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Credit Worthy News

HTC Watch | New bill introduced to enhance federal HTC

Posted by Katherine Ferguson on Tuesday, June 19, 2018

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Last week, we received welcome news that a bill was introduced in Congress by U.S. Senators Bill Cassidy, M.D. (R-LA), Ben Cardin (D-MD), and Susan Collins (R-ME), and U.S. Representatives Darin LaHood (R-IL) and Earl Blumenauer (D-OR) to address existing basis-adjustment requirements of theHistoric Rehabilitation Tax Credit (HTC). The newly introduced legislation eliminates this requirement, enhancing the credit after uncertainty about investment potential with the change of terms in last year's new tax reform law that required the credit be taken over five years. The Low-Income Housing Tax Credit (LIHTC) was the model for this provision as it too has a multi-year claiming structure.

You can help by encouraging your Members of Congress to co-sponsor the HTC Enhancement Act of 2018 (H.R. 6081 or S. 3058).

National Trust Community Investment Corporation (NTCIC) has created these helpful talking points:

  • The HTC provides owners of historic buildings with an incentive to invest in the difficult task of rehabilitating their properties according to the Secretary of Interior’s Standards for Rehabilitation.
  • While the 20 percent historic tax credit was maintained in the final tax reform bill, it was modified, and this is expected to reduce the amount of reinvestment flowing into our historic communities and neighborhoods.
  • Presently, the tax code requires that building owners subtract the amount of federal historic tax credits from a building’s basis (the amount a property is worth for tax purposes). Eliminating this requirement will increase the basis of rehabilitated historic buildings for building owners, providing a tax benefit, and attract more capital from tax credit investors. Rep. LaHood (R-IL) and Rep. Blumenauer (D-OR), and Sen. Cassidy (R-LA) and Sen. Cardin (D-MD), have introduced the Historic Tax Credit Enhancement Act (H.R. 6081 and S. 3058) to eliminate the basis adjustment for federal HTC transactions.
  • This legislative change still preserves the vast majority of the savings achieved by the Tax Cut and Jobs Act and eliminating the basis adjustment will also bring the HTC in line with the Low-Income Housing Tax Credit (LIHTC), which does not require a basis adjustment.
  • Enacting this legislation will strengthen the credit and improve the incentive for building owners who are revitalizing historic properties in communities nationwide. Please co-sponsor the Historic Tax Credit Enhancement Act, sponsored by Cassidy/Cardin in the Senate (S. 3058) and LaHood/Blumenauer in the House (H.R. 6081).

Topics: policy, federal HTC

Historic Preservation and Opportunity Zones

Posted by Katherine Ferguson on Friday, May 25, 2018

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Sibley Mill | Augusta, GA

Reviews of the new tax reform bill have been mixed. Historic tax credits were retained, but the terms of claiming the credit changed. Other tax incentive programs were modified or done away with entirely. Depending on whom you ask, these changes can be positive or negative.

One change of the tax reform of 2017 that has gotten a lot of attention is the addition of Opportunity Zones. This program was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and advertises to inject economic incentives to combat geographical inequality. US Census Bureau statistics point to stagnation in primarily rural counties where jobs and businesses have dropped over the last decade. In the 1990s, more than 50 percent of all counties grew at the national rate. Now only 25 percent do.

What is an Opportunity Zone?

The Opportunity Zones program is set up to benefit investors who invest in new businesses and development in census tracts approved as an Opportunity Zone (OZ). The program is market-based and requires no public money. Up to 25 percent of a state’s low-income census tracts - determined by population, income, and local input - are designated by governors and approved by the U.S. Treasury and the IRS.

Any corporation or partnership may self-certify an opportunity fund as an investment vehicle for capital gains tax deferment on the sale of another investment. While IRS rules are still being written, there is not expected to be a minimum or a maximum on the funds. Time is the primary constraint as it is expected that the fund will have to invest 90 percent of its assets in OZ projects within six months. And currently these investments must be made by the end of 2019 to get the full benefit of a 15 percent reduction in deferred taxes for investments owned seven years as the program is due to sunset December 31, 2026. (Investments owned for five years are reduced by 10 percent.)

