Steve Mensing, Editor/RFP Research Team
♦ With the expiration of North Carolina’s Historic Preservation Tax Credits, there is much whining from the NC League of Municipalities, Governor McCrory, and Secretary of Cultural Resources Susan Kluttz. They bemoan the loss of crony jobs. They attack the N.C. legislature for its alleged shortsightedness in ending the credits.
But wait.
Let’s eyeball who is behind the campaign for these tax giveaways, the nonprofit historic foundations, nonprofit downtown groups, and local municipalities. All of these organizations make substantial investments in buying buildings in order to find “investors” to renovate them.
How can a “nonprofit” organization that has no state tax liabilities help itself to state or federal tax “credits” it hasn’t earned? And how can a local municipality with no state or federal tax liability help itself to a tax “credit”? Something smells here.
Let’s examine this scenario, hypothetically:
As the story goes, Gotham Uptown Redevelopment, Ltd ( or GURL) hatches a plan to purchase the decaying rat-infested historic Sinbad Motel, which is situated across the street from Gotham City Hall. Shuddered for decades, the Sinbad is an eyesore. Gotham City Council inveigles a consortium of investors to buy the dilapidated building for $1 million. They hail the purchase of “The Sinbad” as a visionary achievement.
Yes, siree. Big government will be kicking in all kinds of grants and incentives!
Then GURL discovers the asbestos, lead, and mold abatement will cost 3/4 of a million more. The project stalls and GURL is left holding the bag far longer than its mind-hive figured. More investors are sucked in, with the promise of being part of the big tax credit dividend (Once a developer will arrive to fix it up, that is).
And the net is cast further. GURL wonders, “What if the “historic” Sinbad was owned by Gotham City?” What if, magically, Gotham Savings & Loan lends the money for a $10 million historic renovation of the “historic” Sinbad Motel? Surely there are friends in Gotham S & L, too. So with a few more lucky bucks, GURL transforms the ground floor into boutiques and a restaurant and the upper floors into luxury lofts.
“How can a nonprofit or government entity take advantage of all that ‘free money’?” GURL wonders. Oh, yes. If the building qualifies as “historic”, the “investor” who bankrolls the $10 million remodel will qualify for a 20% federal tax credit for the historic rehabilitation! That’s $2 million that the lender gets back as a direct transfer payment from the federal government (skimmed right off the top)!
Cool move, since the lender is also going to earn 4.25% interest on the $10 million. Nice profit margin for a guaranteed return of $2 million. Are we onto something here?
Then the lender demonstrates to the NC Department of Cultural Resources that the “certified rehabilitation” of an income-producing former historic motel qualifies for a whopping a 40% state tax credit under the NC State Rehabilitation Tax Credit Program. The math’s easy: $4 million direct transfer payment to the lender, guaranteed. Not only does the lender get a 4.25% market interest rate of return on the $10 million renovation project, but they’ve received a total of $6 million of their original $10 million investment back, shortly after the renovation is certified.
And who has actually paid any taxes, in order to receive a tax credit? One thing is certain: the source of the $6 million being paid to the wealthy investors/lenders/developers — or whatever you wish to call them — is hardworking John Q. Public, who does pay taxes to the federal and state governments. John Q.’s dollars are the millions doled out to Gotham City’s favorite cronies. You go, GURL!
The transfer payment, while labeled a “Tax Credit”, is a windfall to whatever lender that GURL or Gotham City chose as the winner in this misnamed and misguided government-sponsored giveaway. It’s Gotham City’s means of financially rewarding its political cronies, and the Department of Cultural Resources has a huge pot-o-gold to give away to the lenders who play ball with them. To be fair, the “Motel” credit was the most generous of the three historic preservation tax credits that the state legislature chose not to renew last year. The other credits were 20 to 30 percent credits for residential and commercial properties. Ooh-la-la!
Money is power. So the sunset of the NC Historic Preservation Tax Credit is a huge loss of power for those who dispense it at the municipal level. It was a wise decision for the NC General Assembly to end this unsavory tax giveaway that damaged the state budget.
What’s a GURL to do?
http://rowanfreepress.com/fighting-historic-preservation-and-gentrification/
