Efforts to Expand the Historic Rehabilitation Tax Credit

MAINE PRESERVATION & MEREDA TO INTRODUCE LEGISLATION In 132ND Legislature BASED on Reforms outlined in LD 1810 & LD 2106

Together, we aim expand the Historic Rehabilitation Tax Credit (HRTC) program by updating the reporting requirements for the program; increasing the Qualified Rehabilitation Expenditure cap from $5M to $10M and expediting the period for claiming the substantial credit; improving the small credit to make it more user-friendly and accessible for income-producing property owners; and creating a new program to ensure homeowners have the same opportunity. These changes will incentivize a greater number of projects that will be put into service more quickly, including those that support affordable housing.

Background
In 2021, the Office of Program Evaluation and Government Accountability analyzed Maine's Historic Rehabilitation Tax Credit and found that the program's structure and administration are sound and efficient, and that the positive outcomes exceed the stated historic preservation goals while promoting affordable housing, job creation, and economic growth. Our bill improves this already successful program.

Meanwhile, OPEGA also suggested that policymakers:

  • “consider whether biennial reporting for the HRTC is meeting the Legislature’s needs and is efficient.” (p. 31)

  • “work with MHPC and stakeholders to clarify the small project credit’s purpose so that its effectiveness can be measured in the future.” (p.32)

  • “consider whether expanding eligibility for the HTRC aligns with State policy priorities while weighing the costs and benefits of expanding eligibility.” (p. 33)

The report goes on, “OPEGA notes that allowing historic homes, barns and other non-income producing buildings to access tax credits for historic rehabilitation could support Maine’s expressed goals around developing ‘quality of place’ and community revitalization. Making a credit available for Maine’s stock of historic houses could also support the State’s goal to increase affordable housing and decrease pressure on Maine’s housing market….” (p. 34). Our bill responds directly to OPEGA’s findings.

Improving the Substantial Credit
Our 2020 Economic Impact report found that in the first 10 years of the program, 106 projects were certified and placed in service in Maine using the HRTC. Combined, these approved projects:

  • Generated $525 million in construction investment;

  • Rehabilitated 3.6 million square feet of commercial and residential space;

  • Created or preserved 1,911 housing units, of which nearly 1,300 were affordable;

  • Generated 200-700 full-time-equivalent (FTE) jobs through construction spending annually; and

  • Created nearly 700 new full-time, year-round jobs in local businesses.

Furthermore, HRTC projects have added over $166 million to local property tax rolls in host communities, including $17 million in new property tax revenue since 2010. The HRTC program has become a major local development tool in its own right with an another $19 million in new income and sales tax revenues estimated to have come into state coffers since 2008. In this period, the program has generated $3 million more in state and local tax revenues than it has cost.

However, construction costs have doubled since the program was initiated in 2008 and yet the Qualified Rehabilitation Expenditure cap has remained static. While some developers have accounted for inflation by phasing their projects, any delay can increase the cost of construction loans and upend this already expensive and cumbersome approach. Many developers avoid these perils altogether by simply not undertaking projects. With our bill, risk is averted and the resources expended on a complex project structure can be put to other public benefits, such as additional units of affordable housing.

Facilitating Smaller Projects
As the OPEGA report noted, the small credit has been used sparingly since it was created. Intended for more modest projects like rehabilitation of mixed-use downtown buildings with ground floor retail and upper story apartments, the Qualified Rehabilitation Expenditures cap is too low to make redevelopment possible.

Meanwhile, there isn’t any similar incentive for Maine homeowners at all. Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, New Jersey, New Mexico, North Carolina, North Dakota, Rhode Island, South Carolina, Utah, Wisconsin, Virginia, and West Virginia all have historic homeowner tax credit programs. In New York State, more than 3,000 projects have been completed since 2008 from the tip of Long Island to the shoreline of Lake Erie, with more than $65M of investment in private homes—equally split between urban and rural areas. However, Maine’s program will be unique in that it is designed to pair with existing financial incentives such as Efficiency ME’s programs for weatherization and respond to policies like LD 2003 by making use of existing structures to increase housing density.

Maine Preservation receives inquiries from historic homeowners across the state seeking technical assistance and financial support for their rehabilitation projects on a near daily basis. Having a tax credit that benefits homeowners will provide much-needed support for ongoing stewardship, weatherization, and housing opportunities all over Maine.

Specifically, our bill will:

  • Improve the existing small credit by increasing the base credit from 25% to 30% and raising the qualified rehabilitation expenditure cap from $250,000 to $1,000,000.

  • Create a 25% tax credit for historic owner-occupied residences and ancillary structures with a minimum homeowner expense of $5,000 and maximum $200,000 for homeowners with an Adjusted Gross Income at or below $120,000. Energy efficiency and resiliency upgrades are included in the qualified expenditures. An additional 5% could be obtained for properties that:

    • include an affordable dwelling unit provided to a renter at or below 100% of Area Median Income; or

    • have been vacant for more than five years.

HOW CAN YOU HELP?

