February 16, 2012

Historical Building Credit Could Be Taxed

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Key legislative leaders and Gov. Mary Fallin appear to be targeting a state tax program that preservationists and developers say is key to saving historic buildings in Tulsa and around the state.

The Oklahoma Credit for Qualified Rehabilitation Expenditures provides a transferable tax credit of 20 percent of qualifying building rehabilitation costs. Typically, buildings must be on the National Register of Historic Places for the tax credits to be claimed.

If the state wants to save old buildings, it needs to save the tax-credit program, said local developer Mark Larson, who plans to have a 74,000-square-foot historic preservation project at 401 S. Elgin Ave. finished in about a year.

“In order to keep these historic buildings, this program is 100 percent critical because it’s cheaper to knock it down and go up with new construction,” Larson said.

The historic tax credit is included in a preliminary list of tax programs that are to be eliminated in connection with Fallin’s efforts to roll back the state’s personal income tax rate.

The legislators who run committees where tax bills will be considered this year said they have changes in mind for the program.

Rep. David Dank, R-Oklahoma City, said he wants a two-year moratorium on all tax credit programs, including the preservation program. In the interim, he wants evidence as to whether each program is a net benefit to the state and creates long-term jobs.

Sen. Mike Mazzei, R-Tulsa, said he can support a state subsidy of historic-preservation efforts but thinks a transferable tax credit is the wrong way to do it.

Developers typically sell transferable tax credits at a discounted rate to companies with big state tax bills.

That provides early equity to developers, but it dilutes the ultimate impact on historic rehabilitation, Mazzei said.

He said he could support a direct state subsidy to historic-preservation efforts – perhaps through an appropriated fund managed by the Oklahoma Historical Society – but he said tax credits are inefficient and raise transparency issues.

The tax program has helped some worthwhile projects, but Mazzei said he is disappointed that no evidence has been presented that the program is producing jobs and economic development.

“I am still open to someone proving to me with actual financial data that it is a net positive to the taxpayers, and I’m certainly open to being shown the proof in the pudding, if you will,” Mazzei said.

In 2010, the Legislature put a moratorium on many tax-credit programs. Initially, the historic-preservation program was part of the moratorium, but late in the legislative session, it was partially saved: Preservation developers were allowed to accrue tax credits but can’t cash them in until this July.

Amanda DeCort, preservation planning administrator for the city of Tulsa, said that change had a chilling effect on historic development.

Further changes to the program being discussed in the Legislature would bring historic development to a screeching halt, she said.

“This is very, very bad for Oklahoma’s business-friendly image in the rest of the universe,” DeCort said.

DeCort said she has seen potential developers walk away from projects since the 2010 changes.

“It creates an uncertainty that makes people not want to invest here,” she said.

Jim Hawkins, who used the historic-preservation tax program to finance his renovations of the Philtower, said he has considered other projects in Tulsa’s downtown but that the uncertainty of the tax situation has caused him to wait.

“It’s really got everything we had planned put on hold until they come up with a conclusion,” Hawkins said. “There’s other things out there, but … this would not help us. This would not help develop historic buildings in Tulsa.”

Stanton Doyle, senior program officer with the George Kaiser Family Foundation, an Oklahoma Watch funder, said the tax program has shaped the way that foundation has approached two recent downtown projects.

The foundation, which completed work on the Regal Hotel Building, 210 N. Main St., in 2011, was interested in the project only because of the tax-credit program, Doyle said.

The renovated building will provide affordable housing for teachers and artists in Tulsa’s Brady Arts District, he said.

The tax program also has shaped how the foundation has approached its work on the Mathews Building, a former downtown warehouse that is being converted for a variety of uses, including the future home of the Woody Guthrie archives, Doyle said.

If it weren’t for the historic-preservation tax-credit program, the project would have included razing portions of the building, rather than rehabilitating it, he said.

While the Kaiser Foundation doesn’t rely on the tax credits for financing, they are an essential element in how it looks at potential projects involving older buildings, he added.

“It helps in terms of the long-term viability of the project, and every dollar that we save is a dollar we can put toward eliminating poverty,” which is the foundation’s primary goal, Doyle said.

Bob Blackburn, executive director of the Oklahoma Historical Society, said the tax-credit program has been essential to the redevelopment of downtown buildings in Tulsa, Oklahoma City, McAlester, Shawnee and Claremore.

While lawmakers are looking closely at the historic-preservation tax programs, no final decisions have been made.

“I’m honestly not exactly sure what consensus will emerge around that,” Mazzei said.

Dank said in February the Legislature is probably two months away from any final decision about the tax credits.