What does this mean for historic rehabilitation projects?

OZ funding will not be enough on its own to fund a project. Combined with incentives like historic tax credits, however, OZ funding can help fill the capital stack for projects in economically depressed areas. Because of this, we expect that there could be interest in historic rehabilitation in areas that previously may not have been fully feasible before.

It may not be possible to draw a straight line between OZ funding and HTCs, but there might be parallels. Many people in the industry have likened the program to New Markets Tax Credits (NMTC), a program that is occasionally twinned with HTCs to fund rehabilitation projects. They have been sibling programs, but do not directly correlate in terms of usage.

The new OZ approach may create opportunities for investments in historic assets that that NMTCs do not necessarily create. Theoretically, an individual, or small group of individuals, could form a corporation or partnership to make smaller investments in OZs. Because of the complexity of the NMTC structure, it isn’t often economically feasible for a small NMTC project, while smaller projects may dovetail nicely with a combination of HTCs and OZ investments.

In addition to new businesses, many states are focused on making funding available for workforce and affordable housing opportunities that can utilize the OZ program. Technical guidance from the IRS suggests that LIHTC, HTC, and NMTC projects will be qualified investments; however, there are expected to be exclusions for projects that include “sin businesses” like golf courses, country clubs, massage parlors, gambling venues, or stores where the principal business is sale of alcoholic beverages for consumption off premises.

We know that historic preservation is a function of community revitalization. If the program incentivizes investment in these communities as it is designed to do, it will make these projects all the more probable as new businesses are encouraged to move in. But the bottom line is that the potential impact of OZs is yet unknown. We must wait and see how guidance is structured and how investors will respond.

Stay tuned...

This article was written with help from George Morrison of McNair Law Firm, PA and information from the SC Dept. of Commerce.

Further resources:

IRS.gov Opportunity Zones FAQs

McNair Law Firm, PA Opportunity Zones FAQs

Topics: policy, Historic Tax Credits, Opportunity Zones

Historic Tax Credit Legislative Update | August 2017

Posted by Katherine Ferguson on Monday, August 28, 2017

MISSOURI
Tax credit reform is once again a subject of much debate in Missouri’s capital with the historic preservation tax credit garnering much attention. Proponents of tax reform proposals that eliminate the state HTC program cite a report stating that only 26 cents of every tax credit dollar is returned to the state treasury; opponents of reform call this report “amateurish” and not representative of the reality of the program or its positive effects on the state.

A special committee formed by Governor Eric Greitens released a report in early July calling for sweeping changes to the historic preservation tax credit program, much to the dismay of developers, bankers, and local leaders. The current tax credit covers 25 percent of the cost of rehabbing historic buildings and any changes could impact projects in large cities, particularly St. Louis, where 900 projects over the past 15 years have utilized the tax credit for a combined $3.15 billion eligible for reimbursement.

Developers argue the state tax credit makes rehabbing historic buildings possible, and without it, downtown St. Louis will have continuing blight due to abandoned historic structures. Supporters of keeping the tax credit program believe the present uncertainty will cause stagnation in the local development environment and drive investment out of the state.

 

MICHIGAN
Conversely, Michigan’s former state historic preservation tax credit may be receiving new life thanks to recent proposed legislation. In early July, a bill was introduced in Michigan’s State Senate to reinstate the historic preservation tax credits that went away in 2011 under Governor Rick Snyder’s sweeping tax reform. The bill would allow individuals and companies to “credit up to 25 percent of qualified expenditures when paired with federal tax credits,” according to the legislation. 

Over the 11-year period when the credits were available, tax credits leveraged almost $1.5 billion in private investment and created 36,000 jobs, according to data from the Michigan Historic Preservation Network.

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Aurora St. Charles Senior Living | Aurora, IL
Photo Credit: Leslie Schwartz

ILLINOIS
Elsewhere in the Midwest, the Illinois’ River Edge Redevelopment Zone (RERZ) Historic Tax Credit was extended with the signing of legislation by Governor Bruce Rauner on August 18th, 2017. The legislation benefits special historic zones in five cities – Aurora, East St. Louis, Elgin, Peoria, and Rockford – that were identified as in need of special incentives for economic development. This program allows for a tax credit of 25 percent of qualified rehabilitation expenses for historic projects, and since 2009 the program has mobilized $82.1 million in private investment in these communities.

