FEDERAL HISTORIC TAX CREDIT BACKGROUND & BENEFITS
BACKGROUND: About the Federal Historic Tax Credit
- The HTC was initially enacted in 1978 and made permanent in the tax code in 1986.
- Thirty-four states across the country, including Louisiana, Wisconsin, Texas, Ohio, Missouri, North Carolina, and Virginia, recognize the economic development potential of historic rehabilitation and have enacted individual state Historic Tax Credit programs that work in tandem with the federal program.
- As an economic activity, historic rehabilitation greatly outperforms new construction in job creation. Rehabilitation project costs are on average 60 percent labor and 40 percent materials compared to new construction, which is about 40 percent labor and 60 percent materials. In addition to hiring local labor, historic rehabilitation materials are more likely to be purchased locally. As a result, approximately 75 percent of the economic benefits of these projects remain in the communities where these buildings are located.
- The HTC is administered by the National Park Service and the Internal Revenue Service in conjunction with the State Historic Preservation Offices. It is comprised of two distinct and separate tax credits used to rehabilitate historic buildings including vacant schools, warehouses, factories, retail stores, apartments, hotels and office buildings throughout the country:
- The 20 percent credit. The 20 percent credit applies only to certified historic structures. A certified historic building is one that is listed individually on the National Register of Historic Places, or contributes to the character of a National Register-listed Historic District. The 20 percent credit is available for any income producing property, including residential rental projects.
- The 10 percent credit. The 10 percent credit is for the rehabilitation of non-historic, non-residential buildings built before 1936.
BENEFITS: The talking points below support advocacy efforts in preserving and enhancing the federal Historic Tax Credit (HTC)
- The Historic Tax Credit (HTC) encourages private investment in the rehabilitation of historic buildings. The credit attracts private capital—$120.8 billion since inception—to revitalize often abandoned and underperforming properties that have a financing gap between what banks will lend and the total development cost of the transaction.
- The credit in turn generates new economic activity by leveraging private dollars to preserve historic buildings and create jobs; through 2015, the rehabilitation of 41,270 historic buildings has created more than 2.3 million jobs. The HTC can be adapted to provide targeted and timely economic help to areas with special needs. For example, the HTC was temporarily increased to 26% to help rebuild New Orleans after Hurricane Katrina through the GO-ZONE Act of 2005.
- The HTC benefits local communities, especially our nation’s urban core and rural areas. Over 40% of projects financed in the last fifteen years are located in communities with populations of less than 25,000.
- In addition to revitalizing communities and spurring economic growth, the HTC returns more to the Treasury than it costs. In fact, Treasury receives $1.20-1.25 in tax revenue for every dollar invested. According to a study commissioned by the National Park Service, since inception, $23.1 billion in federal tax credits have generated more than $28.1 billion in federal tax revenue from historic rehabilitation projects.
- Tax reform aimed at growing the economy should enhance, not diminish the HTC. Historic rehabilitation projects frequently have higher costs, greater design challenges, and weaker market locations—all of which results in lender and investor bias against investments in rehabilitation. The Historic Tax Credit Improvement Act enjoys solid bipartisan support and would enhance the HTC by directing more investment to small business transactions along older Main Street corridors. Specifically, the bill creates a 30% credit for small deals to make these transactions more attractive to outside investors who tend to favor much larger investment opportunities. In addition, the bill allows the historic tax credits in these small transactions to be transferred with lower transaction costs, as a tax certificate, making it easier for small business owners to bring outside investment into smaller transactions.
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Bank Regulators Clarify When HTC Investments Earn CRA Credit
For the first time since the passage of the Community Reinvestment (CRA) Act 40 years ago in 1976, federal bank regulators (the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation) have included in their CRA Q&A document criteria for how banks can meet their CRA obligations by making Historic Tax Credit (HTC) investments. The revised Q&A can be found at: http://www.occ.gov/news-issuances/news-releases/2016/nr-ia-2016-82a.pdf with specific comments on the HTC on page 16.
The CRA Act requires regulated financial institutions to make loans, invest equity in or provide services to low and moderate-income (LMI) “assessment areas” within their retail footprint. The Act was passed to address the practice of redlining where banks would deny credit to minorities and small businesses located in minority and economically depressed neighborhoods regardless of the creditworthiness of the borrower. Compliance requirements and oversight examinations vary by the size of the institution, but in general banks today are highly motivated to meet their CRA obligations. A failure to do so can mean adverse publicity for the institution and can lead to public challenges to bank merger plans.
Each bank develops its own plan to comply with CRA. Among the favored approaches have been investments in low-income housing and new markets tax credits, since both of these financing tools automatically qualify as CRA investments due to their targeting of benefits to LMI areas or households. Since the HTC can be used to finance any property reuse and is not targeted by statute to low-income communities, it has been difficult to establish a similar bright line test for the HTC.
In the fall of 2014, the three bank regulators asked for public comments on a revised CRA Q&A document which is relied upon by financial institutions to determine if a proposed financing can count toward their CRA obligations. The Historic Tax Credit Coalition, the National Trust for Historic Preservation, the National Park Service and Members of Congress all submitted testimony asking that the regulators devote a section of their revised CRA Q&A to the HTC and when such investments could earn CRA credit for financial institutions.
Three types of HTC transactions are highlighted in the Q&A. Under the new Q&A:
- HTC investments in space leased to small businesses that provide permanent jobs to low-incomee persons, in low and moderate-income communities or areas designated for economic development are also now clearly CRA eligible.
- Transactions that provide direct benefits to LMI individuals such as affordable housing or job training centers can earn CRA credit for financial institutions.
