Historic tax credits that were used to revive cities are under the axe

by Jordan Green

The chair of the powerful state House Finance Committee vows to eliminate a tax break credited with reviving downtowns across North Carolina.

Winston-Salem and Greensboro are studded with signature buildings that were renovated with the assistance of the state historic preservation tax credit over the past 15 years.

BioTech Place and the Nissen Building in Winston-Salem, and the International Civil Rights Center & Museum and Cone Export Building in Greensboro are only four.

“One that everyone knows and presumably loves is the Jones Building that Natty Greene’s is in,” said Marsh Prause, chair of the Preservation Greensboro Development Fund Board of Directors. “The Jones Building, it had two fires in one night; it may well have not been saved without historic tax credits.”

Other buildings cited by preservationists and downtown developers that would be eligible for state historic tax credits include Revolution Mill and the Cascade Saloon in Greensboro, along with the Reynolds Building in Winston-Salem.

“In crunching the numbers, both pro formas that we’ve prepared and others have prepared, their economic viability is on the bubble,” Prause said. “It’s a close call and it’s one of those that are critical where tax credits make all the difference in the world.”

The state historic-preservation tax credit automatically sunsets at the end of this year. Every five years since it was established, the state General Assembly has renewed the tax credit with wide bipartisan support. But with a Republican supermajority in both houses intent on reducing corporate taxes, lawmakers are likely to let the tax credit expire to make up for lost revenue.

“We are trying to reduce the corporate tax,” said Rep. Julia Howard, who chairs the powerful House Finance Committee. “That’s pretty much a swap-off. Instead of getting a state tax credit for a minute amount, then we’re just going to bring the corporate tax down. That’s the tax process. I do not believe there’s any intent to reinstate.”

The shift in philosophy among Republican lawmakers is marked. The principal sponsor of the 1997 Senate bill that established the tax credit was Sen. Hamilton Horton, a conservative Republican from Winston-Salem. Howard, a veteran lawmaker from Mocksville whose district was reapportioned in 2011 to cover part of Winston-Salem, is a former supporter of the tax credit. She said she has spoken with representatives of Baptist Hospital, which has a project in the pipeline that would be eligible for the credit, and believes they understand the need to sunset it.

But the prospect of losing the tax credit has caused consternation among many urban elected officials and proponents of downtown revitalization.

“I think it’s a terrible loss of a great revitalization tool,” Winston-Salem Mayor Allen Joines said. “Cities all across North Carolina have used them very effectively to reclaim older buildings, but more importantly to get economic development going in their cities.

“I’m very concerned that it’s going to put a damper on our ability to continue to reuse some of these older buildings in our area,” he added.

Joines will preside at a ribbon-cutting at the West End Mill Works in Winston-Salem on May 7 as part of coordinated series of events to highlight the importance of the tax credit.

Under the current state law, structures on the National Register of Historic Buildings list that undergo substantial rehabilitation are eligible for a 20 percent tax credit after receiving a 20 percent federal tax credit — a total of 40 percent. The federal tax credit is not tied to the sunset of the state tax credit.

Howard characterized the expiration of the state historic-preservation tax credit as a fair trade-off for developers.

Outside investors often form corporations to carry out redevelopment projects, she said, adding, “Their corporate tax is based on the current tax rate. They can’t have it both ways. If we’re going to reduce something, you have to stop the special cutouts to certain groups.”

Proponents of the tax credit argue that the economic impact of letting the tax credits expire would be significant to cities across the state, adding that the current arrangement incentivizes infill development over sprawl.

“It’s huge: You wouldn’t recognize downtown Greensboro without it,” Prause said. “Look at the buildings we just talked about and imagine Greensboro without them. This money leverages investment by allowing buildings that are strongly identified with a community’s character to be repurposed for commerce. There’s a green level, a financial level and a historic preservation level to it, and they all kind of work together. When you talk to the folks that have worked on these projects, if it wasn’t for this tax credit they might be building new buildings on the suburban fringe.”

Skip Alston, co-founder of the International Civil Rights Center & Museum, said historic preservation tax credits played a significant role in that project.

“It was very helpful to the civil rights museum,” he said. “Without that we wouldn’t have been able to open when we did. If they discontinue it, it’s going to put a lot of other projects like ours at a disadvantage.”

Preservationists point out that that the redevelopment enabled by the historic-preservation tax credit enhances property-tax revenues collected by municipal and county governments.

“I did a project in Monroe that the tax bill at the time I purchased the property was about $4,000,” said Nathan Kirby, a developer based in Gastonia. “The current tax bill is $52,000. If people say that doesn’t make an impact, that’s huge on a local level.”

The historic-preservation tax credit is only one of a number of breaks that state lawmakers are looking to close.

“I’m involved in the film industry, too,” Kirby said. “They’re thinking about letting the film credit expire. While I have major heartburn about that, there’s some valid concerns they have and I understand that. Preservation is different. You’re producing something that stays here and is part of our state’s heritage. It’s hard to argue with that.”