Construction crews take a break during the rehabilitation of Longfellow School in Madison to residential apartments. The project used Wisconsin's new 20% historic tax credit in 2014 to increase Madison's property tax base, create jobs, and increase housing options, and retain an important and irreplaceable piece of the city's history.
Wisconsin's dramatically successful Historic Tax Credit program will continue unchanged. The state Historic Tax Credit program is available to owners of historic properties designated under the federal National Register of Historic Places program. It offers a direct credit to the owner's state income tax obligation in the amount of 20% of expenditures on restoration or rehabilitation work that meets federal historic preservation standards. It can be coupled with a federal program that also offers a credit of 20% of expenditures for a total of 40% credit for qualified expenditures. The federal credit was initiated in 1981 as an incentive to leverage private investment in older commercial building stock. Wisconsin initiated a companion program in 1990 offering a 5% credit, then boosted the state credit to 20% in 2014. The programs are powerful financing tools for developers taking on risky historic rehabilitation projects that can include unforeseen costs, and unique permitting regulations. Though risky, these projects often extend the lives of beloved and well-crafted buildings that have some special connection to their communities’ heritage.
Prior to the 2014, the state's program was used for an average of 11 projects per year. In 2014, there were 31 projects approved for a total of $35.1 million in tax credits, and leveraging $211 million in private investment in local real estate. These projects provided rehabilitated space in historic buildings for businesses and housing, and have increased property tax bases in 24 towns and cities across the state, including Milwaukee, Madison, Schofield, Eau Claire, Oshkosh, Dodgeville, La Crosse, Mayville, Ashland, DePere and Baraboo.
Governor Walker’s proposed 2015-17 budget would have capped the program at $10 million, made the credits competitive based on projections for job-creation, and provided for the recapture of credits if job-creation numbers did meet projections. The changes would have dramatically reduced the use of the program because the $10 million cap could be reached with just 2-3 large projects, and developers would have had a much more difficulty finding investors to purchase the tax credits accumulated by large projects, as is commonly practiced. The changes would have made the program too restrictive and too risky for most developers.
Preservation organizations and real estate developers united to lobby for the Historic Tax Credit (HTC) program. The Wisconsin Trust for Historic Preservation worked with the Historic Preservation Institute (HPI) at the University of Wisconsin-Milwaukee to study the economic impact of the HTC program in 2014. The Institute, in turn, sponsored a study by accounting and advisory firm Baker-Tilly to estimate the economic impact of the 2104 change from a 5% credit to 20%.
The HPI study found:
31 projects used the program in 2014 at 20%
$35,071,257 in credits approved by WEDC in 2014
$35,071,257 federal tax funds returned to Wisconsin property owners.
$211,269,257 in direct private investment and expenditures on tax credit projects in 2014.
4,062 Jobs created - 1,692 construction jobs and 2,370 permanent jobs in 2014.
$20,310,000 – Estimated annual state tax revenue from 4,062 jobs created.
$187,993,422- Estimated amount paid by employers to 4,062 new employees.
The Baker Tilly study projected:
$417.6 million total impact on Wisconsin economy by the end of the first year of operations: $277.7 million in direct spending, and $139.9 million in secondary spending related to HTC supported projects.
For the $34,799,764 awarded in Historic Tax Credits since January 1, 2014, the 25 evaluated projects supported by the HTC program are anticipated to create over 2,800 FTE jobs as a result of construction activities and permanent jobs in the state.
The program is estimated to see a complete payback of State of Wisconsin tax revenue by Year 7 of stabilized operations, an estimated $14 million being paid back to the state by the end of construction. These funds will be paid directly to the State of Wisconsin prior the beginning of operations and likely before the State of Wisconsin revenues are reduced by the tax credit.
Between labor and business purchases, the 25 approved projects are estimated to create up to $480.8 million in construction spending, and $88.7 million in annual operations. After 5 years of operations, the projects are estimated to create up to $951.6 million in community spending.
By Year 10 of operations, the evaluated projects are estimated to directly pay more than $46 million in tax revenue to the State of Wisconsin, a 133% return on the original $34.9 million approved. Including estimated indirect and induced tax payments, by Year 10 of operations, the approved projects will have paid an estimated $96.8 million in taxes within Wisconsin.
These two studies suggests that while the program is structured as a tax credit, it has a unique ability to leverage investments from a variety of sources, including the federal historic tax credit program, out-of-state investment companies and in-state development teams. The historic tax credit program is a true economic development program for our state. As an added bonus the program encourages restoration of unique existing buildings in communities across Wisconsin.