Other Preservation Funding #3: Historic Preservation Tax Credits

So far we have looked at two sources of preservation funding that the Historic Trust has neglected in their effort to redevelop the Academy site.  Now, let’s look at a third:  Historic Preservation Tax Credits.  This is one of the go-to sources of funding for major preservation projects like the Academy.

Income producing historic properties like the Academy building - most of it is rented out as offices or event spaces - are eligible for a tax credit of 20% of the cost of a rehabilitation project.  The Historic Trust has stated that the rehabilitation of the Academy will cost $15 million.  That’s a tax credit of $3 million!

The wrinkle here is that the Historic Trust is a non-profit, so it’s not eligible for tax credits.  Some non-profits would just stop there.  But this is an old problem with an old solution, one that has been well-trod by experienced preservationists.  A non-profit can bring on a for-profit partner to the project who brings cash to the partnership.  The non-profit gets the cash to help fund building restorations, the investor gets the tax credits and the good PR from helping to save a historic building. The non-profit can even sweeten the deal by transferring all the building depreciation tax advantages as well.  In a few years, when all the legal obligations are met, the partnership is dissolved and the non-profit retains full ownership.  These partners are called “tax credit investors” and the process is called “syndication.  There are whole equity funds devoted to this practice.

Now, we don’t know if the Trust is planning to do this in the future, but we do know with some certainty that they haven’t done it so far.  The LLC that the Trust formed to hold the Academy property doesn't list any partners, so not tax credit investors.  The recent $2M roof restoration undertaken by the Trust would have almost certainly been eligible for this program, to the tune of $400,000 dollars worth of tax credits.  But since that project is done, that money, like the Current Use property tax incentive, is now gone.

And the proposed development endangers future tax credits as well.  The Historic Preservation Tax Credit program requires that work comply with the Secretary of the Interior's Standards for Rehabilitation.  In fact, even past non-compliant projects can make a building ineligible for the tax credits.  The proposed development does not meet the Standard's requirements for new construction on an existing site, so it is very possible that the proposed development could cost the Academy millions in future preservation funding .. in addition to the harm it would do to the building and the site.

The Trust has stated that the proposed development is the only option that works economically, but we’ve covered three sources of preservation funding worth millions of dollars that they appear to be leaving on the table.  It makes the argument that this proposal is the only economically viable option hard to believe.