English, Tubbs Jones Introduce the "Community Restoration and Rehabilitation Act"
English, Tubbs Jones Introduce the "Community Restoration and Rehabilitation Act"
Representatives Phil English (R-PA) and Stephanie Tubbs Jones (D-OH), Senior Members of the House Ways and Means Committee, introduced H.R. 1043, the "Community Restoration and Rehabilitation Act of 2007." This bipartisan bill improves the existing historic preservation tax credit (rehab credit) for the restoration and rehabilitation of the nation's vacant and underutilized historic buildings. Senators Blanche Lincoln (D-AR), Gordon Smith (R-OR), and Mary Landrieu (D-LA) introduced companion legislation, S. 584.
The rehab credit is the nation's largest federal incentive that promotes urban and rural revitalization through private investment in reusing historic buildings. It has attracted private capital to historic areas of cities and towns, generated thousands of jobs, strengthened property values, created affordable places to live, and increased revenues of state and local governments.
The Community Restoration and Rehabilitation Act has the support of the National Trust for Historic Preservation, Preservation Action, the National Conference of State Historic Preservation Officers, the American Institute of Architects, and the Affordable Housing Tax Credit Coalition.
"Throughout Pennsylvania and the rest of the nation, many of our local neighborhoods are tainted by abandoned and decaying historic buildings and homes," said English, Ranking Member of the Ways and Means Subcommittee on Select Revenue Measures, which has jurisdiction over tax issues. "This legislation would improve the current historic tax credit and generate renewed interest in our local communities by creating incentives to renovate our forgotten warehouses, homes, factories and hotels and re-use them as places to live and work."
"H.R. 1043 is about economic revitalization and development," said Rep. Tubbs Jones. "Since its inception, the rehab credit has been responsible for 133 residential and commercial projects in the City of Cleveland, leveraging about $760 million of private investment. Because of the credit, downtown Cleveland and neighborhoods like the Warehouse District, the Gateway District, and East Fourth Street are being revitalized -- pumping more investment into the region and revenue to the city and state. The Community Restoration and Rehabilitation Act will further the economic development of Cleveland and the State of Ohio."
Nationwide, the rehab credit has generated over $36 billion in renovation and revitalization dollars since it was enacted in 1976. In the State of Ohio, the credit has been responsible for 1,335 projects, leveraging $1.77 billion of private investment while the Commonwealth of Pennsylvania has used the rehab credit to finish nearly 2,000 projects and generate more than $2 billion in private investment back into its local communities. As a disincentive to demolition, it allows the owner of a historic building to receive an income tax credit of 20 percent of the amount spent to rehabilitate a certified historic structure. There is also a 10 percent credit for older, non-historic buildings. With a five-to-one ratio of private investment to federal tax credits, the program has developed more than 31,000 projects nationwide. Last year the rehab credit produced nearly $3 billion in private investment nationally, and created over 60,000 new jobs - about 49 new jobs per project.
The Community Restoration and Rehabilitation Act is a package of amendments that would further the mission of the rehab credit by spurring greater investments in smaller commercial projects and Main Street commercial properties in older neighborhoods - particularly where there is a critical need for affordable housing and community revitalization. A key aspect of the bill highlights the usefulness of creating affordable rental housing in historic buildings. The law allows the rehab credit to be "paired" with the Low-Income Housing Tax Credit in certain projects. In 2006 the rehab credit alone produced a total of over 15,000 units of housing in the United States and - in conjunction with the affordable housing credit - about 40 percent of those units fell into the affordable range.
More specifically, H.R. 1043 achieves the following:
Basis Reduction -- Sections 2 and 3 of the Act would address the current disincentive to using the Historic Rehabilitation Tax Credit (rehab credit) that lowers tax benefits dollar-for-dollar according to the amount of credit in projects that use the rehab credit. This is particularly problematic when the rehab credit is combined as an incentive along with the Low-Income Housing Tax Credit (LIHTC). Section 2 would amend Section 42 of the Code pertaining to the LIHTC to increase by 125 percent the applicable percentage used to calculate LIHTCs for buildings eligible for both LIHTCs and the rehab credit. The effect of this change is to restore dollar-for-dollar the LIHTCs that otherwise would be lost by reason of the rehab credit basis adjustment requirement under Section 50(c) of the Code. Section 3 would amend Section 50 of the Code to reduce the basis reduction required for property subject to the rehab credit from 100 percent of rehab credit earned to 50 percent of rehab credit earned. This better conforms to other tax credits such as those for energy and reforestation.
Smaller Projects -- Section 4 of the Act would amend Section 47 of the Code pertaining to the rehab credit to increase the rehab credit rate from 20 percent to 40 percent for smaller projects in which the qualified rehabilitation expenditures do not exceed $2 million. This would target the incentive to those "main street" type developments in which rehab credit costs are currently too prohibitive
More Housing -- Section 5 of the Act would amend Section 50 of the Code to permit the 10 percent portion of the Historic Tax Credit allowed under Section 47 in connection with the rehabilitation of older, "non-historic" buildings to be claimed with respect to residential rental property. It is currently prohibited for projects that include dwellings.
Re-Using "Older Buildings" -- Section 6 of the Act would change the definition of "older building" from "built before 1936" to any property "fifty years old or older" by amending Section 47 to "index" the date by which a building must first have been placed in service in order to be eligible for the 10 percent portion of the rehab credit.
Non-Profit Uses -- Section 7 of the Act would ease the rules governing non-profit deals so that more community-oriented projects may move forward by amending Section 47 to limit the types of leasing arrangements with non-profits and other tax-exempt entities that preclude the use of rehab credits.
Targeting in Disinvested Areas -- Section 8 of the Act would boost by 130 percent the qualified rehabilitation expenditures on which the rehab credit can be claimed for buildings located in certain disinvested neighborhoods, difficult to develop areas, and census tracts where the poverty rate is particularly high.
Application to Condominiums -- Section 9 of the Act would broaden the tax credit's use to condominium developments and in so doing, provide new support for the revitalization of urban neighborhoods nationwide. The bill's provision removes a recapture clause -- requiring the payback of tax credits upon conversion of a tax credit property into a condo development. This clause has significantly limited the credit's use.
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