Annual HTC Report: Another Big Year for Rehabilitation Approvals, Expenditures
Estimated costs for historic tax credit (HTC) rehabilitations approved by the National Park Service (NPS) dropped slightly in fiscal year (FY) 2022, yet the two-year total expenditures for 2021-22 was still the highest in the history of the incentive.
The NPS released Federal Tax Incentives for Rehabilitating Historic Buildings: Annual Report for Fiscal Year 2022 this week. It detailed 858 Part 3 approvals (certifications of completed work) in 2022, with $6.56 billion in estimated rehabilitation costs, an 8.4% decrease from 2021’s $7.16 billion in estimated costs, which was a record in the 45-year history of the HTC.
The NPS reported 1,463 Part 1 approvals (certification of significance) and 1,187 Part 2 approvals (preliminary certification of rehabilitation) in 2022. The report also includes data on housing, showing that there were 5,533 homes rehabilitated and 9,036 new homes created using HTC equity. Among those homes, 6,789 units were for low- or moderate-income households. Most of those properties have financing that includes low-income housing tax credits (LIHTCs).
The 2022 data continued a recent trend. Over the past five years, every year has seen between 858 and 1,063 Part 3 approvals and estimated rehabilitation costs of $5.77 billion to $7.16 billion. While the 2022 Part 3 approvals were down 19% from the 2021 approvals, the number of Part 2 approvals–the final stage before final approval–were up 8% over the 2021 figures, suggesting that 2023 will see a rebound in Part 3 approvals.
The NPS report also quantifies the size of HTC-financed projects in 2022. Nearly three-fourths of projects had less than $5 million in qualified rehabilitation expenditures (QREs), with the largest percentages being those from $1 million to $4.99 million (30% of all projects) and $250,000 to $999,999 (27% of all projects). The fact that only 5% of all approved projects in FY 2022 had QREs of more than $25 million highlights the fact that the vast majority of HTC-financed rehabilitation is for smaller properties: The median QRE amount for the Part 3 approvals in 2022 was just $1.31 million.
History: Approaching 50,000 Projects
The HTC has been successful since it was added to the Internal Revenue Code first as accelerated depreciation in 1977 and later converted into a tax credit.
Through the 46-year history of the incentive, the NPS has certified nearly 50,000 projects with a cumulative rehabilitation investment of $122.9 billion.
As a mechanism to produce housing, the HTC has created more than 600,000 homes: more than 300,000 homes have been rehabilitated and more than 340,000 new housing units have been created with assistance from HTC equity. Among those, nearly 200,000 have been for low- and moderate-income households.
States: New York Leads Way
New York continues to lead states in both the number of NPS-approved projects and in QREs. In 2022, the Empire State had 116 Part 3 approvals–36 more than the runner-up state, Virginia–and $1.19 billion in estimated QREs. Only two other states–Washington and Pennsylvania–had more than $500 million in estimated QREs in 2022 and five more states had more than $330 million in QREs for 2022.
Nine states in 2022 had at least 25 Part 3 approvals, with Massachusetts, Pennsylvania, Ohio and Georgia joining New York and Virginia as states with 50 or more.
Looking more broadly over a five-year period, 11 states saw more than $1 billion in QREs for Part 3-approved properties in the period of 2018-2022. New York approached $4 billion in QREs over that time, but most significant fact may be this: All 11 states in the five-year, billion-dollar club also have state-level HTCs, which further incentivize use of the federal tax credit.
Meanwhile, five additional states were just outside the billion-dollar club, each seeing at least $700 million in QREs during that five-year period. They were Georgia, Iowa, Minnesota, North Carolina and Washington.
HTC-GO Act Introduced
Five days before the NPS issued the annual report, Sens. Ben Cardin, D-Maryland; Bill Cassidy, R-Louisiana; Maria Cantwell, D-Washington; and Susan Collins, R-Maine, introduced the Historic Tax Credit Growth and Opportunity (HTC-GO) Act of 2023 (S. 639), designed to expand and enhance the incentive.
One of the key provisions in the legislation is a 30% credit for properties with QREs of less than $3.75 million, which could have a significant effect seeing that the median QRE amount in 2022 was $1.31 million. The HTC-GO Act also would eliminate the basis-adjustment requirement, which would increase the volume of properties eligible for the HTC and would create parity with other tax incentives such as the LIHTC. The bill would decrease the substantial rehabilitation test threshold from 100% to 50% and includes other provisions.
This is the third consecutive session of Congress in which the HTC-GO Act has been introduced. The 2021bill had 16 Senate co-sponsors (11 Democrats and five Republicans, including five cosponsors on the Finance Committee) and 105 in the House (62 Democrats and 43 Republicans, including 25 cosponsors on the Ways and Means Committee). The goal for 2023 is to further surpass those totals and increase the opportunity for provisions to be included with other legislation, if not to be passed as a standalone bill.
A similar bill is expected to be introduced soon in the House by Reps. Darrin LaHood, R-Illinois, and Earl Blumenauer, D-Oregon.