The Committee Substitute for Senate Bill 238, which would increase the state tax credit available for redeveloping historic buildings, passed through the full Senate unanimously on March 29, and was reported to the House, where it was referenced to the House Finance Committee.
The substitute is essentially the same as the original bill with the addition of a December 31, 2017 effective date, which means no historic tax credits will be applied to taxpayers personal or corporate net income tax liability until at least January 1, 2019.
From here, the bill must compete with 40 other pieces of legislation jostling to be put on the House Finance agenda, before moving to the House floor by Thursday, April 6 to have a shot at becoming law.
Increasing the state historic tax credit from 10 percent of 25 percent, would make West Virginia’s 92 commercial and mixed-use historic districts significantly more attractive to developers, which often opt to invest in neighboring states like Ohio, Virginia, Pennsylvania, and Maryland, thanks to higher state historic tax credit incentives.
The passage of this bill through the legislature has already attracted the interest of outside investors. With a close eye on whether the increased tax credit eventuates, Brian Wishneff & Associates out of Roanoke, Virginia are looking into redevelopment projects in Charleston, Huntington, Martinsburg, Clarksburg, and Fairmont.
While the final deals are not yet in place, the firm is making plans to invest in the Mountain State following the passage of SB 238. In Clarksburg, City Manager Martin Howe believes an increased state historic rehabilitation credit would incentivize redevelopment of the Goff Building and the Waldo Building, both of which are located in downtown Clarksburg.
Glenn Elliott, the Mayor of Wheeling, recently told The Hub that “increasing West Virginia’s State Historic Tax Credit from 10 percent to 25 percent would open the floodgates of additional investment in Wheeling. Because of Wheeling’s geographic location between Ohio and Pennsylvania (each of which has a 25% historic tax credit), regional developers have too often opted to invest in historic buildings across state lines. If we can level the playing field for our buildings, their unique and impressive architecture will lure development and help contribute to Wheeling’s renaissance.”
At the Hub, we believe a 25 percent credit would:
- Spur private investment. Large and small-scale developers report that historic rehabilitation tax credit programs fill a critical financing gap. However, West Virginia’s current 10 percent rate doesn’t provide enough of an incentive to make a difference in a developer’s decision to undertake a rehabilitation project. A fixed rate of 20 – 30 percent is recommended to constitute a meaningful incentive.
- Create jobs. Most of the new jobs created occur in the construction industry. Unlike new construction, a higher percentage of rehabilitation project costs support labor rather than new materials, which may not always come from in-state suppliers. Trade and professional services also benefit from the program, especially industries such as legal, accounting, architectural, and engineering services, as well as wholesale trade and retail trade.
- Provide a return on investment. One-third of the state’s investment is paid back during the construction phase — before a credit is issued. The rate of return for the remainder of the investment depends on the final use of the rehabilitation. Once the state’s initial investment is recouped, the project continues to yield positive economic impacts through a combination of sales, income, and business taxes. Historic tax credits also have been found to spur new construction and increase the property values in the surrounding neighborhood.
- Repurpose vacant and underutilized buildings. In Ohio, 82 percent of the properties that have been redeveloped with the help of that state’s 25 percent historic tax credit were vacant prior to being redeveloped. Similar vacancy rates are found in other states. When a vacant or underutilized building is repurposed, it generates additional revenues to local government through increased property taxes.
The historic rehabilitation tax credit is one of the few tax credits where the state’s investment is directly recouped via state and local taxes for as long as the rehabbed building is occupied. At a time when West Virginia needs to kickstart its economy, it is critical that SB 238 pass.
Because HB 2545 did not pass out of committee in its chamber of origin prior to March 26, that bill is effectively “dead” — as are the other historic tax credit bills that were introduced but did not move. Com. Sub. SB 238 is now the only historic tax credit bill left standing.