Myths and Facts: Wisconsin's Historic Rehabilitation Tax Credit Program


 Tom Larson  |    May 01, 2015
HTCLRG.jpg

To reduce overall state spending and manage the state’s finances, the 2015-2017 state budget proposes a number of changes to Wisconsin’s Historic Rehabilitation Tax Credit (HTC) program. The changes include a $10 million cap on overall tax credits, issuing credits through a competitive application process that prioritizes awards based primarily on the number of jobs created, and requiring the tax credits to be paid back if the job and other economic projections are not realized.

The changes are being proposed in response to a greater-than-anticipated demand for the HTC program, which resulted in $35 million in tax credit awards in 2014 — roughly $30 million more than originally projected. While $35 million is a sizable number, it represents only part of the story and doesn’t reflect the HTC program’s actual cost to the state or the benefits to the state and local economies. In fact, numerous misunderstandings related to the HTC program exist, and this article attempts to provide some clarification.

Background

Historic tax credits provide transferable tax credits to eligible entities rehabilitating certified historic buildings. The Federal Historic Preservation Tax Credit program was launched in 1976 and offers a 20 percent tax credit to income-earning, privately owned buildings. In Wisconsin, the federal program is administered by the State Historic Preservation Officer’s office. 

Wisconsin launched a historic tax credit program in 1989, offering a 5 percent tax credit. On January 1, 2014, the tax credit was elevated to 20 percent. The credits cover 20 percent of qualified rehabilitation expenses and may be transferred to a third party in exchange for cash.

Myth: The HTC program is a high-risk, cash-grant program for speculative development. 

Fact: The HTC program is the closest thing to a sure bet in the economic development world. This is because the credits themselves are awarded only (a) to eligible development projects that rehabilitate historic buildings certified by the State Historic Preservation Officer, and (b) AFTER the building project is completed. Thus, the buildings and work have to meet strict historic standards and must be certified by a third-party expert. Moreover, by paying out the tax credits only after the project is completed, the state recoups approximately one-third of the amount of tax credit in the form of income and sales taxes generated through the construction-phase of the project, according to several independent studies from Maryland and Ohio. If the state receives one-third of its investment prior to the time the credits are issued, the net cost of the tax credits to the state is reduced by the same amount.

Myth: The state cannot afford the HTC program in its current form because it will cost $35 million every year.

Fact: Under Wisconsin’s HTC program, $35 million in tax credits have never been paid out in a single year. In 2014, for example, the state awarded, or reserved, $35 million worth of tax credits to 31 projects throughout the state, but the credits are paid out to projects only after completion, which may take several years. Moreover, because every project is different with different construction timelines, some of the credits may be paid out in year two, while others may be paid out in years three, four or five. Specifically, the $35 million in tax credits awarded in 2014 are scheduled to be paid out in the following years:

Year       Number of projects         Amount of tax credits
2014-2015 22 $4.3 million
2015-2016 3 $4.6 million
2016-2017 5 $17 million
2017-2018 1 $9 million 

Myth: The HTC program benefits only the handful of private developers who receive the tax credits and does not benefit the state or local economies.

Fact: The HTC program benefits the state and local economies by creating jobs, generating tax revenue, and revitalizing local communities. Since January 2014, $35 million in tax credits have leveraged $211 million in private investment expenditures in 31 HTC projects. Researchers at the University of Wisconsin-Milwaukee estimate that these projects will generate $20.3 million in annual state tax revenue and 4,062 created jobs at $5,000 in state taxes generated per job. In other words, every $1 of HTC generates approximately $6 in private investment and $0.57 in annual state tax revenue. Additionally, $209 million in salary will be paid to the more than 4,000 workers filling the newly created jobs at $46,218 average salary.

It is worth noting that these numbers do not include local revenues generated by higher property values — which can increase by a factor of five to 10 times — or the ripple effect that the redevelopment of a historic property can have on other economic development activity on surrounding property within a neighborhood. For example, the renovation of a former Pabst Brewery building on 10th Street in Milwaukee into the Brewhouse Inn & Suites led to a 907 percent increase in tax assessment — the building’s assessed value rose from $1,419,700 to $14,300,000. 

Myth: Wisconsin’s HTC program is more generous than neighboring states.

Fact: Wisconsin’s 20 percent state historic tax credit is consistent with the tax credits offered by other states. In fact, prior to 2014, Wisconsin’s tax credit was far less than neighboring states and, as a result, the number of historic redevelopment projects and related jobs was lower.

Developers focus their private investment and redevelopment activity in those states with the strongest HTC programs. With the 20 percent credit in place, Wisconsin has become much more competitive with neighboring states that have traditionally attracted more HTC investment in historic development projects. 

The chart below compares Wisconsin to neighboring states in terms of project developments, jobs created and HTCs invested for the period of 2001 through 2013-14.

State Total population (million) Total project development (per resident) Projects Total jobs HTC amount (million) State HTC
2013 Minnesota 5.4      $6.1 million ($11.35) 5 834 $10.1 20% no annual cap
2013 Iowa 3.1      $63.2 million ($20.25) 15 2,881 $10.5 20% annual cap; $45 million/year
2013 Illinois 12.9 $151.2 million ($11.75) 16  2,019 $25.1 25% no cap (RER zones)
2013 Indiana 6.5 $55.2 million ($8.40) 11 906 $9.2 20% annual cap; $450,000/project
2013 Michigan 9.9 $127.2 million ($12.80) 20 1,697 $21.1 Eliminated (20% previously)
2013 Wisconsin 5.7 $47.8 million ($8.30) 12 722 $7.9 5% no cap
2014 Wisconsin 5.7 $211.3 million ($36.90) 31 1,268 $35.1 20% no cap

The WRA recognizes the importance of the HTC program and the state and local benefits realized by the recent changes to the program in 2014. Accordingly, the WRA is working with lawmakers to help educate them about the real costs and benefits associated with the program, and ensure that any changes do not negatively impact the viability of the program. 

For more information on Wisconsin’s HTC program, please contact Tom Larson (tlarson@wra.org).
 
Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.
Copyright 1998 - 2020 Wisconsin REALTORS® Association. All rights reserved.

Privacy Policy   |   Terms of Use   |   Accessibility   |   Real Estate Continuing Education