Cape property owners have used $3.4 million in preservation tax credits since 2007

For Mike Hess' downtown business, historic preservation tax credits made all the difference.

When the facade of his downtown bar, Breakaway's Bar & Billiards, started crumbling in 2009, he decided it was time for a major building makeover.

After taking the building back to the way it looked when it was built in 1896, Hess was soon approached with an opportunity to transform his business again by opening a new location for the St. Louis-based HotShots franchise.

"Being in an attractive building led to an outside interest coming to this area," said Hess, who received $52,300 in state historic preservation tax credits toward the $230,863 renovation. "It was definitely a turning point for my business."

He soon went from five employees to more than 30 and is serving more customers, bringing in more sales and paying more in property, sales and payroll taxes.

Since 2007, Cape Girardeau property owners like Hess have redeemed $3.4 million in historic preservation tax credits used on nine projects, including the Marquette Hotel, the old L.J. Schultz School and the Southeast Missourian building, according to the Missouri Department of Economic Development. Four more projects have been awarded $226,250 in historic preservation tax credits that haven't yet been issued.

Both commercial and residential structures may qualify for the tax credits, which are equal to one-quarter of the renovation cost.

Historic preservation tax credits have been the topic of debate in Jefferson City for years, often used as an example of how the state's 61 tax credit programs are costing the state money while other programs go unfunded.

Tax credit reforms failed to pass during a special session last fall, and the current legislative session is winding down without any action on tax credits.

A cap of $75 million was suggested by a 27-member tax credit review commission appointed by Gov. Jay Nixon in 2010 to study the state's 61 tax credit programs.

In 2011, the state issued $115.4 million in historic preservation tax credits, more than it had during the two previous years but fewer than it did five years ago. In 2007, the state issued nearly $176 million in historic preservation tax credits, and that number dropped to $107 million in 2009 and to $95 million in 2010.

So far this year, more than $30 million in historic preservation tax credits have been issued, according to the Department of Economic Development.

HotShots owner Mike Hess renovated his building at 15 N. Main Street in downtown Cape Girardeau with historic preservation tax credits from the Missouri Department of Economic Development. (ADAM VOGLER)

Property owners must complete the renovation work and send documentation to the Missouri Department of Economic Development before they are issued a voucher they can use to pay their state income tax. The tax credits may be applied to their state tax payments for the next five years. The credits also may be sold to other businesses or individuals, who then use them to pay their taxes.

The bulk of Missouri's historic preservation tax credits go to projects in St. Louis and Kansas City. Last year, projects outside of the two metro areas accounted for 15 percent of the credits issued.

Dr. Steven Hoffman, director of the Historic Preservation Program at Southeast Missouri State University, said he believes outstate Missouri is just now figuring out how to use the credits.

"There is a learning curve in how to use them effectively," Hoffman said. "We're just figuring it out and just now developing the capacity to do it," he said.

Historic preservation projects require architects and contractors who know the details of the tax credit program. The building's materials and layout must be authentic to the building's time period.

'To a degree a wash'

That's proven to be a challenge for some local developers, who say while the tax credit is a benefit, it also adds to the project's total cost.

"The quality of the house ends up being stronger when you utilize the credits because of the materials you use, but I would not say it's more economical unless you do a large, large project," said Jason Coalter of Centurion Development in Cape Girardeau. "It's probably to a degree a wash because it costs a lot more to do it that way. You have a lot of red tape, logistics and paperwork."

Centurion received $43,373 in historic preservation tax credits toward a $195,044 rehabilitation project for a house on Middle Street. The company has also been approved for $58,750 in credits each for two houses on the same street.

Coalter said he applied for the credits when the housing market was stronger for what he hoped would lead to a neighborhood revitalization.

His company has been restoring houses on the city's south side and leasing them out in an effort to bring higher-end property values to the area. They've been working on other rehab projects without historic tax credits, including the former Future Fitness building at 1231 Broadway.

The tax credit's restriction on things like floor coverings and wall placements led developer Kenny Pincksten, who is renovating the 143-year-old Julius Vasterling Building at the corner of Broadway and North Sprigg Street, to opt out of the program.

"I wanted the luxury of making my building a little more marketable," he said. "By me opting out of the tax credits, it put me in a position to have a few less guidelines and restrictions. I wanted reconfigure to bring modern conveniences to the building."

Filling a gap

Hoffman said tax credits aren't designed to help a developer do something they were going to do anyway. "They're designed to help fill in the gap between doing something in a way that helps preserve it and just putting it back in service," he said. "It's not just like giving candy to a developer."

Renovating a historic building is more labor-intensive than building something new, said Hess, HotShots owner.

Besides the jobs created by his business for his employees, his renovation project and others like it also create construction jobs.

While historic tax credits are creating opportunities for some, Sen. Jason Crowell said Missourians need to consider that the credits are taking state funds away from other programs.

Crowell pointed to possible cuts to Southeast Missouri State University funding and proposed cuts to a health care program for the blind recently passed by the Missouri House of Representatives.

"We are number one in the country in historic tax credit expenditures. We're 45th in the country in per-capita higher education funding and we're in the low 30s in per-pupil expenditure in K-through-12 education funding. How many people will hold their hand up proud and shout with pride that's where we find ourselves as a state?" Crowell said.

Crowell said he believes there is time yet this session to take action on reforming the historic preservation tax credit program, but he's not optimistic that will occur.

"I think the tax credit takers have bought politicians with their campaign contributions," Crowell said.

mmiller@semissourian.com

388-3646

Pertinent address:

Cape Girardeau, MO