Novogradac Journal of Tax Credits | December 2018 | Volume IX - Issue XII
By: Richard Sidebottom
Augusta, Ga., is investing in the digital economy. Driven by the seven-county Fort Gordon Cyber District initiative, many companies are looking for a presence in the Peach State. Cape Augusta Digital Properties is converting two prominent textile mills–Sibley Mill(c. 1881) and King Mill (c. 1884)–into a multi-use tech campus called Augusta Cyberworks. While the concept to create a concentrated community of information technology professionals was borne from the Fort Gordon initiative, the decision to locate in the historic mills was made attractive by a 2016 change to the state historic preservation tax credit (HTC) incentive.
Georgia has had a 25 percent state HTC since 2002. This program allows for up to $300,000 in credit per development for certified non-residential structures. In 2015, Gov. Nathan Deal signed legislation that significantly increased the per-project cap to $5 million, effectively allowing for projects with more than $1.2 million and as much as $20 million in qualified rehabilitation expenses to achieve the full benefit of the program. Additionally, a development creating 200 or more full-time, permanent jobs or $5 million in annual payroll is eligible for credits up to $10 million.
The 2015 changes fostered a significant amount of new investment in Georgia and increased the use of this important historic preservation tool in nearly every part of the state. Annual statistics from the National Park Service (NPS) about the use of tax incentives show that Georgia applications for Part 2 of the federal HTC increased by 42 percent from 2015 to 2016 and estimated costs for these projects increased by 127 percent. Georgia has consistently ranked in the top 10 of Part 2s received by the NPS since 2015. According to information from the Georgia state historic preservation office, three counties (Bibb, Chatham and Fulton) have seen the greatest investment using HTC over the past five years. While these counties represent the Macon, Savannah and Atlanta metro areas respectively, other parts of the state have seen increased activity as well. Perhaps most telling of the impact of the 2015 additions to the program is that after the expansion of the cap, the number of counties with at least one development of more than $1.2 million in expenses more than doubled. The intent of the legislation three years ago was to spur economic development and to incentivize the reuse of existing buildings. This program has delivered.
Both quantifiable trends and market appetite suggest that the number of developments and investment potential are poised to continue, if not grow. Unfortunately, other restrictive parameters to the 2015 legislation are now putting a stranglehold on future historic rehabilitations in the Peach State.
With the 2015 legislation came a restrictive statewide aggregate cap that allows the Georgia Department of Revenue to allocate $25 million per year over the five years (2016-2021) authorized in the law. The allocation process only applies to properties requesting more than $300,000 in credit and those taking credits still have the option to elect for the $300,000 program and forego the allocation process. As demand for credits exceeded the annual limit, allocations were awarded for future years. After just the first two years of the program, allocations have now been awarded through 2020 and approximately $5 million remains in the allocation pool for the final year, 2021. The program is likely to deplete all allocation available before the end of 2018. Another restrictive element of the program is that awarded allocations for projects that do not come to fruition are not returned to the allocate pool; rather, they are returned to the general fund for the state.
Legislation proposed last year to increase or remove the program caps received widespread support from state legislators and preservation advocates, but was ultimately unsuccessful. Preservation leaders such as the Georgia Trust for Historic Preservation are now looking for a path forward to guarantee this popular tool continues in a way that supports expanded use of the program.
“Georgia’s Historic Rehabilitation Tax Credit has had an enormous positive impact on small towns and larger cities,” said Mark McDonald, president and CEO of the Georgia Trust. “It has revitalized downtowns and neighborhoods, created jobs and attracted capital to our state. In fact, studies have repeatedly shown that the program creates $3.49 for every $1 in tax credits issued by the state.”
Unfortunately, without passage of legislation to extend funding for the program, the state is likely to see the loss of major developments that are already planned. A quick and unscientific survey finds over $300 million in rehabilitation investment that is either in the approval and allocation process or where an application is imminent. Should program extension or modification be unsuccessful in the coming legislative session, community resources may sit vacant and development potential may move to surrounding states such as Alabama, Mississippi, and the Carolinas that have less restrictive HTC programs.
It is a critical time for those that have an interest in the Georgia program. The program is achieving its objectives and is, in fact, even more successful than most hoped. Now is the time to call on Georgia legislators to save and strengthen a program that is delivering on economic benefit for large and small communities alike.
This article first appeared in the December 2018 issue of the Novogradac Journal of Tax Credits.
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