The Triumph of Historic Tax Credits

9 min read

You can’t miss how they revitalized America’s cities

You’re passing through a small town or city neighborhood and a building suddenly catches your eye. You see bracketed cornices and arched windows; everything looks stylish and solid, built back in an era when, as they say “people cared about quality.” The building has been rehabilitated, and people fill its sidewalk cafes. Nearby buildings are equally old and full of life. In an instant, you realize they all work together, relating to each other and a few nearby modern buildings, to create unseen energy, a magnetic pull making you want to be there.

Cincinnati, Ohio? Corning, New York? San Antonio, Texas? Evansville, Wisconsin?

Yes. In fact, if you close your eyes and put your finger anywhere on a map of the U.S., you’ll touch such buildings.

Many factors are involved, but almost always included are federal Historic Tax Credits (HTCs), made permanent by Ronald Reagan in 1981 and strengthened by him in 1986. “Our tax credits have made the preservation of our older buildings not only a matter of respect for beauty and history,” Reagan told Congress, “but also of economic good sense.’’

This law now faces contradictory efforts on Capitol Hill: Some elected officials want to make it more effective by addressing issues such as the disqualified lease rules; others want to curtail, or even kill it.

Cincinnati, Ohio
Essential to Reagan’s “good sense” is more than “history.” The U.S. Park Service, empowered by law with certifying which properties are eligible for the federal HTC, says it seeks buildings whose preservation and rehabilitation will “promote the economic revitalization of older communities in the nation’s cities and towns, along Main Streets, and in rural areas.”

At first glance, Cincinnati’s Over-the-Rhine neighborhood, founded by German immigrants in the mid-1800s could be an unlikely candidate. As recently as 10-20 years ago, this 5.7 square mile area was known primarily for poverty, crime and decaying, often-abandoned buildings. Population, which had peaked at nearly 45,000 in 1900, fell to less than 5,000 in the early 2000s largely because industrial jobs disappeared. In economic parlance, the area was “disinvested.” The National Trust for Historic Preservation in 2006 listed Over-the-Rhine among the “Most Endangered Historic Places in America.”

Now, population is growing and most blocks seem to have at least one building that has benefited from federal HTCs. Arrow Apartments, located along Vine Street, the neighborhood’s central thread, offers affordable family housing units; Parvis Lofts, a block of 10 buildings converted into residential units with ground level commercial retail space; the Westfalen Lofts, a grouping of Italianate buildings just north of the neighborhood’s largest park; directly adjacent to the park is the Saengerhalle project, a rehabilitation of three buildings into commercial office space; Cincinnati Color Building recognized for its iconic “PAINT” sign, rehabilitated into mixed use; Mercer Commons with 13 historic buildings.

And that’s just a small piece of a long list of HTC-supported projects in the Over-the-Rhine neighborhood alone. None of these projects has a sign or brass marker proclaiming that it received federal Historic Tax Credits. Celebration of the buildings’ significance comes in high occupancy rates and busy retail establishments.

Totals for all of Cincinnati, 2001-2013: 207 projects received more than $54 million in federal HTCs for a total investment of $309 million, generating, among other things, 2,164 construction jobs and 2,915 full-time jobs. “Between 2007 and 2012,” notes W. Kevin Pope, Board Chair of Heritage Ohio, federal historic projects leveraged “more than $958 million in total development expenditures and creating over 15,000 jobs. This equates to a $6.02 return on investment.… Across Ohio, mid-sized cities and small town Main Streets are also experiencing redevelopment because of Historic Tax Credits. Since 2007, 32 communities have had a historic tax credit project that otherwise would not have happened. These communities needed the tools to be able to rehabilitate long vacant and abandoned buildings.”

Corning, New York
Pope is describing buildings that emblemize the decline of industrial America. “Anyone who has taken a road trip in the U.S. has had this experience,” says travel writer James Clad. “You’re driving through or near a downtown, often on a river, and see old factory buildings clearly abandoned—sometimes block after block of amazing structures in what are now less-than-vibrant parts of town. And, you wonder, if I drive through again in a few years will those buildings still be there?”

A clear success story is Corning, N.Y., a former factory and lumber town which reached its population peak of 34,000 in 1930, and now has about 11,000 people. From 2001-2013, $1.7 million in federal HTCs leveraged more that $10 million in development investment, generating $5.8 million in local income. Key here has been downtown’s Market Street. Instead of abandoning the area and allowing historic buildings to succumb to what’s known as “demolition by neglect,” community leaders formed the Market Street Restoration Agency in the 1970s and began to devise ways to save the character of their downtown. Part of the long-term result has been recent use of federal HTCs to restore buildings like Henkel’s, Serge’s Restaurant, the Drake and Steuben.

