Historic preservation tax credits are the most significant source of project funding for rehabilitating historic complexes like Warfield. In addition to the Federal Historic Preservation Tax Credit Program, which is administered by the National Park Service and Internal Revenue Service, 39 states including Maryland have programs offering historic preservation tax credits. The federal and state programs all require rehabilitation of projects in accordance with the Secretary of the Interior’s Standards for Rehabilitation, which are quite extensive.
Unfortunately, the existing Maryland Historic Preservation Tax Credit program falls short in many respects as a public policy tool and provides limited incentives for developers to undertake historic preservation projects. We at Warfield have been vocal advocates of overhauling the Maryland program, starting with the removal of (or a significant increase in) current program caps which currently stand at $9 million annually and $3 million per project.
In general, developers will pursue a project only if it is financially viable without the state credit. The state credit does not provide a huge incentive to undertake difficult preservation projects and is often viewed by developers only as “icing on the cake.” Why is this? Simply put, low program caps make the process of securing state tax credits competitive, and therefore highly uncertain. In short, the current program is insufficient to create a true catalyst for rehabilitation, community revitalization, and economic development.
Also, the existing caps make the program insufficient to meaningfully benefit large projects. In the case of Warfield, we estimate that a project including rehabilitation of all nine of our remaining vacant buildings at once be mathematically eligible for approximately $10 million in tax credits, which far exceeds the current program caps. Although this $10 million state tax credit alone would not be enough to make rehabilitation of the property feasible, it would be a vital part of a package of incentives including the federal historic tax credit, federal low-income housing tax credit, and various other government grants and financing programs. The Warfield project requires an “all of the above” approach to financing, which is not uncommon with historic preservation deals – particularly large ones.
The Warfield team is working with state officials to find a solution to overcome deficiencies in the existing state historic tax credit program. In particular, we are working with Senator Katie Fry Hester (District 9) on a bill that would position Warfield to be the pilot project for a new “Catalytic Historic Tax Credit” that would operate outside of the state’s existing historic preservation tax credit program. This bill was originally slated for the 2020 legislative session, but unfortunately the COVID-19 crisis ended the session prematurely and killed any hopes for passage of the bill at that time. An updated bill will be introduced in the 2021 legislative session.
We believe that a “Catalytic Historic Tax Credit,” originally proposed at $10 million per project, would not only benefit Warfield but would also be a useful tool to help preserve many other state-owned or formerly state-owned historic campuses around the State of Maryland. We are grateful for Senator Hester’s support in sponsoring the legislation to get this potentially transformational program on the table.
Investment by states in historic preservation tax credit programs results not only in the preservation of historic resources but also in community revitalization and economic development that pays for the tax credits many times over. In The Economic Benefits of Maryland’s Historic Revitalization Tax Credit Program, Ethan Reed of Real Property Research Group estimates that each $1 of tax credits invested yields the state $8.13 in total economic output. He also indicates that job creation is significant, with 49.2 jobs created during the construction period throughout Maryland for each $1 million investment by the state.
Public support for the Catalytic Historic Tax Credit bill will be an important factor in getting this legislation passed. Be sure to follow us on Twitter and Facebook to stay current with the latest information on how you can get involved.