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Preservation push: Advocates seek more tax credits for revitalizing historic properties

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Tax credits for historic preservation helped finance revitalization of the Simon Silk Mill in Easton, which has been renamed Silk.
Tax credits for historic preservation helped finance revitalization of the Simon Silk Mill in Easton, which has been renamed Silk. - (Photo / )

A Pennsylvania tax credit that helps developers rebuild historic properties could end in 2020 unless the state legislature passes a reauthorization bill that includes greater incentives for using the credit.

First authorized in 2012, the Historic Preservation Tax Credit would be reauthorized to sunset in 2030 and offer $2.5 million in credits per qualified taxpayer, with a statewide cap of $30 million in total credits. The current law, set to expire in June 2020, offers $500,000 in credits per taxpayer and $3 million total. The increases are critical to keeping Pennsylvania competitive with other states, which in some cases offer incentives far more substantial, observers with an interest in historic preservation noted.

Currently, the federal government offers a well-funded tax credit that gives developers clear direction as to whether they will qualify, which enables developers to plan financing for a project accordingly. The state program – especially because of its limited funds and process for awarding credits – doesn’t make immediately clear whether a project is approved, which hampers buying a property and planning its redevelopment, the observers said. But the two tax credits can combine to facilitate redevelopment of a historic property that might otherwise sit idle, they added.

A bill was introduced in the Senate Oct. 30 that would make those improvements, said Melinda G. Crawford, executive director of Harrisburg-based Preservation Pennsylvania, which took a lead in establishing the credit and now is advocating for the improvements. Any efforts to make the program more attractive and to lure even more interest will help boroughs and cities statewide, she said.

“As far as tax credits go,” Crawford said, “I don’t think a lot of people realize that there are tax credits on the federal level and the state credit is so new.”

Discussions likely next year

The legislative vehicle for making changes, Senate Bill 1279, was introduced by Sen. David G. Argall, a Republican whose district includes Schuylkill County and part of Berks County. The bill has been referred to the finance committee, with the expectation that discussions will start in earnest in early 2019, observers noted.

“Historic structures are some of our best assets,” said Rep. Bob Freeman, a Democrat serving Northampton County, which includes Easton.

Through the years, Easton in particular has seen a resurgence as developers used various state and federal programs to renovate properties in the historic town, said Freeman, who will be sponsoring companion legislation on the House side. One such project involves the Simon Silk Mill, an old industrial building that is being converted into a multi-use development.

“Generally speaking, many of our downtowns have benefitted through the years,” said Julie Fitzpatrick, assistant director of the Pennsylvania Downtown Center based in Harrisburg. She pointed to the Silk Mill project and the Uptown! Knauer Performing Arts Center in West Chester, which used to be an armory, as examples of where downtowns have benefitted.

“It’s a tool, and developers can take advantage of it,” she said.

Demand is high

Fitzpatrick is among the stakeholders who noted the limited nature of the current tax credit and argued that enhancements would increase its use.

“Demand has far exceeded the supply,” she said.

Indeed, Preservation Pennsylvania estimates that 21 projects requested credits in 2016, with an estimated value of requested credits at $9 million. With only $3 million in total credits available, awards were made to 15 projects. In 2017, 73 projects requested credits with an estimated value of $28.6 million, again with only $3 million available.

Dave C. Martens, of Zamagias Properties in Pittsburgh, was among about a dozen interested representatives of the public and private sectors who attended a roundtable in June hosted by Argall and others. He said the limited nature of the current program makes it difficult for developers to plan.

For example, he said in November, it is pretty clear under the federal tax-credit program whether a developer gets an award, which allows the developer to create a sound financial plan. With the state credit, he said, “you apply and then hope to get an award.”

“It’s challenging to put in your modeling, if you don’t know you are going to get it,” he said.

