Incentives to redevelop historic buildings in the state became more advantageous last week after Gov. Nikki Haley signed a bill to more than double a state tax credit.
The move benefits developers from downtown Florence to Charleston and Columbia and historic buildings across the state thanks to the bill by a Columbia Democrat, Rep. James E. Smith, bill that increased the state’s 10 percent tax credit to 25 percent.
“You’ve seen a lot more development of city centers, of small and large cities. This would really help kick start those efforts,” Smith said. “What we did this time was again, I think, try to be more competitive with our neighboring state who, frankly, had more aggressive credits in the area. We were slow to embrace some of these ideas.”
Florence Republican Reps. Phillip Lowe and Jay Jordan were among the co-sponsors.
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Regionally it makes the state significantly more competitive than North Carolina since the loss of its 25 percent tax credit to zero after state lawmakers didn’t renew the provision, which sunset last December.
Mike Bedenbaugh, executive director of the Palmetto Trust for Historic Preservation, decried the move up north, but heralded the Palmetto State’s leadership as a way to attract investment to the hundreds of historic buildings that are crumbling in communities across the state,
“It’s wonderful to see the state recognize how important it is to attract investment into our already established places,” Bedenbaugh said. “We live in such a throwaway society and so many of the commercial properties and historic buildings have been neglected as they’ve been leapfrogged over for new development.”
The increased 25 percent tax credit can be obtained to cover rehabilitation costs, per certified historic structure, in lieu of the original 10 percent tax credit. The law shortens the time the credits can be claimed from five to three years.
Smith sponsored the Abandoned Buildings Revitalization Act of 2013, a law that gives developers a 25 percent tax credit to redevelop a building that’s been at least 66 percent vacant for the past five years. That credit remains capped at $500,000, but the claim period also shrank to three years.
The ability to receive state credits over a shorter time will help entice more investment in the state’s historic buildings, Bedenbaugh said.
“For every dollar expended on a tax credit overall would raise the economic output of the state by $20; that’s just economic output over a period of time,” Bedenbaugh said. “The ripple effect of going into a place that is empty and reinvigorating it has a huge ripple effect throughout the whole community.”
A similar bill by Smith, with no caps, drew criticism last year when it added a $26.6 million tax break that could be claimed over a two-year period. A bill many said was tailored to the $60 million needed to rehabilitate the Babcock building in the Bull Street redevelopment project in Columbia.
That language was amended this year in the House.
Under the new law, that $60 million project could obtain a 25 percent tax credit equal to $15 million, paid out evenly over three years; however, those annual payments are capped at $1 million for a total of $3 million.
In combination with the 20 percent federal tax credit that pays $12 million over five years ($2.4 million annually), the two would total $3.4 million a year in credits.
However, for a larger project, such as Bull Street, it would be more advantageous to use the original, uncapped 10 percent tax credit, which can be used in lieu of the 25 percent credit. That, with the same federal credit, would total $4.4 million annually over three years.
The result would be a $2.4 million impact on the budget over three years rather than the $600,000 cited.
“You can actually do it to phases of a project too, because you might have a really large project that would be done in multiple phases and I think each phase would qualify,” Smith said. “Certainly each building could qualify.”
That calculation wasn’t included in the fiscal impact analysis of the bill which was based solely on the $60 million work on the building. Nor was the trend of 46 applications that have gone through the state preservation office over the past three years for federal tax credits and thus applicable state credits.
The three-year tax credit claim period begins the year the approved rehabilitated property is put into service. Unused credit can be carried forward for five succeeding years.
“I’m sure as we move forward with a lot of things we’ll continue to review it and make sure it meets expectations,” Smith said. “We’re probably not done with seeing legislation in this area, I think there’s more interest.”
Indeed, a similar Senate bill, with a two-year, $13.6 million fiscal impact, has resided in the Senate Finance Committee since March. Shortly thereafter, one introduced by Florence representatives with the same impact was referred to the House Ways and Means Committee.