NPS Data Deep Dive Illustrates Importance of State HTCs to Historic Rehabilitation
Published by Warren R. Sebra on Tuesday, September 5, 2023 - 12:00AM
States with state-level historic tax credits (HTCs) see more historic preservation–both in terms of dollars spent and number of projects–than those without a state-level incentive, and it’s not even close.
Michael Novogradac’s Washington Wire column in the September issue of the Novogradac Journal of Tax Credits focuses on the importance of state HTCs and how state-level community development tax incentives play a crucial role in capital stacks. A deeper dive into state-level data from the annual report by the National Park Service (NPS) on the use of the incentive cements the significance.
The NPS report, released in March, includes a five-year summary of use of the federal HTC by state. As the Washington Wire column in the Journal of Tax Credits points out, the 38 states with state-level HTCs tend to have a significantly higher use of the federal credit, which is no surprise given that state HTCs increase the amount of tax credit equity in a property’s capital stack and contribute to funding gaps in financing.
A look at the top 20 and bottom 10 states in terms of Part 3 approvals from the NPS (the final step before receiving federal HTCs) reveals the significance. The Part 3 application requires the starting, completion and placed-in-service dates, as well as the estimated rehabilitation and overall costs.
The top states for historic preservation activity all have credits. And of the 12 states without a state-level HTC, seven rank in the bottom 11 for overall Part 3 approvals (New Hampshire ranks 39th, just missing inclusion in the graphic above).
That data carries over to the amount spent on rehabilitation. Using the same source, here are the top 20 and bottom 10 states for qualified rehabilitation expenditures (QREs, the amount to which the historic tax credit percentage is applied) in 2018-2022 and whether they have a state HTC.
In terms of QREs for the five-year period, the top 12 states all have state incentives to pair with the federal credit. Washington, ranked 13th, had $921 million in QREs over that time, but that figure is the result of some huge rehabilitation projects. Washington ranked 30th in Part 3 approvals and the average QREs for a Washington renovation in that period was $27.1 million, with more than four times the average for all properties across the nation rehabilitated during that time. Only two states had a higher QRE-per-project cost over that period.
The effect of state HTCs becomes even more dramatic when you consider the nationwide comparison of the number of HTC developments and QRES between those states with HTCs and those without a state incentive on a per-capita basis.
Combining the District of Columbia and the 14 states that lacked a state HTC by 2022, the end of the period for which data is available (Indiana is excluded because it didn’t reinstate its HTC until 2023, California is excluded because its HTC is not yet implemented) provides a look at how many properties and the per-capita QREs for areas with and without credits.
The per-capita amount for QREs is $37.32 in the areas without state HTCs and $128.09 for those with state HTCs. Nearly four times as much per person is spent in states with HTCs.
The effect is even more dramatic when considering the number of properties rehabilitated–which may be a better reflection, due to different construction costs in different areas.
On a per-million population basis, there were 3.1 Part 3 approvals in the areas without state credits in 2018-2022 and 20.5 in states with state credits. Put simply, states with a state HTC incentive had more than six times as many HTC Part 3 approvals than states without a state credit during the five-year period covered in the NPS report.
While there are plenty of factors in whether properties are financed and developed–the number of historic properties in a state, the state of the economy and more–the NPS data over a five-year period makes a strong point: Having a state-level HTC corresponds with more historic rehabilitation and increased equity).