Business

This tax credit fueled downtown Durham’s renaissance. Congress wants to kill it

The Chesterfield building was formerly an empty tobacco factory before it was transformed into high-tech office space.
The Chesterfield building was formerly an empty tobacco factory before it was transformed into high-tech office space. cliddy@newsobserver.com

Without tax breaks, downtown Durham’s renaissance, with its swanky hotels and new skyscrapers, possibly wouldn’t have happened.

Yet, one of the main tax breaks used in Durham’s redevelopment could be facing the chopping block if the U.S. House of Representatives tax reform bill makes it to President Donald Trump’s desk for a signature.

The House GOP’s tax plan would eliminate federal investment tax credits for historic preservation projects as part of the Republican-led attempt to simplify the country’s tax code.

The potential elimination of the the historic tax credit quickly was met with dismay from preservation groups across the country and from some politicians.

“At a time when federal funding for infrastructure and housing is continually squeezed, the last thing Congress should do is push through a flawed tax plan that would hurt working families, hamstring our state and local governments, and destroy our ability to leverage private investment for projects that benefit the public,” said U.S. Rep. David Price, a Democrat from Chapel Hill.

As of the end of 2016, three of the 10 biggest historic tax rehabilitation projects across the state of North Carolina were in downtown Durham, according to Downtown Durham Inc. Others in North Carolina include Asheville’s Grove Arcade and Winston-Salem’s Reynolds Building.

The three largest projects in Durham were the American Tobacco Campus, which cost $167 million, the $81 million redevelopment of the old Liggett & Myers tobacco factory and the $38 million transformation of the Hill building into the 21C Museum Hotel.

ATC
The American Tobacco Campus will use open space on Blackwell Street for “PopUp @ American Tobacco Campus,” a rotating space for startups to test their business in the market. The News & Observer

“Those are just three projects and they have invested over $286 million in our downtown,” said Matt Gladdek, DDI’s director of policy and planning. “Additionally the Venable Center, Golden Belt, Unscripted Hotel, the Durham Hotel, and many other smaller projects have utilized the credit, and whose rehabs would not have been financially feasible without it.”

“It is a vital tool in older downtown communities that makes redevelopment of historic assets possible,” he added.

The rehabilitation of historic buildings in North Carolina has increased significantly since 1998, when North Carolina allowed state credits to be used in conjunction with the federal preservation tax credit. More than $2 billion has been spent by private investors on rehabilitation projects since then, according to the North Carolina State Historic Preservation Office.

In Durham alone, more than $425 million worth of investments have been made on properties eligible for historic tax credits, according to the North Carolina State Historic Preservation Office.

Ben Filippo, executive director of Preservation Durham, said that without the tax credit, there woudn’t have been a downtown Durham comeback.

“It wouldn’t have been possible. You would have no American Tobacco Campus, Brightleaf Square or Golden Belt. You wouldn’t have the Chesterfield or the Whitted School,” he said. “It has had an enormous impact on our ability to utilize these old warehouses and historic structures from the tobacco era, and even other eras, that otherwise we wouldn’t have been able to leverage for what is now in them. Durham is kind of a poster child for why the historic tax credit is crucial.”

Michael Goodmon, vice president for real estate at Capitol Broadcasting Co., said preservation tax credits were critical to CBC’s redevelopment of the American Tobacco Campus in Durham as well as its ongoing redevelopment of Rocky Mount Mills, an old cotton mill on the Tar River in Rocky Mount.

Goodmon believes that the success the incentive has shown in North Carolina is proof that it shouldn’t be touched.

“These historic places are prominent parts of our community fabric. Bringing them back to vibrancy benefits both urban and rural areas not just economically, but as a catalyst for the entire community – from business to arts, culture and civic engagement,” Goodmon said. “We encourage lawmakers at all levels to learn more about the substantial economic and cultural benefits of historic tax credits, and then to vigorously protect and support them. They make sense, and they’ve earned a permanent place in our economic development toolbox.”

If the incentive was eliminated, it could also potentially hinder future redevelopment of the N.C. Mutual Life building and the current Durham Police Headquarters, two mid-century buildings, Filippo said.

There has been debate about whether the Durham Police Headquarters, which will be vacated next year, should be demolished or redeveloped. The building has “good bones,” according to recent analysis, but it was built in 1958 and would require significant renovations for modern use.

Many believe without preservation incentives, the decision could likely swing from saving the building to demolishing it.

“Those properties both qualify and could leverage commercial tax credits,” Filippo said. “(The incentive’s elimination) will greatly change the process and financially whether or not they can use those tax credits.”

Filippo also fears that if the federal tax credit is eliminated it could put state incentives in danger as well.

“I would not be shocked to see state legislators try and eradicate the estate local historic tax credit,” he said, “because they are getting the go ahead from Congress.”

If that were to happen, Filippo thinks the number of historic homes and buildings being torn down in Durham would increase dramatically.

“If there are no historic tax credits available for certain rehabs, then the investors and developers who are coming into Durham are going to take zero looks at saving a single-family home that needs significant investment,” he said.

The fate of the Historic Tax Credit should be known relatively soon. U.S. Rep. Paul Ryan recently told Fox News that the U.S. House of Representatives’ tax reform bill is “on track” for moving through the House before Thanksgiving.

Whether the Historic Tax Credit is ultimately eliminated will be determined by whether it can make it through the House by Thanksgiving and then through the Senate as well.

“We expect our friends in the Senate to be about a week behind us,” Ryan said in the same interview.

Zachery Eanes: 919-419-6684, @zeanes

How does the Historic Preservation Tax Incentive work

The Historic Tax Credit program encourages private sector investment in the rehabilitation and re-use of historic buildings by allowing participants to claim 20 percent of the eligible expenses against their federal tax liability.

The program has been around since 1976 and has attracted more than $84 billion in new private capital to the historic cores of cities across the U.S., according to the U.S. Office of the Comptroller of the Currency.

To receive the tax credit, property owners must complete a three-part application process for historic preservation certification, which is managed by the National Park Service and Internal Revenue Service.

In order to qualify, a building must be income producing or used in a trade or business, and the cost of rehabilitation must exceed the per-rehabilitation cost of the building.

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