Vote for legislators who support expansion of the Historic Rehabilitation Tax Credit in the November election. You can reference details of the program and persuasive research above, such as the incredible economic benefits that result from rehabilitation projects and the pointed recommendations of the Office of Program Evaluation and Government Accountability.

Find information about your voting place location and ballot here.

New Research Shows Maine Historic Tax Credit Delivers Strong Economic Impacts Benefiting Local Communities and the State

Maine Legislature urged to protect its historic preservation tax incentive by coalition of historic preservation advocates and industry leaders 

 September 14, 2020, Yarmouth, ME - Recently released research commissioned by Maine Preservation in partnership with CEI, Greater Portland Landmarks, GrowSmart Maine, and Maine Real Estate & Development Association (MEREDA) shows that Maine’s historic rehabilitation tax credit (HTC) has had strong, far-reaching impacts on Maine’s economy and quality of life while more than paying for itself. The “Maine Historic Tax Credit Economic Impacts Report,” authored by Charles Lawton and Frank O’Hara, leading Maine-based economists, illuminates that HTC-aided renovations have added over $166 million to local property tax rolls in host communities, including $17 million in new property tax revenue since 2010. The HTC program has become a major local development tool in its own right with an another $19 million in new income and sales tax revenues estimated to have come into state coffers since 2008. To date, the program has generated $3 million more in state and local tax revenues than it has cost in tax credits and it is estimated that the net economic benefit to Maine state and local governments will double to at least $6 million annually by 2022. 

The data reveals that the HTC has generated $525 million in construction investment; rehabilitating 3.6 million square feet of commercial and residential space; and created or preserved 1,911 housing units, of which nearly 1,300 are affordable housing. The construction spending alone has generated 200-700 full-time-equivalent jobs annually for the past decade. Additionally, nearly 700 new full-time, year-round jobs have been generated by businesses occupying commercial spaces and in building maintenance, generating $13 million per year in ongoing income to families living in these communities. For insight into how local communities benefit from this program, please see the case studies in the report.

“Maine’s Historic Tax Credit has delivered critically needed economic revitalization to small and large communities through the rehabilitation of more than 100 historic buildings,” said Greg Paxton, Executive Director of Maine Preservation. “The credit is a highly successful incentive to take vacant or underused buildings and thoroughly update and adaptively use them to fill current needs, while heightening civic pride and wellbeing.”  

“We see the impact of this tax credit across Maine, from Eastport to Rumford, Portland to Dover-Foxcroft. This tax credit makes possible a mix of housing, retail and hospitality, and commercial uses, all within walking distance, relieving development pressure from undeveloped lands and reducing dependence on vehicles to get around. All this has community, economic and climate benefits, “ notes Nancy Smith, Executive Director of GrowSmart Maine.

“Here in Greater Portland the tax credits continue to help attract private investment for rehabilitation projects throughout the region,” said Sarah Hansen, Executive Director of Greater Portland Landmarks. “Not only do the credits ensure that the revitalization of our historic neighborhoods and commercial districts is economically viable, they contribute to the continued development of much needed affordable and market-rate housing.” 

“The historic tax credit program is doing what it was designed to do: spur direct investment and drive other intended benefits of economic revitalization,” said John Egan, Chief Investment Officer, CEI. “By reviving vacant and decaying buildings, we are also bringing young people and jobs back to Maine’s downtowns.”

This research illustrates the substantial and cost-efficient economic benefit of reusing mills, schools, and other vacant or under-used historic resources and affirms the continued need for the HTC to support development projects in Maine’s communities.

The full report text and a table of completed and in-progress projects as reported by the Maine Historic Preservation Commission can be found at https://www.mainepreservation.org/maine-historic-tax-credit-economic-impacts-report-2020.

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Maine Preservation is an independent 501(c)(3) nonprofit member-based statewide historic preservation organization that promotes and preserves historic places, buildings, downtowns and neighborhoods, strengthening the cultural and economic vitality of Maine communities.

About the Partners:

CEI - Coastal Enterprises, Inc. (CEI) helps to grow good jobs, environmentally sustainable enterprises and shared prosperity in Maine and in rural regions across the country by integrating financing, business and industry expertise, and policy solutions. CEI envisions a world in which communities are economically and environmentally healthy, enabling all people, especially those with low incomes, to reach their full potential. More at www.ceimaine.org.

Greater Portland Landmarks - Founded in 1964, Greater Portland Landmarks’ mission is to preserve and revitalize greater Portland’s remarkable legacy of historic buildings, neighborhoods, landscapes and parks. For more information visit portlandlandmarks.org. 

GrowSmart Maine is a statewide nonprofit working through community engagement, events and advocacy to build lasting prosperity without sacrificing the quality of life that defines Maine.

Maine Alliance for Smart Growth is a network supported and led by GrowSmart Maine. Smart growth provides choices in how communities respond to growth and change and our goal is to ensure that future generations can prosper and choose to call Maine home.

MEREDA is a statewide, membership-based organization founded in 1985, whose members include real estate owners, for profit and nonprofit developers, architects, engineers, bankers, property managers and other related professionals. Through its advocacy, educational, and networking efforts, MEREDA seeks to promote an environment for responsible development and ownership of real estate throughout the state.