Here's an item for the state's "to-do" list in 2012: Act now to improve and extend the historic rehabilitation tax credit program.
The tax credit program was created to assist developers willing to restore life to old buildings in struggling neighborhoods. The law offers redevelopers of historic commercial buildings a state tax credit of up to $5 million per project. That tax credit leverages private investment dollars to create jobs.
Rocco Termini's $40 million renovation of the Lafayette Hotel could not have gotten off the ground without both federal and state historic preservation tax credits.
But the law has some shortcomings that need to be addressed before the program is extended. In 2010 the state watered down the program when it deferred payments available under 28 different state tax credit programs, including homeowner and commercial rehabilitation tax credits.
Historic rehabilitation is not easy or cheap, but restoring old buildings is a worthy use of public money. The deferral of rehabilitation tax credits until 2014 has impeded investors and developers seeking to use the program to promote community renewal. Transformational projects have been delayed or blocked entirely. Ending that deferral will restore the program's usefulness.
Two other fixes are needed to fulfill the promise of economic development and job creation.
The way the program is set up restricts its ability to attract out-of-state investors. There could be a greater pool of potential investors in New York State rehabilitation projects if the program allowed developers to separate the New York State tax credits, which are of no use to out-of-state developers with no tax liability in New York, and the federal tax credits. That change would allow partnerships between New York State companies with state tax liability and national investors with federal tax liability, and the state would benefit by getting the maximum bang for its tax credit bucks.
There's also a need to re-examine the $5 million tax credit cap per project. Termini says that lifting this cap would allow him to move forward on much larger and more expensive projects, such as redevelopment of the former AM&A's department store downtown. The $5 million cap is there to limit the loss of tax revenue for the state; however, the cap means tax credit help is too limited for a few notable local projects, including AM&A's, the Central Terminal and the Richardson complex.
The federal rehabilitation tax credit program is uncapped, and some very large projects would benefit by also uncapping the state tax credit.
To reduce the tax hit to the state while still spurring major historic rehabilitation projects, a limit could be placed on the number of projects with uncapped tax credits. Perhaps the new regional economic development councils could each designate a few projects deserving more than $5 million in tax credits. While there's always a risk of politicizing the program through such action, it would allow the largest rehabilitation projects to access the tax credits needed to put buildings back into productive use.
After these changes are made, the focus needs to shift to getting the tax credit program extended. The tax credits were to be a temporary boost to redevelopment, expiring in 2014 after five years. But the elements cited above -- the tax deferral, combination with federal grants and the cap -- have prevented the program from working as planned. To fix that, the program should be extended to 2017, giving it the intended five years.
It's not too soon for state government leaders to address these changes and the extension of this program. Gov. Andrew M. Cuomo should send the signal now that New York remains committed to continuing to attract private reinvestment to our downtowns.
October's Historic Preservation Conference attracted thousands of architecture buffs to see the revitalization of the area's glorious past. We have much to be proud of, but much needs to be done.
Investors are needed for more of our historic but vacant or underused buildings. Using tax credits to rehab those buildings becomes a financial plus for the state by creating jobs. Even with the program's current impediments, the tax credits are helping breathe new life into historic architecture. The governor should include these necessary changes in his 2012-2013 executive budget proposal, and Western New York lawmakers on both sides of the aisle must work together to support a program that works for upstate.