Neither Market Street nor any of these buildings will ever be known outside of Corning, but the entire area is vibrant, filled with, says a local official, “a sense of rootedness in the community’s past.”

Lessons from Corning include not only the importance of community engagement, which obviously preceded the existence of the federal HTC, but how essential local history can be. Such local history is vital even in communities that have world-famous sites. San Antonio, Texas is home to The Alamo, which attracts millions of visitors each year. But federal HTCs have been essential to revitalization of San Antonio neighborhoods near the Alamo and throughout the city. San Antonio was, before the 1930s, the largest and richest city in Texas. Thanks to federal HTCs, Art Deco and Beaux-Arts features from its time of dominance sparkle in unexpected places, and buildings on three-block Market Square plaza, the largest Mexican market in the U.S., have been saved and repurposed.

Evansville, Wisconsin
All of these efforts more than pay for themselves. “Over the life of the program,” writes Stephanie K. Meeks, President of the National Trust for Historic Preservation, “$21 billion in tax credits have generated more than $26.6 billion in federal tax revenue associated with historic rehabilitation projects.” It has, she continues, “leveraged nearly $109 billion in private investment, created 2.41 million jobs and adapted more than 39,600 buildings for productive uses; nearly a half-million housing units rehabilitated or created.”

Such figures have not been questioned, but opponents of historic tax credits often argue that preservation should be “left to the marketplace.”

As an indication of the tax credit’s popularity, however, more than 30 states “have adopted laws creating credits against state taxes to provide incentives for the appropriate rehabilitation of historic buildings, “ writes Harry K. Schwartz in a recent report, entitled “State Tax Credits for Historic Preservation.” These state tax credits usually work in tandem with federal HTCs.

Public officials who try to roll back state historic tax credits almost always fail, in large part because the tax credits are nonpartisan and non-ideological, but also because historic preservation efforts emerge in so many communities—and are, by their very nature, committed to long-term efforts. Evansville, Wisconsin, whose population is about 5,000, has what the Wisconsin State Historical Society describes as “the finest collection of 1840s to 1915 architecture of any small town in Wisconsin”—nearly 200 historic or architecturally significant structures. The Evansville Historic Preservation Commission (HPC), active since the 1970s, works to educate the public and save the buildings.

“The tipping point to saving downtown, says Mayor Sandy Decker, came when federal Historic Tax Credits, coupled with state credits, financed key Main Street buildings and “had a catalytic effect, spurring the renovation” of nearly a half-dozen nearby structures.
Wisconsin has become a leader in anti-tax efforts, but in the face of stories, like Evansville, its state Historic Tax Credits have survived all assaults.

What is Historic?
“Throughout America over the last decade, we have seen downtowns come back and reclaim their historic role as the multifunctional, vibrant, heart of the city,” economic development consultant Donovan Rypkema, author of “The Economics of Historic Preservation: A Community Leader’s Guide,” wrote in 2008. “I typically visit 100 downtowns a year of every size, in every part of the country. But I cannot identify a single example of a sustained success story in downtown revitalization where historic preservation wasn’t a key component of that strategy. Not a one. Conversely, the examples of very expensive failures in downtown revitalization have nearly all had the destruction of historic buildings as a major element.”

Nonetheless, the Federal HTC has one major failing which has yet to attract much attention: it is applicable only to structures that are at least 50 years old. As preservationist Elaine Stiles points out in a 2010 article entitled “50 Years Reconsidered,” “densification of suburban and urban environments, real estate markets where land is worth more than existing buildings, and the continual cycle of rehabilitation for commercial and retail structures threaten scores of recent past buildings and landscapes. It is rare that a contemporary historian has the luxury of 50 years to evaluate the significance of a resource. Without access to the incentives and protections that come with eligibility for or listing in historic registers, as well as the public endorsement of significance that designation carries, advocates for recent past resources often cannot find preservation solutions for important sites before they are lost forever.”

Stiles points out that the exact number “50” came from the Historic Sites Act of 1935 in which “the Historic Sites Survey was charged with identifying nationally significant sites worthy of both preservation and potential inclusion as federally operated sites within the National Park System.” And they chose 1870—about fifty years— as the cut-off date largely because it relegated the Civil War and its immediate aftermath as the line separating “history” and contemporary times. Nothing beyond this, she writes, indicates why 50 years was subsequently “chosen as a waiting period.”

Some jurisdictions, Stiles notes, require much less time before preservation benefits can begin; New York City law says 30 years, and Los Angeles has no time requirement. So the next battle may be, not about whether historical tax credits work, but how best to define “historical.”