A leading thinktank in North Carolina supports an end to state historic preservation tax credits, while saying local (city or county) support may be justified. A paper “Historic Preservation Tax Credits” by Sarah Curry of the John Locker Foundation of Raleigh NC says the tax code is misused when it takes from taxpayers generally to reward government favored historic preservation projects.
“The purpose of the tax code should be to raise revenue for core government services,” Curry argues, and bad results follow from the state forgoing tax revenues for politically favored purposes, projects and persons.
“To the extent that lawmakers include targeted tax incentives in the personal or corporate income tax code, they raise the marginal tax rates to levels necessary to raise roughly the same amount of revenue. Higher tax rates discourage work, savings, investment, and entrepreneurship across the economy.”
“Because virtually all of the potential benefits of a (historic) renovation project accrue to those who live, work, or sell goods and services in that community, it makes sense for any subsidies to flow from local property and sales taxes.”
At the local government level some financial support may be justified, Curry writes, if directed to reuse of old buildings that would otherwise be abandoned, endanger abutting buildings and become blight – adversely affecting neighboring properties. The paper says that honest financial support will take the form of grants, debated and budgeted, rather than tax credits.
Grants for historic preservation will then be discussed and compared for their priority with other proposed local government spending.
BACKGROUND: North Carolina began a state historic preservation tax credit in 1998. It piggybacked on the federal tax credit so that if a property qualified for the federal tax reduction of 25% of the cost of the preservation project it got an extra 20% state tax abatement.
The federal tax credit is only for income producing buildings, so regular owner-occupiers are unable to cash in.
NC instituted state tax credits for owner-occupied historic rehabs
North Carolina instituted a separate tax credit for owner-occupiers equivalent to 30% of the cost of qualifying rehabilitations of their personal homes if designated historic.
Mill rehabs as ‘economic development’
A third North Carolina program created in 2008 was a “mill rehabilitation tax credit,” styled as an ‘economic development’ initiative. A 30% (or 40% in designated ‘distressed counties’) tax credit applied to projects developing old ‘mill’ buildings and sites – applying to old textile, tobacco or furniture factory buildings.
All these state tax rebates ceased in North Carolina January 1 this year under a more general ‘sunset law’ under which state spending and tax abatements expire unless positively renewed by the legislature. However there currently are moves to renew them.
COMMENT: Frederick City’s tax credits for historic preservation are wrong. They require city taxpayers to pay higher City taxes, or make do with reduced police, trash collection and other City services without this being openly considered and agreed by the Mayor and Board of Aldermen, the people’s elected representatives. Moreover they give unelected and unaccountable City staff dangerous discretion to rule as to whether projects “qualify” for the tax abatement. They delegate to staff the power to play favorites at the expense of other citizens and taxpayers.
The ‘economic development’ argument is bogus also.
Good economic development generates net value and does not need government subsidies. Investments that are only financially viable with government support are in their nature wasteful since they are expected to produce a negative return on investment. Economics 101.
To the extent apparently reusable old buildings or well-located property remains unused and rots away there is often an explanation in government itself – in the local zonings, fees on developers and local tax rates, and often in uncertainties about potential liability for environmental cleanup costs. In some cases of course a building is simply unsuited for reuse or so far gone structurally that historic preservation makes no economic sense.
An example: In Frederick potential redevelopers were for long discouraged from The Glass Factory at 241 East 4th Street because of the fear they’d be up for enormous ‘environmental mitigation’ costs from possible heating oil tank leakage. Only in the 1990s when Lyle Kleinhans with almost no personal resources decided to take a chance on oil leakage liability did the historic reuse proceed. He relied on ‘sweat equity’ – performing most of the initial design and renovation work himself over three years working alone.