By Jesse Wilson
INDIANAPOLIS - Legislators are set to delve into a study of the state’s historic preservation tax credit – a program so backlogged that it has become all but unusable.
For years, developers used the credit to turn crumbling buildings into income-earning properties, bolstering communities along the way.
But the state’s cap on the credit is so low that a developer awarded the credit today will wait more than a dozen years to use it, a delay preservationists say is too long to make the incentive worthwhile.
“There is a lack of respect for the preservation of these buildings,” said Rep. Ed Clere, R-New Albany. “Perception is a large factor with this program and right now the public’s perception and the legislators’ perception is that it is either an unimportant program or it costs the state money.”
Indiana’s historical preservation tax credit program is modeled off a federal rehabilitation tax credit. It provides developers with a tax break worth 20 percent of a project’s investment. But state law limits the total credits awarded to $450,000 annually.
Harry Schwartz, a consultant to the National Trust for Historic Preservation, has studied 31 states with tax credits. “A well-thought-out and skillfully drafted tax incentive for historic preservation cannot achieve its objectives if the total amount of credits that can be awarded annually is subject to a statutory limit, particularly if the limit is fixed at a low figure,” Schwartz wrote in a report for the organization.
He cited Indiana’s program as an example of that type of credit.
. Clere has introduced bills over the past five years to try and help the Indiana program move forward and all have either died or been stripped of key provisions.
“I think the reason we keep losing the funding in the bills is because of the way legislators view the credit program,” Clere said. “They view it as something that costs the state money when in fact it brings the state revenue.”
Now the Interim Study Committee on Fiscal Policy will study the issue, with instructions to report its findings to the 2015 General Assembly.
How It Works
Since the creation of the program in 1994, more than $11 million in tax credits have been approved for 199 projects. Due to the waiting list, the tax credits will be paid through 2018. Clere said that doesn’t encourage developers to think about reusing older buildings instead of constructing new ones.
“I realize that new developments bring in value. I’m in no way discrediting that,” Clere said.
“But to overlook the value of buildings that are already standing is not conducive to sustaining areas for long periods of time,” he said. “All it takes is one good project in an area and the turnaround from that investment allows the local community to reap the benefits – benefits that include revenues, increased foot traffic and commerce, all of which can lead to more investment.”
According to a study done by the Historic Landmarks Foundation of Indiana, the credit has brought $170 million in investments for rehabilitation projects that are participating in the program. Those projects have created an estimated $853 million of economic output. The rehabilitation projects also brought in an estimated 3,451 jobs throughout Indiana’s economy.
Sen. Jim Merritt, R-Indianapolis, supports the program and said he understands the importance the buildings have on the communities they inhabit. “A big reason Indiana needs to buy into this program is because it allows us to revitalize what would be called the ‘Main Street’ of Indiana,” said Merritt. “This will boost the economic wheels of Indiana.”
Merritt called the projects “the essence of our Hoosier spirit.”
“They are a part of the heart of the communities that make up Indiana,” he said.
Merritt said so many of Indiana’s decrepit and vacant buildings have economic value. “These buildings – when they were built – were the staples that held the community together,” Merritt said. “They provided revenue, jobs and created the base that Indiana is built on and I truly believe that they can help make the economy healthy again.”
Counties of all sizes have participated in the tax credit program, although the majority of credits have been distributed to counties with large cities.
Marion County has had the most program applicants and has received the most tax credits. That’s led to criticism from lawmakers who represent smaller communities. Clere said he hopes to change the program to allow for smaller projects to claim credits as well.
Currently, the legal issues involved with the credit make it expensive for the developers of smaller projects to use it, said Marsh Davis, president of Indiana Landmarks.
And Merritt said those smaller projects can rehabilitate rural communities “Looking at the smaller villes, burgs and towns, revamping what was once a cornerstone building in a lesser area will bring economic progress,” Merritt said. “A lot of these properties are in the hearts of so called ‘dead’ communities and if remodeled and put to use they can be economic engines for jobs. This program can bring life to many of Indiana’s struggling areas.”
A leading example in the Indianapolis area is the recent climb of the Fountain Square neighborhood. Over the last 10 years, a rise in economic growth has begun in in the neighborhood. The renovation of multiple buildings in the area has lead to multiple businesses moving in, which has brought occupants to fill local apartments. It is a prime example of how an area that just 15 years ago was overrun with crime and a sore spot Indianapolis area has become a prize area for both living and attractions.
The Fountain Square Theater renovation is the result in part of a rehabilitation tax credit. After a remodel years ago, the building now houses two restaurants, a bar, and two duckpin bowling alleys.
But advocates of the tax credit program say it’s no longer possible to launch such ambitious projects using it. And the inability of lawmakers to settle on a solution led the General Assembly this spring to send the issue to a summer study committee.
Merritt said he is hopeful that the study will bring results that truly help make the program better. But he said that he does understand that no one has the “silver bullet” or all the answers to all the problems.
Davis has been working side by side with Clere to create awareness about the importance of the program and the many ways it benefits Indiana.
“When the federal credit program came out we had developers across the nation investing in historic properties,” Davis said. “What happened from that was a dramatic transformation of towns and cities across America and it is that process that we at Indiana Landmarks have continued to support over the years.”
But Davis said that the minimal cap space with the state credit makes it useless because it creates the growing backlog for developers to be reimbursed. “If you look at states without caps you see some of the nicest cities in America,” Davis said. “You look at St. Louis, Missouri, or Kansas City, Kansas, and you’ll see downtowns full of renovated historical properties and around those properties are booming economic communities.”
Missouri reimburses 25 percent of projects with an annual cap of $140 million. Kansas offers 25 percent reimbursement and has a $3.75 million cap.
Davis said it is unrealistic to think that Indiana will ever reach a point where its annual cap room for the credit is as high as Missouri, but he is hopeful that legislators can find a reasonable amount of funding for the program.
During the 2014 session, Clere asked for an annual cap of $10 million. But the House Ways and Means Committee stripped the credit out of the bill before it even moved to the full House. Both Davis and Clere said $10 million is a fair amount that would help promote preservation before the state’s bicentennial in 2016.
But House Ways and Means Chairman Tim Brown, R-Crawfordsville, wants to swap out the credit for annual funding that could be used like a grant program for projects. “Looking at this credit program purely from a budgetary standpoint, it is hard for me to like it,” Brown said. “When we are trying to tally up the state’s budget, it makes more sense to make programs like this expense line programs.”
Brown said the credit program allows for too many questions as to how much money will be moving around. “Every expense gets lined up with all other expenses so that it is clear where all the money is going,” Brown said. “It makes for a more honest and transparent budget.”
But Clere said the program works best as a tax credit. After Brown amended his bill earlier this year, Clere essentially killed it, opting to send the proposal instead to the committee for study. “This program is one that if allocated the proper funds can be very beneficial to the state and to communities all across Indiana,” he said.
Jesse Wilson is a reporter for TheStatehouseFile.com, a news website powered by Franklin College journalism students.