History and the Hill: HTC Sandy Relief Proposal Goes to Congress

Published by John Leith-Tetrault on Tuesday, January 1, 2013
Journal thumb January 2013

In response to extensive damage caused by Hurricane Sandy to historic structures in New York, Connecticut and New Jersey, including iconic landmarks such as the Statue of Liberty and Ellis Island, a coalition of historic preservation organizations submitted to lawmakers a package of temporary federal historic tax credit (HTC) amendments that would help address disaster recovery needs. The set of legislative proposals increases the 20 percent credit to 26 percent and the 10 percent credit to 13 percent, representing a 30 percent value boost. These increases in credit percentages were widely and successfully used in the Gulf Opportunity (GO) Zone in the aftermath of Hurricanes Katrina and Rita.

On Dec. 10, Sens. Charles Schumer, D-N.Y., and Robert Menendez, D-N.J., announced they would introduce The Hurricane Sandy and National Disaster Tax Relief Act of 2012, which includes the coalition’s HTC proposals. Additionally, the bill includes a $500 million emergency supplemental new markets tax credit (NMTC) allocation per year for three years for community development entities (CDEs) serving disaster areas. It would also increase affected states’ low-income housing tax credit (LIHTC) authority in 2013, 2014 and 2015 by $8 per capita for use in the disaster area and provide an increased LIHTC value for areas that were also affected by Hurricane Irene.

The Storm’s Impact on Historic Properties
The total damage estimate for Hurricane Sandy is $82 billion, caused primarily by the storm surge of as much as 14 feet along the coastal areas of the three affected states. National Trust for Historic Preservation (NTHP) regional field staff have reported that destinations such as South Street Seaport Museum, Gateway National Recreation Area and Castle Clinton in Battery Park were badly flooded. There was extensive damage to historic commercial buildings and residences on Coney Island and Jones Beach and towns up and down the Jersey Shore including Atlantic City. These historic properties are part of what drives tourism in these communities, a key component of the region’s economy.

Applying Lessons from the GO Zone
Proponents of the HTC Sandy relief package include the Historic Tax Credit Coalition, the NTHP, Preservation Action and the National Conference of State Historic Preservation Officers. In addition to the 30 percent boost in value, the proposed measures include amendments to laws and regulations that reflect the extensive experience that preservationists gained during implementation of similar provisions enacted to assist with disaster recovery in the GO Zone. These changes would:

  • Allow property owners to treat hurricane repairs as capital expenditures and to use insurance proceeds to create basis for federal HTCs. Under current law, only rehabilitation expenses that are capital costs (i.e., not currently deductible) are eligible for the credit.
  • Reduce the HTC minimum rehab threshold (“substantial rehab test”) to $5,000. There would be no adjusted basis test for a 36-month period.
  • Require state historic preservation offices (SHPO) and federal National Park Service (NPS) reviewers to process applications within 60 days.
  • Provide a 36-month grace period to place HTC-financed properties back in service if they are still in their five-year compliance period.
  • Waive recapture for HTC properties in their five-year compliance period if they are delisted from the National Register of Historic Places.
  • Waive recapture for properties that have a change of ownership because of financial default.

Pathway to Congressional Action
As of this writing, President Obama has requested a supplemental appropriation of $60.4 billion to help with storm recovery with no budget offsets. Help would be targeted to small-business owners, homeowners (primary residences only), subways and other transit system repairs and improvements, beach restoration and reimbursement to local governments for police, fire and other service costs. States are being asked to cover 10 percent of the recovery costs.

This relief measure is then likely to be dropped into a Senate Military Construction and Veterans Affairs Subcommittee appropriations bill which would not be touched by the House until there is a conference committee. Both House and Senate leadership hope to pass this legislation in the lame-duck session. The President’s proposal includes $17 billion in additional Community Development Block Grants; $11.5 billion in federal disaster relief that provides checks to individuals, reimbursement for public services and the rebuilding of public facilities; and $9 billion to rebuild and upgrade transit systems.

As announced by Senators Schumer and Menendez, the Senate Finance Committee will draft its own tax bill, but beyond that, the process was unclear as of this writing. The committee could use the Senate Appropriations Subcommittee bill as a vehicle or just attach the tax provisions to another vehicle. Sens. Kirsten Gillibrand, D-N.Y., and Frank Lautenberg, D-N.J., will be key players on appropriations. Word from the House side is that they will draft a much smaller relief package.

Track Record of HTC Enhancements in the GO Zone
Similar tax credit provisions were so successful in the aftermath of Hurricanes Katrina and Rita that Congress extended the original 36-month GO Zone legislation for two years. Advocacy efforts to justify these extensions included extensive documentation of the effect of the 30percent value boost in the federal HTC.

NPS data show that in Alabama, Mississippi and Louisiana, there were 231 Part 3 approved projects between 2007 and 2010 that generated approximately $857 million in qualified rehabilitation expenditures (QREs) and used about $223 million in federal HTCs. These QREs were up 170 percent over the prior four-year period from 2003 to 2006. Estimated jobs generated in the post-Katrina period rehab period were 18,566 compared to 6,629 from 2003 to 2006, an increase of 280 percent. The additional cost to the federal government (6 percent x $223 million) was approximately $13.3 million. Without commissioning an academic study, it seems clear that Hurricanes Katrina and Rita significantly damaged a lot of historic properties that needed the private capital generated by the 26 percent enhanced HTC to be placed back into commerce.

The City of New Orleans, the hardest hit and the most historic GO Zone city, was a primary beneficiary of the enhanced federal HTC. Developers in New Orleans received certification on 145 properties between 2007 and 2011 including the storm damaged Hibernia, Saratoga, National American and Maritime Buildings; the Roosevelt, Pontchartrain and Saint Hotels; and the Saenger Theater. These statistics show that the 26percent HTC was a key financial factor in the rebirth of New Orleans.