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New York Bill Extends State Historic Tax Credit

Published by Teresa Garcia on Saturday, June 1, 2013

Journal cover June 2013   Download PDF

New York Gov. Andrew Cuomo signed a 2013-2014 budget bill March 28 that extended the state historic rehabilitation tax credit (HTC) program through 2019. Senate Bill 2609D maintains the 20 percent state HTC and $5 million project cap for commercial rehabilitation projects. While the state credit still cannot be bifurcated from the federal credit, the legislation will allow it to be refundable for projects certified beginning in 2015. After 2019, in the absence of further legislation, the credit reverts to its original 2006 programmatic format: a 6 percent credit and a $100,000 per-project cap. The state budget bill also extended the owner-occupied residential property rehabilitation tax credit through 2019, but no other changes were made to that program.

Preservation advocates see the HTC extension as a promising sign of continued state support for the program. “This is the first time a [New York] governor has proposed the program for budget inclusion and it signals a significant commitment and interest from Gov. Cuomo, something we’ve long sought and much appreciate,” said Daniel Mackay, director of public policy for the Preservation League of New York State (PLNYS).

Program History
“New York, in particular Western and Upstate New York, has a great treasure trove of historic buildings. These buildings are part of the landscape and culture of our communities,” said Steven Weiss, founding partner at Cannon Heyman & Weiss LLP and public policy committee chairman and board member of the PLNYS. He said that the economic downturn left many New York buildings vacant in recent years but that the state HTC helps revitalize these buildings and communities.

New York established a state HTC for commercial and homeowner properties in 2006. The original 6 percent commercial credit had no sunset and had no census tract income limits. “It was a program on paper only. The credit on the commercial side was too low to serve as an effective incentive — it was capped at only $100,000. We had a large constituency of developers and property owners frustrated that it wasn’t going to be effective,” said Mackay.

After two more years of advocacy, program supporters began to see legislative changes that made the credit more effective. Legislators reached a compromise in 2009 when they raised the program’s commercial credit from 6 percent to 20 percent and the per-project cap from $100,000 to $5 million. In concession, the commercial and owner-occupied residential programs’ availabilities were limited to properties in distressed census tracts, those where the median family income was at or below the state median family income, and a 5-year sunset imposed for both of the programs was scheduled to take effect in 2014.

Another major victory for program advocates came in 2010 when legislators passed a bill that qualified additional bank and insurance companies for the program. Before this change, non-New York-based companies could only apply the credit against their general corporate income tax liability. The legislative change made it possible for companies to apply the credit against their state franchise tax liability and thus increased the pool of potential investors, said Mackay.

In federal fiscal year (FY) 2012, the New York total project figures for the federal HTC were the highest amount for any state in the history of the federal program. That year, 36 projects totaling more than $915 million in rehabilitation costs were approved by the National Park Service. Only 24 of those projects, worth about $200 million in estimated expenses, are located economically distressed census tracts eligible for state HTCs.

Refundable Credit
Supporters of the program say the most significant change to the credit under the new state budget bill is that it will be refundable for projects placed in service after Jan. 1, 2015, so that cash refunds are available for investors who do not have any or enough state income tax liability to claim the credit fully. Previously, only New York taxpayers could benefit from both the federal and state historic incentives because the credit cannot be bifurcated or divided among different investors.

“There are not enough New York investors for all of the New York deals out there. The recent change is an elegant solution to a bad problem,” said Weiss, explaining that the refundable credit will attract out-of-state investors. “They’ll see this as New York saying, ‘We are open for business and we want you to invest in our state,’” he said.

Mackay agreed. “Developers have been curtailed by the single investor restriction, and this chokepoint has limited the ability of state and national investors to participate in the program. We expect a significant increase in the number of projects moving through both the state and federal program as a result [of the now refundable HTC],” said Mackay.

While Mackay said that he would be willing to revisit the issue of bifurcation in future bills, he said its passage is unlikely in the near future for New York. He said that the New York State Department of Taxation and Finance appears reluctant to support bifurcation because there isn’t a precedent for it in state law. Refundable state credits do have state-level precedents with both the state brownfields tax credit and the state film and television production tax credit.

“We recognize that bifurcation is a core component of most successful state credit programs, like Missouri, Maryland and Virginia. We have long represented the need for that here in New York, but we understand that we’re not going to get it. At this point in time, we’re content with refundability and to see how it plays out in New York State,” said Mackay.

Qualifications and Implementation
The property qualification requirements of the credit remain unchanged. As before, commercial buildings must have an approved federal tax credit certification. The property must also be in a federal census tract that is at or below 100 percent the state family median income level. The legislation did replace the data source for defining the census tracts from the U.S. Census to the American Community Survey.

The program targets economically distressed census tracts, so investments will be made in historic downtowns and neighborhoods that need it most, said staff at the New York State Office of Parks, Recreation and Historic Preservation (OPRHP). There is no application for the state commercial HTC because an owner needs to receive the federal HTC in order to be eligible for the state HTC. If a project applies for the federal credit and meets all the state credit requirements, it automatically qualifies for the state credit.

Although the state HTC can be used with other tax credit incentives like the federal low-income housing tax credit (LIHTC) and new markets tax credit (NMTC), Mackay said he hasn’t yet seen many developments partnering the credits. He expects this to change in the long run with the recent concessions to investor flexibility. “The lack of bifurcation has limited use of the state credit. Now that refundability has been added to the program, we expect more project starts with larger projects and greater multi-program impacts,” said Mackay.

Proposed Legislation
In the 2012 legislative session, State Sen. Mark Grisanti introduced a bill that would have immediately increased the state HTC per-project cap from $5 million to $12 million.

Sen. Grisanti spoke with developers in Western New York who wanted to undertake bigger rehabilitation projects that would require more credits than those allowed under the current cap. “In these discussions it became apparent that the $5 million cap while normally good … was in fact a disincentive to the rehabilitation of these projects,” said Sen. Grisanti. The bill was passed by the Senate and Assembly but was vetoed by the governor, who said that the 2013 state budget would be a more appropriate forum for the tax credit program proposals. Supporters advocated for the cap increase during discussions of the 2013 state budget but the proposed cap increase was eliminated before final passage of the bill.

During the present legislative session, Sen. Grisanti introduced S. B. 4642, new legislation that would phase in a per-project cap increase from the present $5 million to $7 million in state FY 2015-2016, $9 million in state FY 2016-2017 and $12 million from then until the scheduled 2019 sunset of the current program. Assemblymember Steven Englebright introduced Assembly Bill 6979 as a companion bill in the New York State Assembly, and both bills are quickly adding co-sponsors, said Mackay.

“I think the expansion of the historic preservation credit in New York will be huge. This program has already been extremely successful and these changes will only expand an already successful program,” said Sen. Grisanti. “The historic tax credit program is a perfect example of how good policy is created, and continuously reviewed and improved upon to help foster economic growth in New York.”

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