Bill would cap tax credit for historic preservation

Sunday, February 19, 2006

The credit has helped spur investment in some of Cape Girardeau's most visible buildings.

Promoters of historic preservation are organizing to defeat a move to cap tax credits aimed at promoting a small number of business activities.

Renovation of historic buildings is the single most expensive economic development tax credit program for the state of Missouri. During the most recent fiscal year, taxpayers used $74.5 million worth of the preservation credits.

Growth in that figure, and the amounts of other business breaks, needs to be limited to foster predictability in state budgeting, Senate Appropriations Committee chairman Chuck Gross said.

"The cost of tax credits is going up at a very high rate," Gross said.

Gross filed a bill to limit the historic preservation credit and eight other business-aimed breaks to 2.5 percent of the state's annual general revenue. The state administered 58 tax credits worth $405 million in fiscal year 2005; the ones subject to Gross' bill totaled $108 million. State general revenue is about $7 billion, which means the cap would be approximately $175 million.

"In just a couple of years from now, somebody is going to scream and say, 'What happened? These are out of control," he said. "They are already out of control."

That viewpoint is shortsighted and doesn't examine the benefits, said Jerry Schlichter, a St. Louis lawyer who helped draft the bill creating the historic preservation credit in 1997. The credits help revive decaying neighborhoods, create construction and finance jobs and return tax benefits that exceed their cost, he said.

Schlichter and others in the Missouri Coalition for Historic Preservation and Economic Development want to convince lawmakers that the credits spur activity from the small towns of Missouri to the urban cores. The growth in their use, he said, shows a willingness to invest in buildings that need extensive work.

"The more of this that happens, the better," Schlichter said.

Historic preservation tax credits have helped spur investment in some of central Cape Girardeau's most visible buildings, such as the Marquette Hotel and the Southeast Missourian building.

The program provides help through a tax credit for 25 percent of the costs of renovating a building. The structure must be on the National Register of Historic Places or be within a recognized historic district.

The Missouri credit complements a 20 percent federal tax credit. Missouri's is more generous, however, by allowing the credit for residences.

The Southeast Missourian's investment in its building exceeds $1 million, according to publisher Jon Rust.

The Marquette represents an investment of $9 million, according to Terri Foley, a local consultant on historic preservation projects.

The credits fuel a growing interest and investment in Cape's central area, Foley said.

"What it means for any town, when property owners put a building on the National Register of Historic Places, it means revitalization, economic development and jobs. And you are saving your community's heritage."

The state credit has helped make Missouri the leader in investments in historic preservation projects. Investment in 2004 was $358 million, compared to $224 million for Pennsylvania and $157 million for Illinois, which were second and third, respectively.

Anything that creates doubt for investors will cripple the program, Schlichter said. A cap means the program may as well not exist, he said. "The reality is it will kill it," he said. "You have got to give developers certainty."

The other, far smaller credit programs included in Gross' bill include Brownfield redevelopment, which rewards rehabilitation of polluted sites, enterprise zones and recycling of cellulose casings by sausage producers.

The bill also would make changes in the way the historic tax credit is used. Currently, the credit can be claimed against taxes paid in the previous three years and the tax credits are good for 10 years after they are issued. The credits are also available for residential property.

Gross wants to eliminate their use to gain refunds for past taxes, limit their use to five years and bar homeowners from using the credits.

"On residential properties, primarily the people who use them are very wealthy people," Gross said. "A tax credit for someone who has a home that is worth a million dollars does not seem like a great idea. They should be able to afford to put a new roof on the home without a tax credit."

Saving historic homes is as important as saving commercial buildings, Foley said. "Why should a residential property owners be jeopardized? If they are willing to give to their community and save the heritage of residential property they should not be penalized."

Schlichter himself lives in a historic home within St. Louis city limits. He didn't use any tax credits to redo the home, which is more than 100 years old, "but I put in a lot of sweat equity. I don't want to be depressed by seeing older neighborhoods go down the tubes."

The battle will be joined when a hearing is scheduled on Gross' bill. It isn't the first time he's tried. Last year, the bill didn't get out of committee.

"It is back-door and off-budget spending," Gross said. "No where in Missouri's budget do we have a line that says, 'Here is the cost of tax credits.'

"I started this two years ago, to educate the General Assembly on this because the budget was tight," he said. "I wanted them to understand where the money was going."

To block the bill, Schlichter said his group will carry a simple message: "We will try to communicate to the legislature why we think this is a bad idea. It is just a matter of stating the facts: It makes money for the state."

335-6611, extension 126

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