Wednesday, May 15, 2013

Historic Preservation Tax Credits

Background: Historic preservation tax credits enable developers and home-owners to leverage their investments for historical residential, rental, and commercial properties.
1) Creating more “refreshed” residential and commercial properties in in-town locations,
2) Maximizing the use of existing properties and infrastructures such as water and sewage treatment facilities, and existing roads,
3) Creating more jobs, enhance property values, and expands the tax base,
4) Increasing sales of construction related products, 
5) Further saving state and local government tax expenditures that they would otherwise have to spend on new development projects.
     Long-run economic impacts:
1) Helping reduce the urban expansion as more people and business would move back to the old town areas,
2) Saving people’s time from driving on the road and enhance their productivity,
3) Improving environmental quality with the reduction of gasoline consumption.            

Federal’s Historic Tax Credit (HTC):
1976: Federal tax incentives for historic preservation began in 1976 with the Tax Reform Act which included a 60-month accelerated depreciation of certain costs of some historic preserved properties and a 10 percent tax deduction for preservation activities.
1981: Congress expanded the HTC to a 25 percent credits for historic preservation investment.
1986 - now: Under the 1986 Tax Reform Act, it reduced the 25 percent certified historic preservation tax credits to 20 percent.

Input: Federal’s total cost on HTC program in FY 2012 was about $630 million
Output: HTC related investment created approximately 58,000 jobs, generated $3.4 billion in GDP, and paid $2.5 billion labor income in FY2012.
Input/Output: For every dollar tax credit given to investor for historic preservation investment, it would boost overall economy by $5.31.

Minnesota’s Minnesota Historic Preservation Tax Credit (MHPTC):
In April 2010, the Minnesota Historic Preservation Tax Credit was signed into law by Governor Tim Pawlenty, with a state income tax credit of up to 20 percent of the qualifying expense on historic preservation projects..

Input: 16 projects are estimated to be leveraged at $69.7 million in tax credits thru Minnesota Historic Preservation Tax Credit.

Output: In total of direct and indirect impacts, the economic impact of the projects leveraged by the Minnesota Historic Preservation Tax Credit in FY 2012 is estimated to be 559 million dollars, with 3,502 workers being employed and $181 million labor income being paid to those employees.
Input/Output: For every state dollar of tax credit granted to projects, there would be $8.00 in economic activity generated in the state of Minnesota.

Iowa’s Historic Preservation and Cultural and Entertainment District (HPCED) Tax Credit:
In 2000, State Iowa introduced the Historic Preservation and Cultural and Entertainment District (HPCED) Tax Credit program, with a 25 percent state income tax credit on state qualified perseveration related costs for eligible historic properties and another 20 percent is available if the property is income-producing and qualifies for federal government’s HTC program.

Methodology: In evaluating the effect of state historic preservation tax credit programs, Iowa also used different method from Minnesota and Federal’s approach. Instead, Iowa employed a case study approach to evaluate its HPCED Tax Credit program.

The results of two case studies located in Dubuque and Davenport that benefited from Iowa’s HPCED tax credits are mixed. The projects in Dubuque concluded that HPCED tax credit stimulates additional business growth in surrounding areas, but for the projects located in Davenport, there is no evidence of spillover economic benefits.

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