Lawmakers push to expand historic property rehab tax credit

While federal officials are considering cuts to income tax credits for rehabilitation work on historic properties, state lawmakers are considering an expansion of the state credit. Legislators are recommending that the existing cap on state tax credits for historic properties be increased dramatically. House Bill 308 would raise the cap on credits from $300,000 to $60 million. 

However, the measure could face an uphill climb in the state senate. During a legislative roundtable discussion I attended in Atlanta on Nov. 12, the chairman of the state Senate finance committee, Judson Hill, expressed frustration over the existing 115 tax credits in Georgia. Hill said that he’s generally supportive of tax credits if they’re fiscally responsible, sustainable, and “as long as we can quantify results” in terms of economic development, but in the long run he would like to reduce the number of credits and broaden the tax base. Whether the cap and sunset provisions of HB 308 would satisfy Hill’s concerns is unclear at this point.

The Savannah Morning News editorialized earlier this month that it’s an idea worth considering for economic development as long as it’s researched carefully and the state budget can afford it:

Editorial: Historic tax credit bill needs work

HOW FAR should Georgia’s state government go in using the tax code to pick winners and losers?

That question is at the heart of a debate that’s emerging in Atlanta. State lawmakers from Savannah are apparently pushing statewide legislation, expected to be introduced this week, that would eliminate Georgia’s existing cap on state income tax credit for developers who rehabilitate historic property. 

It’s a debate worth having.

Savannah is known far and wide for its success in historic preservation, a main driver of Savannah’s robust tourism economy. And while tax policies may sound dry and boring. they affect the lifeblood of the economy. 

It’s noteworthy that State Rep. Ron Stephens, R-Savannah, is behind this measure. He chairs the committee in the House where bills that affect economic development generally spring from. 

The specific property prompting this bill is the decommissioned power plant on West River Street. Hotelier Richard Kessler sees this distinctive, century-old, brick structure as the centerpiece of a five-building, $235 million hotel project, which would go on a relatively undeveloped part of the riverfront and create an estimated 700-800 jobs. 

Current state law on historic tax credits allows developers to recover 25 percent of the cost of rehabbing historic property, up to $300,000. Twenty other states have similar provisions. Some cap the maximum tax break, ranging from a skimpy $50,000 to a generous $5 million. Fifteen have no caps at all. 

A $9.7 million increase
If lawmakers vote to remove the cap, Mr. Kessler would reap an estimated $10 million tax break from his investment— a net $9,700,000 increase over $300,000, a 5,233-percent jump. 

Coincidentally, Mr. Kessler paid $9 million for the riverfront property when he bought it on Jan. 1, 2013. Two months later, he laid out impressive plans to redevelop the site.
Given his sterling reputation as the developer of The Mansion and Bohemian hotels, he quickly gained public support, convincing City Council to grant a variance on the new buildings’ heights and to build a $14 million extension of the river walk. 

But nothing was mentioned publicly two years about the need to change the rules of the game to help complete Mr. Kessler’s project. Why now? 

“Those tax credits are crucial,” said Mark Kessler, president and COO of the development company behind this project. “Three-hundred thousand is not an incentive to do anything.” 

It’s true that 300k isn’t much of a carrot to someone spending $235 million. But if scrapping the tax credit is crucial to the success of the Kessler project, why is the bill just going before the Georgia Legislature now, two years after hotel plans were first proposed? That seems backward. 

Tax breaks work
That said, there’s much to like about incentivizing projects that create good-paying jobs. Tax breaks work. Those who insist that government must always take a hands-off approach to tax breaks should consider one example: Savannah-based Gulfstream. 

Two years ago, state lawmakers approved an extension of the sales-tax exemption on parts used to repair airplanes. It’s a powerful incentive for owners of corporate aircraft, who can afford to fly anywhere, to do their preventive maintenance in the city and state where their planes are manufactured. This tax break helps keep thousands of well-paid, skilled blue-collar jobs here at home. 

Preservation groups, including the Historic Savannah Foundation, are right to see tax credits as a way to save buildings with historic value from the wrecking ball. But at this point, this bill needs more work. Supporters suggest that Georgia may be losing by capping these credits. How? What about raising the existing cap instead of scrapping it? 

One early version of the proposed bill is a non-starter: Tying elimination of the cap to freezing property values for tax purposes. Such a move unfairly robs local governments of revenue they count on. There’s no legitimate reason to hamstring them. 

The bigger question for the Georgia Legislature is whether the benefits from eliminating the $300,000 cap outweigh the hit to the state’s treasury. It could be particularly hard sell this year, given the need to plug a $1 billion hole in Georgia’s road-building budget...