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The Historic Tax Credit and Growth Opportunity Act (H.R. 2294/S. 2266) was introduced in the Senate last month by Senators Ben Cardin (D-MD), Bill Cassidy (R-LA), Maria Cantwell (D-WA), and Susan Collins (R-ME). Both the House and Senate bills include provisions that would permanently add value to the Historic Tax Credit (HTC), improve access to the credit, and increase investment in smaller rehabilitation projects. H.R. 2294 also includes temporary tax provisions to increase the credit from 20 to 30 percent for all projects and bring relief to rehabilitation projects impacted by the pandemic. The HTC-GO bill includes nearly 60 bipartisan cosponsors in the House.

At this time, take action to urge your representatives and senators to cosponsor these bills that ensure the ongoing success of the HTC in rehabilitating the nation’s historic buildings and supporting community revitalization.

On April 1, Representatives Earl Blumenauer (D-OR) and Darin LaHood (R-IL) introduced a new version of the Historic Tax Credit Growth and Opportunity Act (HTC-GO) in the House of Representatives. It includes temporary tax provisions that will bring relief to projects impacted by the pandemic and permanent provisions that will add value to the Historic Tax Credit (HTC), improve access to the credit, and increase investment in smaller rehabilitation projects. The introduction of companion legislation in the Senate is expected soon.

Please contact your House Representative and encourage them to cosponsor the HTC-GO.

What’s in the new version of the HTC-GO legislation?

Temporary Provisions

Developers and building owners are experiencing challenges in rehabbing historic buildings. The financial markets have slowed to a crawl, making it difficult for projects to access capital and stalling complex historic real estate developments. The increased volatility in the market and project risk is forcing banking institutions to decrease their loan frequency and the overall amount while tightening underwriting requirements. Increases in material and construction costs and an uncertain tenant market have further impacted potential developments. As a result, many projects have stalled or are no longer feasible.

The HTC-GO legislation temporarily increases the rehabilitation credit (IRC § 47) to address projects impacted by the pandemic.

• This provision increases the HTC percentage from 20% to 30% for 2020 through 2024.
• The credit percentage is phased down to 26% in 2025, 23% in 2026, and returns to 20% in 2027 and thereafter.

Permanent Provisions

The following provisions would make important changes to the HTC to encourage more building reuse and redevelopment nationwide and would be particularly impactful for small, midsize, and rural communities. These provisions would not only make the credit easier to use and more historic properties eligible, but it would also enhance the value of the HTC and make the credit easier to use to create affordable housing.

• Increases the credit from 20% to 30% for projects with less than $2.5 million in qualified rehabilitation expenses, making it easier to complete small rehabilitation projects.
• Lowers the substantial rehabilitation threshold, making more buildings eligible to use the HTC.
• Eliminates the requirement that the value of the HTC must be deducted from a building’s basis (property’s value for tax purposes), increasing the value of the HTC and making it easier to pair with the federal Low-Income Housing Tax Credit.
• Makes the HTC easier to use by nonprofits for community health centers, local arts centers, affordable housing, homeless services, and others by eliminating IRS restrictions that make it challenging to partner with developers.

On February 25, Representatives Terri Sewell (D-AL) and Tom Reed (R-NY), as well as Senators Ben Cardin (D-MD) and Roy Blunt (R-MO), introduced the New Markets Tax Credit (NMTC) Extension Act of 2021 (H.R. 1321/S. 456). The legislation would make the New Markets Tax Credit (NMTC) permanent at $5 billion in credit allocation a year and provide an exception from the Alternative Minimum Tax (AMT) for NMTC investments. The bill currently has 23 cosponsors in the House.

“The COVID-19 pandemic has laid bare the historic disinvestments in our rural and underserved communities. Now more than ever, it is critically important that our communities have permanent access to the New Market Tax Credit as a tool to facilitate investments in local businesses and community development projects as we recover from our economic crisis,” said Rep. Terri Sewell in a press release. “The NMTC remains crucial to the creation of job growth and opportunity in Alabama’s 7th Congressional District, and I’m proud to introduce this bipartisan bill to ensure our most underserved communities are not left behind.”

