Tax reform plans target historic preservation credits

11/17/2017

COLUMBUS — It hasn’t gotten the attention that popular deductions for mortgage interest and state and local taxes have, but income-tax credits designed to encourage historic preservation of buildings are also in the crosshairs of tax reform debate in Washington.

The House’s $1.5 trillion plan approved Thursday would eliminate the credits altogether. A bill pending in the Senate would eliminate one covering 10 percent of a project’s cost and cut another 20 percent credit in half.

Joyce Barrett, executive director of the statewide preservation organization Heritage Ohio, said halving the credit would still not be workable.

“To put it in perspective, that’s really why the state of Ohio offers a 25 percent credit to developers who are using 20 [percent] plus [Ohio’s] 25 percent,” she said. “If the federal cut is half, all the transaction costs will be burned up with 10 percent, and no money will go into the project.”

Congress has been looking at reducing or eliminating a number of tax deductions, exemptions, and credits in order to help offset lost revenue from proposed corporate and individual tax cuts and help to reduce the potential impact on the federal deficit.

Historic preservation groups in Ohio have been working to try to take the Federal Historic Preservation Tax Credit off the chopping block. An amendment has been offered to the Senate package by U.S. Sen. Bill Cassidy (R., La.) to retain the larger credit at 20 percent of the project’s preservation costs but spread its benefits over more time.

Private developers count on the 20-percent credit against income taxes to help offset their cost in renovating and preserving structures listed on the National Register of Historic Places. Ohio is among states that have piggybacked on that, offering its own 25-percent credit against state taxes and specifically tying such development to economic development.

Ohio’s program has “been in place during Democratic and Republican administrations in Columbus,” said Thomas Palmer, executive director of Preservation Ohio. “To my mind, that shows how well it works. It’s one thing that survived all the huge cuts a few years ago.

“That program survived because it is so effective,” he said. “Not every program can make the same claim.”

Among more recent Toledo recipients of the credits were the Mud Hens’ Hensville project in the Warehouse District and ProMedica’s conversion of the old Steam Plant into its corporate headquarters.

But it’s unclear what impact eliminating or scaling back its federal counterpart would have. Unlike in some other states, Ohio’s tax is not directly linked to the federal credit. But the two often go hand-in-hand as part of the total budget as private developers turn historic warehouses, theaters, and schools into income-producing office and retail space and residential lofts.

“I’ve heard some dismiss the effectiveness of the historic tax credits, New Market Tax Credit, [and] housing tax credits,” said Findlay Mayor Lydia Mihalik, an advocate for tax reform but not a fan of how Congress has gone about it so far.

“Sometimes or in most cases those particular credits are what put these projects over the finish line,” she said. “I’m not sure that most people in Washington understand that. It’s not a handout. It is necessary in order to encourage investment.”

The bipartisan Ohio Mayors Alliance held a press conference Friday to also decry other provisions of tax-reform packages they argue will undercut their economic development efforts and ultimately raise local residents’ taxes.

In particular, they pointed to proposals to eliminate or reduce individual federal income-tax deductions for state and local tax payments.

The historic preservation credit is “used all across the country, and it’s used, not just in large cities, but medium and smaller communities,” said Dave Gatton, director of metro economies at the U.S. Conference of Mayors. “A lot of your small towns that have historic downtown districts use the tax credit. So it has a broad reach, and our hope is that, as the Senate bill moves to the floor, we can reinstate it.”

Toledo City Council has also approved a resolution urging the federal credit’s survival as have other Ohio cities.

The federal historic tax credit has provided billions in breaks for tens of thousands of projects nationally. Ohio has approved 352 projects rehabilitating 492 buildings that are projected to leverage nearly $5.6 billion in capital from the private-sector and federal tax credits.

“Ohio is among the top three in the use of the historic tax credit, making it more important than in other states.…” Ms. Barrett said. “If cities are going to be able to compete, if they are going to attract businesses and new residents, they’re not going to do that with a vacant, abandoned, rundown city.

“Using historic buildings and rehabilitating them makes for cool cities,” she said. “If you walk down the streets of Toledo, you can feel the difference.”

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.