Legislators face decision on preservation credits

Jun. 04, 2014 @ 06:52 PM

A state tax credit that helped finance the renovation of the American Tobacco campus and other former tobacco mills in downtown Durham is set to expire at year’s end, and it’s far from clear that legislators want to save it.

Gov. Pat McCrory in April rolled out a plan for restructuring the historic-preservation tax credit, one that would keep the program going for another five years while capping the subsidy for any single project.

Announcing the proposal in High Point, McCrory said preservation projects have the potential to rebuild entire neighborhoods, and that he wants them “repeated across North Carolina.”

But N.C. Senate budget writers didn’t include the plan in their version of the state’s fiscal 2014-15 budget. Supporters are now pinning their hopes on the N.C. House, which can force a debate by writing the McCrory plan into their counter to the Senate budget.

A major lobbying effort involving preservationists, business interests, town and city officials from around the state and even the governor’s cabinet secretaries is underway, on the assumption the House will roll out its own budget bill next week.

“House members have definitely been hearing from folks about how important these credits are, particularly to downtown redevelopment,” said Julie White, executive director of the N.C. Metropolitan Mayors Coalition. “House members are listening to these appeals. I don’t know yet what the outcome will be.”

The existing tax credit allows the owners of commercial structures to defray 20 percent of the cost of renovating them if they’ve certified as historic structures or date from before 1936.

A parallel rule also facing an end-of-the-year expiration allows a credit for 30 percent of the rehab costs for “non-income-producing” structures – homes and such.

For commercial structures, McCrory’s plan is to allow credits for only up $20 million in rehab expenses. The percentages would change, to offset only 15 percent of the first $10 million of a developer’s costs and 10 percent of the second $10 million.

The governor’s plan includes two bonuses that each could add 5 percent to the credit.

One of those promises extra money for projects in 80 of North Carolina’s 100 counties – not including, among others, Durham, Orange, Chatham and Wake counties, as they’re among the least economically “distressed” parts of the state.

McCrory’s plan has the support of groups like Preservation North Carolina.

“At this point, you’re not going to have any hearings of any substance: It’s really a yes or no, are you in or are you not in,” said Myrick Howard, Preservation North Carolina’s president. “The governor’s proposal is the horse that we are riding.”

Howard regards the lower credit percentages in McCrory’s plan as “a fair trade” for a promised quicker return for developers. He also doesn’t see an issue with the $20 million cap, as “many of the biggest projects are underway anyway or have been done.”

As for the chances of getting House support, Howard said he is “reasonably optimistic” and believes advocates “have an opening with the leaders” of the chamber’s Republican majority.

The Senate, however, is just as majority Republican as the House.

Howard attributed its decision to bypass the McCrory plan to its having already been well along in producing its draft budget bill by the time the governor served up his fiscal 2014-15 spending request.

But White didn’t think that was the reason.

“The Senate has as a pretty specific philosophy they’ve been moving forward on tax reform,” she said. “That is, ‘We won’t carve out exemptions, we’ll have one flat rate for everyone.’ It’s more philosophical than anything else.”

Howard did say the behind-the-scenes work on the proposal has “been a matter of trying to get this bill in alignment with the folks who voted for tax reform.”

The governor’s people are actively seeking legislative support for his credits plan, with state Cultural Resources Secretary Susan Kluttz going to the legislative complex on Wednesday to talk to House members.

“She has been working this issue for months, within the governor’s budget of course,” White said. “They have been working to find a compromise, a package more limited in scope [that] still incents the investment in these buildings. I would say the governor and the secretary have been working very diligently on this.”

But though he’s also a Republican, it’s not at all clear how much influence McCrory has with the General Assembly’s GOP majorities.

A political consultant who works with Democrats, Thomas Mills, late last month penned a blog post that dubbed the former Charlotte mayor “Sideshow Pat.” As he sees it, McCrory is definitely on the Senate’s pay-no-mind list.

Senate President Pro Tem Phil Berger, R-Rockingham, and his colleagues in the chamber’s leadership “quite clearly don’t take the governor seriously,” Mills said.

The decision either way won’t affect on-the-books projects like American Tobacco that, in Howard’s view, have made Durham “a poster child” for the success of the program.

“There are more jobs on the American Tobacco campus [now] than there were when it was a cigarette company,” Howard said. “And the connection for me is that my father worked there. You cannot outsource renovation. It is as directly jobs-related as any incentive can get.”

If the current law expires, North Carolina would become the only income-tax-levying Southern state that doesn’t offer property owners a tax credit for preservation projects.

The others – save for Texas, Tennessee and Florida, which don’t have state income taxes – offer rehabilitation credits to defray anywhere from 10 percent to 25 percent of a project’s cost, a presentation prepared by McCrory administration officials said.