Since its authorization, more than $55 billion in direct NMTC investment has created well over a million jobs. These NMTC investments leveraged nearly $110 billion in capital from other sources for businesses, healthcare centers, manufacturing expansions, and revitalization projects in communities with high poverty and unemployment rates. Historic rehabilitation tax credits (HTCs) are often used in conjunction with NMTCs and are a critical source of financing for many historic rehabilitation projects.

With the changes in Congress and in the White House, Historic Tax Credit (HTC) advocates are preparing to ramp up advocacy efforts upon the introduction of a new HTC bill in the 117th Congress. Advocates expect the bill to provide temporary COVID-19 relief to HTC projects distressed by the pandemic and permanent enhancements to the HTC. In 2021, there will be multiple “must-pass” legislative vehicles, along with unresolved issues related to COVID-19 relief, that may contain robust tax titles. This will provide opportunities to enact some or all the HTC enhancement provisions outlined in the new legislation. Provisions the National Trust hopes will be incorporated include a temporary increase to the HTC from 20% to 30% for COVID-19 relief and permanent enhancements to the HTC to unlock new projects that presently are not feasible, bring more value to the HTC, and contribute to the economic recovery. These provisions were included in H.R. 2, the “Moving Forward Act,” which passed the House of Representatives in the 116th Congress.

As a result of the pandemic, HTC developers and preservationists continue to experience challenges in rehabbing historic buildings with the freezing of the financial markets, difficulties accessing capital, and banking institutions loaning less to these projects, which tend to carry more risk. In addition to increases in material costs and construction costs on-site, projects are currently facing financing gaps, and many projects are stalled or no longer feasible. Also, with COVID-19 impacting local budgets, local governments are challenged to fulfill funding and partnership agreements with developers and enter into new agreements that incentivize the revitalization of their community.

Advocates should encourage developers who have HTC projects that have faced challenges to share these challenges with their federal legislators and ask them to cosponsor the new legislation upon introduction.

The National Trust was pleased to again collaborate with the National Park Service in preparing the Annual Report on the Economic Impact of the Federal Historic Tax Credit for Fiscal Year 2019 in partnership with the Rutgers Edward J. Bloustein School of Planning and Public Policy.

Released on November 9, the report documents the historic tax credit’s (HTC) ongoing positive impact for community reinvestment across the nation after more than four decades of use. According to the report, “the HTC has rehabilitated more than 45,000 historic properties, generated more than $188 billion in GDP and created 2.8 million jobs” since the incentive was put in place in 1978. Cumulatively, the HTC has generated more in tax receipts than the cost of the program, generating $38.1 billion in tax receipts compared to $32.9 billion in credits allocated.

Acting Director of the National Park Service, Margaret Everson, stated, “This is an incredible example of a federal/state partnership that continues to drive investments in historic preservation and revitalize communities across the country.”

The report demonstrates the broad scope of the 1,013 different property types that benefited from the HTC in FY 2019, including abandoned and underutilized school buildings, warehouses, factories, churches, retail stores, apartments, hotels, houses, agricultural buildings, offices, and other structures across the country. Other benefits of HTC investment include job creation, affordable housing creation, small business incubation, as well as Main Street and rural redevelopment.

In addition, the report documents that nearly half of all certified rehabilitation projects were located in low- and moderate-income areas and three-quarters of all projects were in economically distressed areas. The HTC also benefited smaller rehabilitations with 50% of all projects costing less than $1 million in qualified rehabilitation expenses (QREs) and 17% were under $250,000.

HTC investment was instrumental in smaller and rural communities with 25% of all certified rehabilitation projects being located in communities with a population under 50,000 people and 16% in communities with a population under 25,000 people.

Fiscal Year 2019 Highlights of the Historic Tax Credit

• Rehabilitated new or existing housing units: 16,280
• Low- and moderate-income housing units: 6,206
• Total estimated rehabilitation investment (Qualified Rehabilitation Expenditures): $5.77 billion
• Historic rehabilitation projects certified: 1,013
• Estimated total jobs created: 109,000
• Output (Goods and Services): $12.1 billion
• Gross domestic product: $6.2 billion
• Income created: $4.6 billion