Novogradac Journal of Tax Credits
June 2018 | Volume IX - Issue VI
By: Allen Johnson
In the months following the passage of the H.R. 1 federal tax reform legislation, which largely retained the historic rehabilitation tax credit (HTC), state legislators sought to modify their own HTC programs with varying results. In New York, the federal action that changed the terms of the HTC required measures to bifurcate the state program from the federal program. This allows taxpayers to continue to claim all credits in the year a development is placed in service, rather than the new five-year equal installment structure of the federal program.
As in most years, there are rumblings from other states about potential HTC changes as budget bills are debated and passed. Along the Mississippi River, in particular, these rumbles are picking up steam.
The waves made by Wisconsin Gov. Scott Walker in 2017, when he reduced the project cap for HTC developments in his state from $5 million to $500,000, are beginning to recede. In April, Walker signed a law that increased the project cap to $3.5 million. This compromise for the 25 percent Wisconsin HTC should re-energize momentum for historic rehabilitations in the state that were threatened during the dramatic reduction last year.
The cap increase comes in large part because of one of the strongest state HTC coalitions in the country. Among the advocates was Renee Kuhlman of the National Trust for Historic Preservation.
“The low limit of $500,000 per project was inadequate to attract private investment and fill the gap in funding to rehabilitate Wisconsin’s certified historic buildings,” said Kuhlman. “The increase gives legislators comfort that one rehabilitation project is not going to exceed the $3.5 million cap and gives the development community certainty the capping discussion has come to a happy conclusion.”
Illinois does not have a state HTC program, but supports a special incentive program for targeted economic development called the River Edge Redevelopment Zone (RERZ). The program includes a 25 percent credit of qualified expenditures for historic rehabilitation projects in designated areas within the cities of Aurora, East St. Louis, Elgin, Peoria and Rockford. In 2017, Illinois H.B. 3096 proposed that this incentive be replicated for additional locations that were home to the Lincoln-Douglas debates, citing the overwhelming success of the RERZ credit in the revitalization of cities such as Rockford. No legislative action has been taken on the Lincoln-Douglas Historic Tax Credit since March of last year.
In February, a new initiative was proposed in the Illinois House of Representatives called the Bicentennial Mississippi River Region Redevelopment Historic Tax Credit Act (H.B. 5730). This proposed 25 percent tax credit would benefit historic rehabilitations of National Register properties in 34 counties bordering the Mississippi River. Introduced by state Rep. Mike Halpin and with bipartisan co-sponsorship, the credit would extend to 2029 and be retroactive three years. In a March 2018 article in The Rock Island Dispatch-Argus, Rep. Halpin cited the success of the HTC in Illinois’ neighbor over the river, Iowa, as one reason he is championing the bill. “This is a strong tool and for me, a no-brainer,” said Rep. Halpin. “There’s no reason why our river communities in the state of Illinois shouldn’t benefit from this program. It creates jobs, enhances property values and preserves our history.”
Strong support from mayors and city leaders echoes that of the sponsors of the bill. “We want to be on a fair and equal playing field as the other states,” said Rock Island Mayor Mike Thoms.
“Of course, the best option for Illinois would be a statewide historic credit,” said Frank Butterfield, director of Landmarks Illinois’ Springfield office. “Ultimately, we would like to see a bill that supports historic preservation in every county. The recent interest in replicating the RERZ along with interest from key lawmakers points to the real possibility of support for legislation being introduced in the near future.”
Missouri’s HTC program is facing a reduction in the program cap for projects more than $275,000. The cap is $140 million, but state Sen. Dan Hegeman sponsored a bill (S.B. 590) to decrease that cap to $90 million and give more control over the projects awarded credits to the Missouri Department of Economic Development. There is a provision for an additional $30 million for high-poverty areas if the cap is met.
Support for this reduction was expressed from both sides of the aisle, with some state senators conveying their desire to see funds funneled to counties that need them most as well as help free up money for other programs during budget cuts. Those who voiced opposition to the reduction were primarily Democrats from St. Louis, a city that has been a hotbed of HTC activity in past years and created nearly $3.2 billion worth of investment in 900 HTC projects from 2002 to 2016.
Meanwhile, a House bill (H.B. 2717) was introduced to offer a 50 percent credit for projects that have less than $1 million in qualified rehabilitation expenses.
In Tennessee, bills were recently making their way through both the House and Senate (H.B. 1061 and S.B. 1040) to create a 25 percent tax for certified historic structures that were placed in service after Jan. 1, 2017. Unfortunately, these measures failed to make their way into the state budget in mid-April.
For several years, a coalition of stakeholders has been working to advocate for a program in the Volunteer state. Among the most vocal supporters of the state HTC are architects. “What ultimately kept the HTC out of this year’s budget were fiscal notes,” said Ashley Cates, executive vice president of the American Institute of Architects (AIA) Tennessee. “We were asking for $1 million to fund the program, which was 10 percent of the pool we had to work with, but other issues like school security in the wake of the Parkland shooting took precedence in the end.”
Every state surrounding Tennessee has a HTC program and the addition of this program would likely have had an incredible economic impact. It wouldn’t just incentivize in-state and out-of-state developers interested in cities like Chattanooga, Memphis and Nashville, but create opportunities for investment in communities throughout a state rich with historic resources. In fact, a local bill to create a preservation incentive for Bristol–which has direct economic competition from Bristol, Va., a state with a robust HTC program–was the impetus for the statewide effort.
Tennessee will elect a new governor this year and AIA Tennessee and the coalition of industry leaders will work closely with the new administration to demonstrate the need for this program as an economic development tool and in hopes of adding it to the budget in the coming years.
Iconic Mississippi River figure Mark Twain famously said, “Always do right; this will gratify some people and astonish the rest.”
State HTC programs along the Mississippi River and throughout the country do right for their constituencies by creating new opportunities for historic buildings and stimulating economic development in often underperforming areas. This is illustrated in places like Illinois where a localized program may convince state leaders that every county should benefit. This is demonstrated by the efforts of HTC advocates in Wisconsin, Missouri and Tennessee, who know that the programs they fight for will bring about astonishing results, even for those who were not expecting them or those opposing them.
Many thanks to all of the advocates and legislators who are doing right in 2018.
This article first appeared in the June 2018 issue of the Novogradac Journal of Tax Credits.
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