PlanPhilly

GOP corporate tax cut bill include cuts to preservation tax credits, threatening historic reuse projects in Philly

Buried within the tax reform legislation working its way through Congress is an amendment that would preserve but diminish the value of the federal historic tax credit program, arguably the most important government incentive for developers to rehabilitate historic buildings.

An earlier Senate bill had proposed lowering the tax credit to 10 percent, but an amendment introduced to the Senate Finance Committee in mid-November by Sen. Bill Cassidy (R-LA) retained the current 20 percent tax credit for preservation of buildings listed on the National Register of Historic Places. The committee approved the amendment and it was moving to the full Senate floor for consideration.

Legislation approved by the House would repeal the historic tax credit completely.

Shaw Sprague, senior director for government affairs at the National Trust for Historic Preservation, said Tuesday that the advocacy organization has “received strong signals from a number of Senate offices that they will be working to ensure that [the Cassidy amendment] survives the floor process and the conference process with the House bill.”

The historic tax credit is the most significant investment the federal government makes toward historic preservation, and it has leveraged more than $131 billion in private investment, created 2.4 million jobs, and preserved 42,000 buildings since its inception in 1981, according to data from the National Trust.

In Pennsylvania, the tax credit program has generated $3 billion in development, and Philadelphia projects account for nearly half of that amount. A weaker credit could affect major projects planned or currently underway in the city.

As the Senate takes up floor debate on the Republican tax bill, which seeks to partially cover the cost of slashing corporate tax rates by eliminating numerous tax incentive programs, it will likely see many amendments. If the Senate and the House pass two different versions of the bill, the differences will need to be ironed out in conference before heading to the President’s desk for signature into law.

In a statement issued Nov. 17, National Trust President Stephanie K. Meeks said: “By spurring public-private investment in the reuse of old and historic buildings, the credit fuels the economic engine that is bringing our downtowns, neighborhoods and Main Streets back to life. Getting rid of it now would be shortsighted and would threaten the revival that is evident in America’s cities and towns.”

Changes in implementation

Though the Cassidy amendment keeps the tax credit at its current level, it “requires that there be some offsets to increasing the program from 10 to 20 percent,” Sprague said.

The credit would be prorated and phased in over five years, rather than allowing the full credit to be taken in the first year of a project, as is currently permitted, thereby lessening the full value of the credit. “The effect of that is to make the credit less attractive to investors and developers,” he said.

Both House and Senate bills also eliminate a 10 percent credit that had been available to properties built before 1936 that are not listed on the National Register.

Patrick Grossi, director of advocacy at the Preservation Alliance for Greater Philadelphia, said the credit for older unlisted buildings has not been widely used. “Applicants usually try to get the full 20 percent credit. That credit [for unlisted buildings] will likely be eliminated. In Philadelphia, two-thirds of our buildings were constructed prior to World War II, and there are countless buildings that might have been eligible. But it was rarely used. So the effort has been around retaining the full 20 percent historic tax credit program.”

Impact on local projects

There are several large renovation projects in Philadelphia that could be affected by any changes in the federal tax credit program.

The transformation of the late 19th century Hale Building, on Juniper Street between Chestnut and Walnut, into a retail and office space is currently underway. “The profitability of that project would be threatened if the tax credit goes away,” Grossi said.

One of the city’s last, intact mid-19th century industrial buildings, the Frankford Chocolate Company, 21st and Washington Streets, has been the subject of several meetings between developers and the South of South Neighborhood Association. The new owner is planning a total adaptive reuse of the 100,000-square-foot property as residential space or a restaurant. “The project is almost entirely dependent on tax credits,” Grossi said.

Another “potentially vulnerable project” is the long-awaited renovation of the former Family Court building on the Benjamin Franklin Parkway into a boutique hotel. The Florida-based developer, the Peebles Corp., received approval from the National Park Service a year ago for its plan to turn the 76-year-old Beaux Arts building into a hotel with 199 guest rooms, ballroom, meeting rooms, spa and restaurant.

The original estimate for a historically sensitive rehabilitation of the building was $85 million. Peebles has since raised the estimate to $113 million due to increases in construction costs, which would be heavily dependent on the tax credit program.

Preservation projects in Pennsylvania can also benefit from the state historic tax credit program awarded by the Department of Community and Economic Development. A total of $3 million in tax credits is available each year, but the $3 million cap is among the smallest in the nation and has not been increased since it was established in 2012.

The state tax credit is “often treated as a perk atop the much more beneficial federal credit,” Grossi said. “We believe the state credit will remain in place, but it has its shortcomings. If that’s all we have, it won’t move the needle too much in preservation efforts.”

Future support

The federal tax credit program has received bipartisan support from Pennsylvania representatives, particularly those with constituents in Philadelphia and Pittsburgh and on the fringe of the big cities. Grossi said legislators have heard a lot about the benefits of the tax credit programs and recognize their value.

The same is true in other parts of the nation, according to Sprague at the National Trust. “We’ve been encouraged by the support we’ve seen for the tax credit. It has benefited towns across the country, and that’s been recognized across the political spectrum,” he said.

“But I think the challenge is that there is significant pressure to advance a tax reform bill. The goal is to simplify the tax code. That generally is where the historic tax credit faces challenges – in the attempt to eliminate tax programs.”

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About the author

Alan Jaffe, Contributor

Alan Jaffe has been a contributing writer for PlanPhilly since 2008, focusing on overlooked buidlings and historic preservation issues. He was a writer and editor in the newspaper industry for nearly 30 years, including eight at the Philadelphia Inquirer and nine at the South Jersey Courier-Post. He is currently the director of communications for the Pennsylvania Horticultural Society. He is also an antiques writer and collector and the author of “J. Chein & Co.: A Collector’s Guide to an American Toymaker.”

ajaffe@planphilly.com



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