Tax Expenditure Task Force Recommends a $5M annual cap Historic Preservation Tax Credit

Your Voice will Make the Difference!

Tax Expenditure Task Force Chairs Senator Anne Haskell and Representative Adam Goode will present an update on the work of the Tax Expenditure Task Force to the Legislative Committee on Appropriations and Financial Affairs (AFA) on Dec 12th.  The task force was organized and charged with identifying $40MM in reductions in tax expenditures (credits, exemptions and deductions).  For any amount not identified, general revenue sharing to municipalities will be reduced.

Of several charges to the task force, this is the one of interest:  
 6. Recommend the repeal or reduction of tax expenditures to achieve a savings of at least $40,000,000 for Fiscal Year 2014-15.  (this is FY15, July1,2014-June 30,2015).
For full information on the task force:

Within this update will be a recommendation that the Historic Preservation Tax Credit (HPTC) be capped at $5M per year.  The budget document forecasts $ 7.6 M for FY15, so there is a perceived savings of a +$2M in that year.

The state tax credit was updated in 2008 and in 2011 the sunset was extended from 2013 to 2023, in recognition of the value of the program.  This credit, which is designed to be used with the long standing federal tax credit and provides a reimbursement for 25% of certified qualified rehab expenditure  costs in the form of transferrable tax credits.  The amount of the tax credit  increases to 30% if affordable housing is a component of the project.

Clearly such a cap would be a deterrent to use of this exceptional economic development driver and the impact would be felt in both decreases in short term  employment and investments and increased long term costs of maintaining public services and infrastructure.  The recent economic impact study by Planning Decisions outlines the benefits across the state of this tax credit.  Long term impacts would be felt as demand for development would be addressed through greener field construction without the tax credit to incentivize and balance the cost difference to promote renovation and reuse of existing qualifying structures.   For reports and more info:

It is important to contact legislators and the administration, as it is these bodies that will make the final decisions.   Legislative leadership, including members of AFA and of the task force, as well as outreach by supporters of the HPTC to their own Representatives and Senators is vital.  They are in a difficult situation and need to hear from supporters of this program.  Ask what you can do to help them address the budget shortfall.

The message should be concise:  that the HPTC should not be capped because it has made a significant impact in the economy and communities across the state and that commitments made for projects slated to receive the tax credit must be honored.  There are both immediate and long term detrimental impacts.  Talk about the successes of the HPTC in your community!

Share this information and the impact of the HPTC with your members and supporters.

Public outreach such as opinion pieces in the media and alerts to organizational members and supporters will be useful over the next few months.

In addition, the logistics of claiming these savings are convoluted and undermine commitments made in years prior.  Use of the HPTC is a multi-year, ongoing process.

1.    The building must be qualified for the program.  At this point, the developer can proceed with a financing plan that includes the anticipated tax credit.
2.    The plans are reviewed and updated throughout the renovation process to ensure all work meets historic preservation guidelines.
3.    When completed, the project undergoes final review and then authorization for the credit.
4.    The credit is then paid out of the next four years.

The State Historic Tax Credit (HTC) can only be claimed over a four year period (25% of the earned credit is either taken as a credit on state taxes or refunded beginning in the year the project was placed into service, and this continues for the following 3 years), so all projects that received final certification after July 1, 2010 have already earned the credit and will continue to receive credits into the 2015 fiscal year.  According to our records, as of today, there have been 34 projects certified with approximately $124 million in certified qualified rehab expenditures since July 1, 2010.  The state credit on these expenditures is somewhere between $31 million and $37.2 million, depending on how much of these expenditures contributed toward affordable housing projects. 25% of these credits will be paid out in the 2015 fiscal year for a total of between $7.75 million and $9.3 million.  These numbers will almost certainly increase, as additional projects will likely be certified between now and July 1, 2014.  There would need to be some way of enabling owners who have already earned the State HTC to be refunded for the amount already owed by the state.  

Based on the 34 projects certified since July 1, 2010, the average amount of certified qualified rehab expenditures per project was $3.65 million (earning $912,500 in actual State HTCs [25%] for market rate housing and mixed use projects; and $1,095,000 in State HTCs [30%] for affordable housing).  The smallest project had $56,270 in CQREs; the largest had $15,000,000 in CQREs.  Since the current State HTC program began in 2008, assessed property tax values have increased by over $34 million as a direct result of projects utilizing the State HTC.  Many of the properties that have been rehabilitated through the program had no property tax value due to vacancy and/or severely dilapidated conditions.

There are several projects that are currently in the construction phase, or otherwise underway.  It is possible or likely that most of the property owners would not have purchased the properties or undertaken the rehabilitation projects that are currently underway without the State HTC in place in its current form.  If a program cap were to result in denial of the State HTCs for such projects, it would likely to result in a substantial economic hardship to these owners and developers.   

Chairs of the Tax Expenditure Task Force will present an update to AFA on Dec 12th.  The task force will hold off on a final report until after the Feb 2014 completion of a DECD-contracted evaluation of the impact of economic development programs.  This is so that the evaluation of economic development related tax expenditure can be factored into final recommendations.

AFA will likely accept the interim and final reports, along with those from the BETE/BETR task force (two programs exempting/reimbursing business equipment from local property taxes) and non-profits/property tax task force.  All this could move forward as freestanding legislation but most likely some portion of the information will be melded into the supplemental budget which must be balanced.

There is word that state revenues are exceeding forecasts.  This means that some amount of money, from $20M to $100M, might be added to revenues and in effect balances the budget.  But the sense is that the various budget gaps will likely exceed this additional revenue.  There are other gaps to be filled, including the charge to find savings through greater efficiency in state spending (a $10M-20M shortfall) and the very unpredictable adjustments to MaineCare expenditures.  It is important to note that the original charge to the task force stated that any unrealized savings of that $40M would come from the general revenue sharing that goes out to all Maine municipalities. That’s not acceptable.  

Senator Margaret Craven of Lewiston will be presenting a bill this legislative session to address the barriers to large historic preservation projects due to the existing cap of $5M per project.  Discussion of this bill will highlight the value of the HTPC across the state for projects of all scales.

Supporters of HPTC are meeting with key legislators and members of the administration.

GrowSmart Maine has communicated with the Speaker’s Office, members of the task force and of AFA and will be meeting with Sen. President Alfond on Dec. 9th.  We are also connecting with other supporters of the HPTC as well as with the Maine Municipal Association.

The Maine Affordable Housing Coalition made a presentation on the issue to Speaker Eves on Dec. 3rd  This included key information provided by Greg Paxton of Maine Preservation.

GrowSmart Maine supports efforts to identify revenue sources in order to balance with state budget without further cutting funding the Maine’s municipalities.  While we encourage collaboration among municipalities and regional approaches to many efforts related to planning and providing services, simply decreasing funding to towns is not the way to accomplish these goals.

There is greater job creation with redevelopment of existing buildings than in new construction because of the type of work and materials needed.

Quality of place, both rural and Main Street is at stake:  Development will occur where there is demand – this tax credit channels growth to existing structures within existing communities.  The alternative without this tax credit is sprawling into undeveloped open space with new construction, which  adds to the costs of providing services and infrastructure and removes from use  what may be productive natural areas.  All this depletes Maine’s quality places which are a major driving force for both business and worker recruitment and retention.