That partly is because the state allocates credits based on something of a lottery system, where eligible projects compete with other projects in a random selection process, observers said. Some people won’t bother to spend the time and resources on a program when acceptance is in doubt. Any legislation should work to fix that system, they added, but increasing the cap from $3 million in total credits to $30 million at least will open up the odds of getting an award, Martens and others noted.

“I think that is going to be a tremendous improvement,” he said. “Being a developer, we are a supporter of the program. The positives far outweigh the costs.”

Gains, losses

Crawford, Freeman and others said studies have shown that the economic benefits of historic tax credits can far exceed the costs. For one, an old, underused building is made viable again. And the process to renovate a building includes all the benefits that come from a construction project and the jobs that follow.

More about Pennsylvania’s Historic Preservation Tax Credit program
Source: Department of Community and Economic Development website

  • The project must involve the restoration of a qualified historic structure into an income-producing property. Observers noted that a property already in a designated historic district probably would qualify. However, all projects must include a qualified rehabilitation plan that is approved by the Pennsylvania Historical and Museum Commission.
  • Tax credits may be applied against the tax liability of a qualified taxpayer, which includes an individual, corporation, business trust, limited liability company, limited liability partnership or any other form of legal business entity.
  • The tax credits awarded to a qualified taxpayer cannot exceed 25 percent of the qualified expenditures. The total tax credits awarded to a qualified taxpayer also cannot exceed $500,000 in any fiscal year. However, that would increase to $2.5 million under the reauthorization legislation.
  • The cap on credits can be no more than $3 million per fiscal year. This amount is proposed to increase to $30 million under legislation introduced this fall.
  • Credits will be awarded equitably for projects in each of five regions in Pennsylvania: northwest, northeast, southwest, southeast and central.
  • Applicants must submit supporting documents, such as photographs of the building and its surroundings, a map showing the boundaries of the historic district and a statement of historic and architectural significance. All applications will be reviewed on a first-come, first-served basis.
  • Historic Preservation Tax Credits may be applied against the tax liability imposed on a taxpayer including Personal Income Tax, Corporate Net Income Tax, Capital Stock-Franchise Tax, Bank and Trust Company Shares Tax, Title Insurance Companies Shares Tax, Insurance Premiums Tax, Gross Receipts Tax or Mutual Thrift Institution Tax.

The projects also can jumpstart a resurgence in a downtown, which is the hope of a $250,000 award for a project to revitalize the Yorktowne Hotel in York.

“A lot of the money given in a credit is recouped before the credit is even given,” Crawford said.

Crawford thinks the reauthorization should enjoy bipartisan support but noted that it took 16 years for the original legislation to pass. One sticking point is how to fund it. But unlike grants where the state gives money directly to a project, tax credits are an easier sell with legislators because no money is directly transferred. And a developer does not get a credit until after the work is completed.

With that said, she added, a tax credit means that the state must account for a drop in tax revenue. But knowing the benefits should outweigh the costs, she said, legislators are likely to consider the improvements, especially if the credits become an issue of the state’s competitiveness.

Carling Dinkler, vice president for business development with Enhanced Capital in New Orleans, has been working with Crawford and others to help craft the new rules for Pennsylvania. Enhanced Capital works to help companies leverage tax credits and has been involved in projects nationwide. He noted that Pennsylvania’s $3 million program is among the smallest of the 35 states that offer them.

In a letter accompanying his plan to introduce legislation, Argall noted that the proposed $30 million annual cap in Pennsylvania would match that of West Virginia.

“The size of the program is important,” Dinkler said. Pennsylvania stands to benefit greatly from an enhanced program because “Pennsylvania has some the greatest historic building stock in the country.”

In New Orleans, tax credits helped leaders rethink development citywide after Hurricane Katrina, revitalizing devastated neighborhoods, he said. Well-planned programs can help cities and boroughs of any size as they work to save historic structures, while re-imagining the future, he said.

“You can see how a ripple effect can transform a neighborhood,” Dinkler said.

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