Cutting historic tax credits could cripple economic development, officials warn

DES MOINES -- The Orpheum Theatre in Sioux City.

Hotel Russell-Lamson in Waterloo. The Hotel Blackhawk in Davenport.

Those are just a few among hundreds of renovation projects across Iowa that have been aided by a federal tax incentive program that is on the chopping block in Congress' tax reform proposal.

The federal historic rehabilitation tax credit was used by more than 250 projects in Iowa between 2002 and 2016, helped spur more than $1 billion in development and produce nearly $230 million in tax revenue, according to the National Park Service, which implements the program.

The program also helped create nearly 9,000 temporary construction jobs and nearly 11,000 permanent jobs in the state, according to the National Park Service.

But that tax credit soon could be gone.

Republicans in Washington, D.C., are crafting legislation that would reform federal tax laws; it's one of the top priorities for the party after taking control of the federal lawmaking process in the 2016 elections.

The two proposals that have been introduced include significant cuts to the historic rehabilitation tax credit, which has been around for more than three decades.

The U.S. House tax reform bill eliminates the historic tax credit.

The U.S. Senate tax reform bill cuts the credit in half.

Local officials, especially in economic development, expressed concern that ending the historic rehabilitation tax credit could severely limit future renovation projects.


"It's crazy," said Amy Gill, a developer with St. Louis-based Restoration St. Louis, which has done work in the Quad-Cities. "Studies back up the fact that these tax credits work. They provide jobs and renovate downtowns. How do you argue with that?"


The House and Senate tax reform bills make significant changes to a number of tax credit and incentive programs across the business and industry spectrum. The historic rehabilitation credit program is just one of them.


But it's one that local officials are loathe to lose.


"In general, as an economic development professional, I favor tax cuts and stimulating the economy through tax reform and so on. But, in this case, I think they haven't really considered the implications of (eliminating the historic credit)," said Marty Dougherty, economic development director for Sioux City. "Absolutely, we're very concerned about it."


The state of Iowa also has a historic tax credit program. That is not impacted by the proposed federal legislation.


Economic development officials say the federal historic rehabilitation tax credit program is worth maintaining because it provides a return on investment.


In Iowa, from 2002 to 2016 nearly $195 million in historical tax credits were awarded; the resulting renovation projects produced $230 million in tax revenue. By that math, every $1 in tax credits produced $1.17 in tax revenue.


That is roughly in line with national studies that have showed the historic credit returns $1.20 to $1.25 in tax revenue for every dollar invested, according to the National Trust for Historic Preservation.


"I just don't see why they're messing with a tax credit that actually puts people to work and returns money on the investment," said Jim Hobart, of Hobart Historic Restoration in Cedar Rapids.


The historic tax credit program allows developers to claim 20 percent of eligible expenses against their federal tax liability. The program is designed to provide financial assistance to expensive renovation projects involving old buildings; such projects might not ever happen without the financial boost given by the tax credit, economic development officials say.


"There are a lot of buildings that would continue to sit empty or would have been demolished by now had that tax credit not been available to make the project economically sound," said Steve Dust, president and CEO of the Greater Cedar Valley Alliance and Chamber. "And that's repeated all over Iowa."


Common projects include restorations of old buildings and converting abandoned warehouses into both commercial and residential properties.


"This is one of the few government programs where people can actually see and feel the impact," said B.J. Hobart, also of Hobart Historic Restoration in Cedar Rapids.


Dougherty said the program has helped a number of projects in downtown Sioux City, including the Orpheum.


"It's really sparking a renaissance in the downtown area," Dougherty said. "I'm not sure any of (the renovation projects) would be successful without that tax credit program."


Economic development officials said they have pleaded with Republicans in Congress to maintain the historic rehabilitation tax credit program. At least one of Iowa's federal representatives, U.S. Rep. Rod Blum, has pledged to fight for the program.


Blum, a Republican who represents eastern Iowa, said he has lobbied U.S. House leaders to preserve the program.


Dubuque, which is in Blum's district, has featured 36 projects totaling nearly $180 million in historic tax credits, according to the National Park Service data.


"I am continuing to work very hard to educate my colleagues of the benefits of historic tax credits to ensure they survive tax reform," Blum said in an emailed statement. "Although they were absent from the version that recently passed through the Ways and Means Committee, the fight is not over. I am hopeful the Senate version will include this important program and I will continue to push for its inclusion through conference."


The Senate version keeps the program, but reduces the percent of eligible, deductible expenses from 20 percent to 10 percent.


U.S. Sen. Chuck Grassley, an Iowa Republican, said tax reform is about growing the economy and increasing wages and jobs by lowering rates and reducing deductions and loopholes. But he added the Senate bill recognizes the importance of the historic tax credit by maintaining it at 10 percent for the future while allowing projects already under way to retain the 20 percent credit.


Jim Hobart said the Senate version would "save a few more buildings."


"Would I rather see 10 percent than zero? Yeah," Hobart said. "Would I rather see them not fool with it at all and leave it at 20 percent? That would be my choice."


Dougherty said economic development officials will continue to lobby their federal representatives and in the meantime will be "holding our breath to see what they're going to do."


"A lot of these buildings are part of the fabric of your community, part of the character of your community. I just can't imagine Sioux City without the Orpheum Theater," Dougherty said. "I think (cutting the historic tax credit program) is a little bit short-sighted."