Benefits for Historic Tax Credits

While we serve many roles on any given project, one of the most important contributions we provide for our clients is being an advocate. Depending on the project type, our role can vary from acting as a public speaker conveying the importance of a project that serves an at-risk clientele to advocating for a program that is in jeopardy of losing its funding. As a representative of the owner, we feel strongly about our advocacy – in this instance, our interest relates to the historic tax credits that are administered through both the National Park Service (NPS) and the Internal Revenue Service (IRS). What IS focused on is below is how beneficial the state program has been for Ohio and how it serves as a compliment to the federal historic program.

With the new administration and pending tax reform, lawmakers have alluded to all programs being eligible for tax cuts and/or reform. This is nothing new. In fact the State of Ohio, through the Senate Finance Committee, proposed provisions in the 2015 State Budget that would have eliminated historic tax credits administered through the Ohio Development Services Agency (ODSA). The Ohio Senate Finance Committee ultimately found a high degree of resistance statewide from developers and community leaders alike, not only regarding the proposed cut, but what was deemed questionable language included in the bill. The language in the bill proposed the removal of the historic tax credits, but more importantly it included a timeline to implement the proposed cuts resulting in panic among developers due to what was deemed an unrealistic cliff date/deadline. The bill as drafted, established a cliff/deadline date (based on the project service date) which would have jeopardized numerous projects financial stability potentially leaving them in danger of loan default and/or incompletion as the project service date could not be met based on longstanding construction schedules and required work associated with both the state and federal historic tax credit programs. Based on expert testimony, the Senate Finance Committee agreed to remove language that eliminated the state historic tax credits.  However, the committee requested a formal study of the economic benefits of (state) historic tax credits which would guide future dialogue on the subject – leaving the door open for future cuts or perhaps transitioning the credits into a grant based program.

The supporting economic data below addresses the important aspect of the historic tax credits, one that speaks directly to the developers and investors alike, the return on investment. No other state tax credit program can claim $6.20 of leveraged monies to every $1 of tax credits.  Another important fact to consider is, unlike other programs, the historic tax credits are not released until the successful completion of the project, adding further credence and legitimacy toward the program. This lack of financial risk has wide appeal for many, as it creates the financial incentive for completing challenging historic projects – where costs are traditionally higher.

Statistical Data obtained/provided by Heritage Ohio and current as of December 2016

·  Since 2006, based on the Ohio Historic Preservation Tax Credit legislation being passed in 2006, the State of Ohio has awarded 465 buildings with 326 of the buildings being completed and allocated $618.2 million worth of credits.

·  Job Creation:  44,407 (total) – total from 2002-2015

     o   Construction:  18,919

     o   Permanent:  25,488

·   Income Generated:  $2,826,357,400 – total from 2002-2015

     o   Household:  $1,528,117,100

     o   Business:  $1,298,240,300

·  Taxes Generated:  $598,959,900 – total from 2002-3015

     o   Local:  $79,959,000

     o   State:  $72,873,000

     o   Federal:  $446,127,900

Higher than average construction costs can be directly attributed to specialized trades and craftsmen being necessitated by challenging site conditions.  This isn’t to say that ‘standard’ trades cannot work on projects, as demolition, general construction and building systems sub-contractors can fulfill contract document requirements.  However, when highly ornate and sensitive materials are being dealt with, such as limestone, plaster, ironwork, woodwork, etc., highly specialized and trained sub-contractors that possess a higher degree of craftsmanship are required to fulfill obligations that the development team commits to when undertaking a historic rehabilitation project. 

When considering the validity of historic tax credits, the economics really point to a program that is successful both financially and culturally.  In the state of Ohio, the historic tax credit program has administered roughly 700 projects, approximately 80% of which have been previously vacant and/or dilapidated structures.  These structures could have been lost to demolition, with a commensurate loss in potential tax revenue  at local, state and federal levels.  Their revitalization has often served as the cultural catalyst that leads to further renovation within historic downtowns of all sizes, an example is the Renaissance that Downtown Cleveland has seen through the years or the Over the Rhine District in Cincinnati. 

While all buildings and neighborhoods undergo a multitude of changes through their life cycle, the historic tax credit program takes this into consideration, allowing for changes from the original and historic use.  The program and its supporters often point to the program as a rehabilitation program and not simply a restoration program – allowing for contemporary interventions and uses in historic structures.  For example, a department store or office building can be converted to a mixed-use development with offices and residential dwelling units.  These types of changes allow for the transformation of structures into viable and revenue generating structures for all levels (local/state/federal).  While a lot of talk has been focused on the economic benefits of the historic tax credits, what shouldn’t be lost or forgotten is the true intent – preserving historic structures.

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Blog entry written by: Joseph Berardi, Principal & Personnel Development Director