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Tax credits would spur revival, backers say

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There's a simple reason Pennsylvania needs a historic tax credit program, York's Joe Wagman said: Many redevelopment projects that urban communities desperately need — the kind that would beautify neighborhoods and return rundown buildings to productive use — don't make economic sense without it.

"The challenge is that your rent and/or sale prices are relatively low, and yet your costs of construction are high," the CEO of Wagman Construction said. "It's very hard to get the numbers to work."

A 20 percent federal historic tax credit exists for income-producing properties, but not all projects are eligible, and developers that use it must follow prevailing-wage and other rules that can offset its economic benefit, he said.

A state program "would be a big assist," he said.

State Sen. Lloyd Smucker, a Lancaster County Republican, concurred. He has introduced Senate Bill 1150, the Historic Rehabilitation Investment Incentive Act.

The act would grant developers of eligible projects a tax credit of up to 25 percent of a project's cost, up to a maximum of $500,000. Developers could combine it with the federal tax credit, or use the state credit alone.

The bill seeks an initial appropriation of $10 million to get the program up and running.

Smucker touted the bill as a way to spur much-needed investment in Pennsylvania's small cities and distressed neighborhoods.

"It will help improve the tax base and economic climate in those areas," he said, adding: "Any time you spur urban development, you're protecting farmland," a vital asset that is coming under tremendous pressure in Lancaster County and elsewhere.

That's why PennFuture strongly supports the initiative, said the environmental group's president, Jan Jarrett.

Urban development encourages people to use existing infrastructure, which is both cost-effective and environmentally friendly, she said.

"There really is a renewed push for this," she said.

More than 30 states have tax credits, including all of Pennsylvania's neighboring states except New Jersey. Those states are seeing a strong return on their investment, said Lisa Riggs, president of the James Street Improvement District, a Lancaster community development nonprofit.

A 2009 study of Maryland's program found each $1 in tax credits spurred more than $8.50 in economic output.

"That, I think, is the heart and soul of this case," Riggs said.

Wagman said he can think of several projects he has passed on that would be viable with a state tax credit. He said he is evaluating a project in York that would convert an old, vacant office building into apartments.

"The renovation costs are reasonable, but the rents we think we can get don't support the transaction," he said. "It may well not happen."

Developer Ed Drogaris, president of Lancaster-based Drogaris Cos., said he, too, has nixed projects for the same reason.

Towns such as Annapolis, Md., Charleston, S.C., and Newport, R.I. — all in states with tax credits — have seen their historic areas blossom, to great economic advantage, Drogaris said.

"That becomes an attraction for people to live there," he said. "It drives real estate values up. It stabilitzes government by providing a good, strong tax base."

"I'd hope legislators would see the benefits and see we're behind the curve," he said.

Several earlier tax credit bills have failed to become law, primarily due to cost concerns, Smucker said. And given the state's tough budget picture, proposing to forego revenue, even in a good cause, is a tough sell, he acknowledged.

However, a tax credit bill passed the House in 2009 by an overwhelming margin, and SB 1150 has attracted bipartisan support, he said.

"I think that bodes well for a possible future package," he said.

The bill is before the Senate Finance Committee. There is no definite timetable for moving it forward, Smucker said.

The federal tax credit has proved its worth many times over, generating billions of dollars in urban reinvestment, Drogaris said. A state version would have a proportional impact on Pennsylvania, he said.

"In my industry, this seems like a no-brainer," he said.

Write to the Editorial Department at editorial@cpbj.com

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