State sponsored tax credits for revitalizing historic buildings have returned after a brief hiatus, but would-be renovators may not get as much help as they did before.
Something is better than nothing.
That’s the attitude some representatives from North Carolina Natural and Cultural Resources are taking with the return of a state tax credit program geared toward breathing new life into stagnate communities and time-worn buildings. After the General Assembly allowed the program to expire at the end of 2014, the state will continue contributing to the federal Historic Preservation Tax Incentive program, beginning New Year’s Day, though it won’t be as lucrative as it was before.
The program gives tax breaks to firms and individuals who take on renovation programs for homes, office buildings, theaters, mills, and farms – just to name a few – that have gone into disuse, but have the potential of enjoying a second chance. Natural and Cultural Resources secretary Susan Kluttz said the tax credit helps North Carolina transition into a new economic era.
“Especially right here in North Carolina and we’ve been left with so many older buildings, it is just critical to our economic recovery...that historic preservation is practiced.”
In 1998, North Carolina began matching the federal government’s tax credit rate and according to data from the state government, the program has affected more than 2,400 structures and contributed $1.6 billion to the state’s economy.
The original program matched the federal 20 percent tax credit for restoring “income-producing historic properties.” It also offered a state tax credit of 30 percent for “nonincome-producing” structures that are a “certified historic structure.”
There are nearly 3,000 entries in the National Park Service’s National Register of Historic Places database in North Carolina. That includes the Robert Lee Humber House on 5th Street in downtown Greenville, now home to the North Carolina Natural and Cultural Resources’ eastern office.
Reid Thomas, a restoration specialist out of the eastern office, says it’s like working from home.
“It actually (is) quite inspiring. It really was a home, but it feels more like a home and you feel more relaxed, I get a lot more accomplished, I don’t mind staying, working at night.”
One of the structures revitalized, in part, through the tax credits, is Blount-Harvey Building, which shares a downtown Greenville address with the historical society. Built in 1923, it had gone out of use by 2004, when it was purchased and renovated, returning the building to its high-end, retail roots.
One of Thomas’ favorite stories, though, comes 63 miles north of Greenville in Edenton when a couple found out, on accident, they owned the oldest known house in North Carolina.
Thomas, a Martin County resident, says some of the poorest parts of the state feature some of the richest history.
“Quite a bit survives in Northeastern North Carolina, in areas particularly where it’s economically distressed, we have quite a few buildings, rural properties that still survive.”
For 16 years, this program progressed, but as the North Carolina faced an ever widening fiscal deficit in 2013, tax reform was on the minds and lips of law makers in Raleigh. Many tax credit programs were put on the chopping block, including the Historic Preservation Tax Credit program. That program expired New Year’s Eve, 2014.
Supporters of the reform said it was unfair for North Carolinians not living in registered, historical areas. The John Locke Foundation stated in a January publication there’s “no justification for compelling state taxpayers to subsidize the preservation of historic properties in particular cities or towns,” though they did concede there’s “justification” for local taxpayers to “chip in” to renovate historic buildings if they pose a public safety hazard.
The program, according to Kluttz like the buildings to which they catered, were history.
“The leaders in the legislature made it clear to me and to my department that they had no intention of bringing it back, that there would be no tax credit, that they felt that they wanted to do away with all tax credit for tax reform, and that, no matter how far we got, in the process, it would be killed in the end.”
But some in Raleigh –including Gov. Pat McCrory – and throughout the state were not convinced and fought with legislators over resuscitating the program. Members of Natural and Cultural Resources began touring the state and visiting places that had success stories – including New Bern, Kinston, and Rocky Mount – drumming up interest in the program’s revival.
Kinston’s Historic Mitchelltown district, home to Mother Earth Brewery, is undergoing a renaissance in part because of assistance from tax credits and New Bern has had more than $3 million invested in historic home owner projects, according to reports.
An online petition garnered 5,558 signatures and op-eds were written in newspapers across the state. As deliberations over the biannual budget progressed in the General Assembly, the issue of the historical preservation tax credit program resurfaced, until a new version of the program was agreed upon by both houses and signed into law by McCrory in September.
The governor celebrated the legislation by marking Oct. 14 “Historic Tax Credit Day” in North Carolina by a proclamation. Kluttz said though concessions were made, she’s pleased with the outcome.
"I’m very thrilled that it included residential, which had been a threat. There was a lot of talk from legislators who didn’t understand why…if a home is called ‘non-income producing, why that benefits the state. And so we had a challenge to explain to legislators and the public that with your older downtowns…the oldest residential circles and that’s usually the most expensive to rehabilitate and bring back.”
Now, this isn’t the same tax credit program passed in 1998. Instead of the 20 for 20 match for income producing historic properties, there’s a tiered system that gives a 15 percent tax credit up to $10 million dollars of qualified restoration expenses – or QREs – 10 percent from $10 to $20 million and no credit for expenses above $20 million. Those expenses must be on or within the structure and does not include acquisition and site work.
A 5 percent bonus is available for development in moderately to largely economically underdeveloped counties – tier one and two counties, which makes up the vast majority of counties in the east – and for projects specifically targeting manufacturing and agriculture, so long as the structure was at least 65 percent vacant for two years before it was certified on the national registry. In other words, the 20 percent match from the state is still possible for some would be renovators, but not through a flat rate like before.
The tax credit for non-income producing structures – like homes – has been cut in half to 15 percent with a cap at $150,000 worth of eligible rehabilitation expenses – that’s a maximum of $22,500 worth of credit.
Here’s Thomas on the new tax program.
“Well, I’m just happy there’s some new provisions, for example, now…you only have to spend $10,000 for the non-income producing in order to qualify verses having to spend $25,000, and you can also take the tax credits both for the income and non-income producing all in one year or spread them all out to 9 years, whereas before you had to take them at equal increments over a 5 year period.”
With the return of the tax credit program’s, some individuals have expressed their interest in participating. Stephen Hill, one of the owners of Mother Earth brewery, hasn’t been shy about his intent to continue Kinston’s downtown revitalization efforts.
Bob Shuller of the Swansboro Historical Association, also hopes the town will continue its downtown renaissance with a few key investments. His organization is trying to convert an old, Unitarian school house into a museum chronicling Swansboro’s long history, though he said it doesn’t qualify for the joint state-federal tax credit program. He said some long vacant lots in Swansboro’s Historic District could be a choice spot for investors looking for space near the water. That is, of course, as long as they don’t mind a little less space.
“Most of the buildings around here are small, wood frame structures and it’s very hard to keep those and convert them into a public or for profit facility, though people are doing it to varying degrees…there are some nice buildings, in my opinion, be converted into some commercially viable facilities.”
The state, historical preservation tax credit program begins in earnest in January.