August 28, 2018 | Update: Federal Historic Tax Credit Advocacy | By Shaw Sprague, Senior Director of Government Relations, National Trust for Historic Preservation
Historic tax credits were used to convert the Steele Mansion in Painesville, Ohio, into a bed and breakfast and event center. David Polakowski, Downtown Painesville Organization Executive Director, and Joyce Barrett, Heritage Ohio Executive Director, join with Representative David Joyce (R-OH) (in the center of the photo) and and city officials on the building's front porch. Photo credit: Heritage Ohio
As we make our way through the Congressional summer recess, where (typically) elected officials are taking a break from the legislative process, it is an opportune time to update the Main Street community about how far our federal advocacy in support of the federal historic tax credit has come and where we appear to be headed. Main Street has established a strong political foundation to modernize the federal historic tax credit and with ongoing engagement, legislative opportunities may be available.
First, a reaffirmation of the change that Main Street brought to the federal tax reform debate. When Congress set out to overhaul the tax code, little-known incentives like the federal historic tax credit underwent significant scrutiny to assess their impact and necessity with an eye toward elimination. From every account we’ve received, the outpouring of community support for the historic tax credit impressed legislators, many of whom were unfamiliar with the impact this incentive has had in achieving Main Street redevelopment objectives.
Main Streeters provided legislators confirmation that federal historic tax credits are an integral tool for community reinvestment and revitalization at the local level. This assurance helped keep the incentive a highly productive and permanent part of the tax code. Main Street engagement helped spark conversations on Capitol Hill about the historic tax credit that changed the political discourse for the better in a very challenging legislative environment. The lesson – when Main Street speaks, Congress listens.
Secondly, surviving tax reform did not come without a cost. A condition for staying in the tax code required changes that would offset part of the cost of the program. To do this, the credit is now taken in annual installments over five years. Spreading out the cost of the program saves the federal government an anticipated $2 billion over the 10-year budget scoring window. While these changes create cost savings, they also impact the price equity investors in historic rehabilitation projects are willing to pay to offset their tax liability. The new changes could reduce the value of historic tax credits by as much as 20 percent in some real estate markets.
Hosted by Heritage Ohio and Cincinnati Preservation Association, preservationists tour the historic Over-the-Rhine district, which would greatly benefit from a modernized Historic Tax Credit. Photo credit: Cincinnati Preservation Association
This change is also likely to impact redevelopment opportunities on Main Street. Since smaller developers and owners of historic Main Street properties will now receive Historic Tax Credits over five years, owners of historic buildings on Main Street and smaller developers may need to identify new interim financing options or simply delay community reinvestment decisions. Advocating to eliminate the five-year phased credit, however, is premature given this was a condition for keeping the credit in the tax code by the majority party.
The Historic Tax Credit Coalition is recommending a different change to add value to the credit for large and small-scale rehabilitation projects. In response to changes to the HTC, the Historic Tax Credit Enhancement Act (H.R. 6081 /S.3058), introduced by Representatives Darrin LaHood (R-IL) and Earl Blumenauer (D-OR) in the House and Senators Bill Cassidy (R-LA), Ben Cardin (D-MD), and Susan Collins (R-ME) in the Senate, seeks to change existing law by eliminating the requirement that historic tax credits must be deducted when calculating a building’s basis. Most often, the higher a building’s basis, the less an owner will pay in capital gains when a building is sold. This change benefits investment in urban environments, but our Main Street communities as well where smaller-scale developers will also no longer need to pay what amounts to a federal tax on a federal benefit.
It is too soon to tell if Congress will prioritize a second tax reform bill before the end of the 115th legislative session in December, but given the broad support for this incentive, ongoing engagement by Main Street in support of the Historic Tax Credit Enhancement Act will put Main Street and the historic preservation community in a strong position to seize legislative opportunities that come our way.
Looking further down the road to the 116th Congress (that begins in January), we will look to advance several policy changes to the federal historic tax credit that are aimed at benefiting Main Street communities. These changes are likely to include an increase in the credit for smaller rehabilitation projects and the ability to transfer the credits to an outside investor for these same small deals.
Both short- and long-term advocacy objectives for the federal historic tax credit will help drive reinvestment into our Main Street communities, promote the character of our downtowns, and support locally-owned businesses. With the ongoing advocacy engagement of Main Street with local stakeholders and leaders, we can again influence positive change at the federal level.
We look forward to working with you.
Main Street Now Conference attendees say "thank you" to legislators.
About the Author
Shaw Sprague joined the National Trust in 2012 and is the Senior Director of Government Relations, advocating primarily on behalf of the federal Historic Tax Credit. Prior to his time with the National Trust, Shaw spent three years as a Senior Legislative Representative for The Trust for Public Land. Shaw also worked on Capitol Hill for Senator Susan Collins as her principal advisor on National Resource, Trade, and Judiciary issues. Shaw graduated from Suffolk University Law School in Boston, Massachusetts, where he concentrated on environmental, municipal, and land use law.
Read more about the federal historic tax credit on our blog:
Determined Advocacy Preserves the Historic Tax Credit
Sample Local Historic Tax Credit Resolutions + Template
Historic Tax Credits: A Good Return for the Money