Addressing Preservation Problems through Targeted Rehab Tax Credits

In North Carolina, former tobacco mills were empty and crumbling.

In Baltimore, rows of vacant rowhouses provided a backdrop for TV crime shows.

In Maine, large brick textile plants along the state’s rivers sat vacant.

In the Gulf Coast following Hurricane Katrina, entire neighborhoods were flattened.

None of the above situations presents a pretty picture. But preservationists in those states are finding ways to combat such depressing scenarios. By taking a well-known preservation tool—a state or local historic tax credit—and working with lawmakers to tinker with it a bit, they have helped to turn abandoned mills into one-of-a-kind loft apartments and have brought storm-damaged buildings back to their former glory.

Some of these credits are targeted to a specific building type, such as historic mill buildings. In other cases, these credits can work for a range of building types, not just historic rehabs. But owners and developers of historic buildings can still take advantage of them and, in most cases, combine these credits with federal or state rehabilitation credits to make seemingly impossible projects financially viable. In many cases they have been enacted to address a specific problem, such as a lack of quality affordable housing or high vacancy rates in small towns. This article looks at several of these state and local tax credits and how they are being used to encourage the rehabilitation of historic buildings.

The South Carolina Abandoned Buildings Act

South Carolina recently enacted a 25 percent tax credit for the rehabilitation of vacant buildings for commercial use. Signed into law in June 2013, the South Carolina Abandoned Buildings Act is intended to help towns and cities address the problem of large numbers of vacant buildings. While this law applies to any vacant building, preservationists see this as an effective tool to encourage the revitalization of historic manufacturing buildings and downtown properties.

South Carolina Governor Nikki Haley gives the pen used to sign the South Carolina Abandoned Buildings Act to Mike Bedenbaugh, executive director of the Palmetto Trust.

Photo: Palmetto Trust

Mike Bedenbaugh, executive director of the Palmetto Trust, South Carolina’s statewide preservation organization, explains that the state already had a textile mill credit, which preservationists used as a jumping off point to advocate for a broader credit that would benefit other kinds of vacant and abandoned buildings. To get the bill passed, preservation advocates took a realistic view of the political landscape and decided that the best strategy was not to confine the credit to just historic buildings. Bedenbaugh says, “Confining the credit to historic buildings would have generated a lot of pushback. Instead the strategy was to focus on any abandoned building, but all historic buildings are eligible.”

Projects do not have to meet the Secretary of the Interior’s Standards to qualify for the vacant properties credit; however, preservationists see this as an opportunity to encourage developers to combine the credit with the 10 percent state and 20 percent federal historic preservation tax credit, which would require projects to be certified as historic rehabs. The Palmetto Trust has a team ready to guide developers through the certification process.

A key factor is getting the legislation passed was a study that demonstrated the fiscal impact of the credit. After the bill failed to pass the first year it was introduced, the Palmetto Trust commissioned a study with the Strom Thurmond Institute’s Regional Dynamics & Economic Modeling Laboratory that confirmed that the credit will create more wealth in the state. The study found that for every dollar spent on the tax credit will generate an additional $19 to $21 in South Carolina’s economic output. And for every $500,000 of tax credits earned by developers, it will create between 100 to 150 new jobs.

Bedenbaugh says, “The study showed what we knew intuitively, that this thing will create more wealth than it will take out of treasury.”

These compelling numbers really struck home with legislators, and on the third try, the law passed with unanimous support from both sides.

Bedenbaugh...