- HTC investments in projects that stabilize or revitalize low and moderate income communities (as defined by HUD), disaster areas, certain rural census tracts or designated economic districts also qualify as CRA eligible. So for instance, a hotel or a retail center in an LMI census tract or a government designated economic development zone that generates permanent jobs for LMI individuals, in the LMI area or in an economic development zone can earn CRA credit.
The small business provision has particular relevance to Main Street programs who can now argue to local financial institutions that just about any loan or equity investment in a Main Street district that supports small businesses can count against a bank’s CRA obligations. Main Street project financing can also qualify because it helps stabilize or revitalize an LMI area or a geography designated for economic development by local government. Developers of larger HTC transactions that are located in LMI census tracts or a designated economic development zone can make the case that their projects are consistent with a local economic development plan and create permanent jobs.
National Park Service data show that an average of about 60% of HTC transactions over the last 5 years were located in LMI census tracts. An estimated 85% of HTC projects are located in economic development zones. Additional rural projects will qualify due to their location in so called Nonmetropolitan Middle Income Areas. These areas are deemed to be qualified due to the special credit needs of rural geographies.
For further information contact John Leith-Tetrault at firstname.lastname@example.org.
Historic Tax Credit Advocacy During Summer Recess
The Historic Tax Credit (HTC) is the most significant federal financial commitment to historic preservation. Over the last 36 years, the credit has created 2.3 million jobs, leveraged $117 billion in investment, and rehabilitated more than 41,250 buildings — all while generating enough in federal taxes to pay for itself. Unfortunately, this credit is in danger.
The Republican tax reform task force in the U.S. House of Representatives released a proposal for tax reform on June 24th. This broad blueprint, for tax reform in 2017, would require the elimination of hundreds of billions of dollars in tax credits and deductions in order to achieve a 20% corporate tax rate. Though no community development measures were singled out for retention, we know from Capitol Hill conversations that the HTC program is at risk. Some Members of Congress outside of the “blueprint process” have called for totally eliminating the credit, reducing it from 20 percent to 10 percent, or combining it with the low-income housing or new markets tax credits.
Overview can be found at: Full text can be found at:
Requested Action: In-District/State Meetings and Site-Visits During the Summer Recess (July 15th-September 5th)
Because of these recent developments in the tax reform debate, advocates for the HTC need to make it a priority to meet with Members of Congress in their district or state during the Summer Congressional Recess, July 15 through September 5th. Suggestions for Member advocacy include:
- Request in-district meetings with Members of Congress; ideally combine with site visits to tour completed HTC projects or future HTC projects.
- Make the case for the value of the HTC and ask their Members of Congress to express support to House Ways and Means Committee Chairman, Rep. Kevin Brady (R-TX) and Senate Finance Committee Chairman, Orrin Hatch, to make sure the Historic Tax Credit is enhanced and not diminished in tax reform legislation.
- Ask Members of Congress to co-sponsor the Historic Tax Credit Improvement Act, which improves and updates the HTC and features a 30% small deal credit to help rural and small town revitalization.
Site visits are a great way to show the HTC in action, with all of its economic, community and historic preservation benefits.
HTC advocates are encouraged to connect with other leaders in the historic rehabilitation and preservation communities to organize meetings followed by project tours during the summer recess. Support for the Historic Tax Credit is needed from all Members of Congress! Also, if you have a Member of the Congress that sits on the Senate Finance Committee http://www.finance.senate.gov/about/membership/ or the House Ways and Means Committee https://www.govtrack.us/congress/committees/HSWM it is especially critical for them to hear about the value of the HTC while they are back home.
Members of Congress are currently developing their late July and August schedules, so submitting a recess meeting/site visit request in the next few weeks is ideal. The HTC Campaign can provide assistance and materials for meetings/site visits or assistance in inviting Members of Congress.
Please contact Michael Phillips, Public Policy Advisor, at email@example.com for:
- Assistance and access to updated materials (maps, economic data and list of projects, program overviews and relevant letters from advocates to Members of Congress)
- Updating the Prosperity Through Preservation Team of any meetings or tours you are able to arrange
For scheduling requests for when your member of Congress is home for Summer Recess, please contact the congressional office and follow staff’s instructions:
- To locate the name and phone number of your House Representative go to:http://www.house.gov/representatives/find/
- To locate the names and phone number of your Senators go to:http://www.senate.gov/general/contact_information/senators_cfm.cfm?OrderBy=state&Sort=ASC
- Or call the Capitol Switchboard at 202-225-3121 and asked to be connected to your Senators’ or House Member’s DC office.
Historic Tax Credit Improvement Act Background
This Historic Tax Credit Improvement Act (HTCIA) provides several reform options and serves as an indicator of member support for the HTC program (see link to one-pager below). The House version of the bill (H.R. 3846) is enjoying strong bi-partisan support on the Ways and Means Committee and presently has 42 Members of Congress supporting the bill. The Senate version of the bill, sponsored by Senator Susan Collins (R-ME) and Senator Ben Cardin (D-MD), introduced in March, has 3 Co-sponsors, Sen. Roy Blunt (R-MO), Sen. Charles Schumer (D-NY) and Sen. Patrick Leahy (D-VT).
Co-sponsors and other details of the House and Senate bills can be found at www.congress.gov:
Review of Secretary’s Standards
Also in conjunction with the HTCC, NTCIC works with the National Park Service to review its current interpretation of the Secretary of the Interior’s Standards as it is applied to rehabilitation tax credit applications. After extensive research–including two hearings, the Committee on the Federal Rehabilitation Tax Credit Program released a report in 2006, “Federal Historic Rehabilitation Tax Credit Program–Recommendations for Making a Good Program Better”.