A similar 25 percent HTC was proposed earlier in the year for the cities that were the sites of the Lincoln-Douglas Debates of 1858 (H.B. 3096). Municipalities that would benefit include Ottawa, Freeport, Jonesboro, Charleston, Galesburg, Quincy, and Alton. The outcome of that proposal is yet to be determined. No state historic tax credit program has yet been proposed for the Greater Chicago area.

 

WISCONSIN
Governor Scott Walker’s 2017-2019 biennial budget is creating uncertainty for historic rehabilitation projects in Wisconsin. Included in the proposal is a $10 million annual aggregate cap for the state HTC along with added stipulations requiring applicants demonstrate that their projects create jobs and improve local economies. This type of forced competition is leading developers in smaller communities to shy away from advancing projects, anticipating fierce competition with larger projects in urban centers which routinely claim the majority of annual tax credit allocations. In 2015, Milwaukee projects alone were awarded more than $48 million in tax credits, representing over 42 percent of the state’s annual allocations. However in 2016, $58 million in credits were awarded with 70 percent of projects in communities with a population less than 100,000, proof that the economic benefits of the HTC program are helping smaller communities under the uncapped program.

This is not the first time HTC defenders fought legislation of this type. Governor Walker’s 2015-2017 budget proposed similar changes to the program but the Legislature did not agree. This year, Senate Republicans support a cap, but their proposal would increase the cap to $20 million with a project cap of $5 million and no stipulation for job creation.

 

If you are concerned about the future of your state’s historic tax credit, please make plans to engage your state legislators on behalf of your state’s HTC. The Historic Tax Credit Coalition and the National Trust for Historic Preservation are excellent resources for information on advocacy.

Topics: policy, Advocacy

Historic Tax Credit Legislative Update (from NTCIC)

Posted by Katherine Ferguson on Friday, May 5, 2017

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.

 

Contact Us 
to request more about how you can help advocate for HTCs in your district.

Topics: policy, Advocacy, federal HTC

Historic Tax Credits and Urban Revitalization

Posted by Bill MacRostie on Wednesday, April 19, 2017

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@4240 | Cortex Innovation Community

This week’s edition of The Economist magazine has an informative article about urban revitalization in St. Louis. In a city with a turbulent history of racial segregation and housing discrimination, and one The Economist calls “one of the country’s most troubled,” the article describes signs of hope in the form of Millennial in-migration and successful educational efforts in the city’s most challenged neighborhoods. At the heart of these trends the article highlights a public/private innovation district named Cortex Innovation Community being developed—and thriving—in a formerly abandoned industrial area between Washington and St. Louis Universities.

The article describes scores of biotech, medical and scientific start-ups being nurtured by business incubators and other Cortex-sponsored efforts. What the article doesn’t mention—but we know because Cortex and its joint venture partner Wexford Science + Technology are long-standing clients of our firm—is that one of the first efforts in the district was the renovation of an historic warehouse building that obtained critical project financing from federal and state historic tax credits.

In yet another example of what has been repeated hundreds of times across the country for decades, historic tax credits provided risk-capital in the early stages of a multi-year project… and served to catalyze future development in its surrounding neighborhood. We are proud to have been a part of this pioneering project.

We believe that as the new administration and Congress begin to tackle comprehensive tax reform, they would be well-advised to keep in mind the value of federal tax policy in directing capital toward certain activities widely acknowledged to be in the public interest. Republican tax reform orthodoxy in Congress—especially in the House of Representatives—holds that removing incentives from the tax code means the federal government will “stop picking winners and losers” and will allow a purer market to function on its own in choosing where capital should be directed. The reality of our history in the last half century is that widespread disinvestment in many of our cities and small towns make early investment in revitalization efforts too risky for the “pure” market to stomach without backup from government. The historic tax credit has played a vital role in revitalization efforts all over the country, and should be kept in the tax code.

Topics: policy, Advocacy, federal HTC, St. Louis, Cortex Innovation Community