake.
President Trump and the 115th United States Congress have vowed to make tax reform a priority in 2017, and those paying attention will most assuredly draw comparisons between these efforts like the Tax Reform Act of 1986 that were overseen by the Reagan administration, a popular administration by which most Republican bodies benchmark policies and platforms.
For supporters of historic tax credits, these tax reforms were the birthplace of the current federal programs. Having originally been part of the Ford administration’s Tax Reform Act of 1976, early Reagan reform included the Historic Rehabilitation Tax Credit as part of the Economic Recovery Act of 1981.
Our historic tax credits have made the preservation of our older buildings not only a matter of respect for beauty and history, but of course for economic good sense.
- President Ronald Reagan, 1984
Permanent changes were made to the federal Historic Rehabilitation Tax Credit in the Tax Reform Act of 1986 (the most extensive overhaul of the federal tax system since 1913) that reduced the income-producing credit from 25 percent to 20 percent while other real estate tax benefits were cut – a testament to the program’s value that was apparent to lawmakers. Those changes remain, 31 years later, as the basis for the program in its current form.
Supporters of the federal historic tax credit are not just preservationists but also developers, investors, architects, local business owners, private citizens, government regulators, and elected officials – both Republican and Democrats. Architecture Magazine has called it a “model of governmental initiative” and the Internal Revenue Service in 2002 stated that the Historic Preservation Tax Incentives program “is the nation’s most effective Federal program to promote urban and rural revitalization and to encourage private investment in rehabilitating historic buildings.”
The Federal Historic Rehabilitation Tax Credit | By the Numbers
In short, the legacy and success of the Historic Rehabilitation Tax Credit is one that should be honored in upcoming tax reform. Sweeping change proposed by Speaker of the House Paul Ryan (R-WI) currently appears to eliminate altogether incentive programs like the historic tax credit. In addition, a reduction in the corporate tax rate could de-incentivize the program even if the program remained intact. While the primary goal of historic tax credits is to serve as an economic development tool, it is also as Reagan noted a matter of respect for beauty and history that is protected by an incentive that rewards good preservation.
(An argument can be made that is also a matter of sustainability. But a topic for another day.)