Using historic preservation tax credits to revitalize urban communities in Rhode Island

The Alice Building in downtown Providence, RI, was built in 1898 and recently renovated to become apartments in the heart of town. Photo by Flickr user Mr. Ducke.

Advocates in Rhode Island seek to reinstitute the state’s Historic Preservation Investment Tax Credit. The redevelopment success of the previous credit, and Rhode Island’s need for affordable housing and economic stimulation, means that restoring the credit will be key to help the State successfully recharge its real estate sector. Restoring the credit will also help to implement Rhode Island’s land use plan and “achieve excellence in community design” by supporting redevelopment in traditional neighborhoods and focusing growth in town centers.

The original credit created jobs and new housing, and as a result increased local property tax revenues in a number of jurisdictions. In 2001 legislators passed Public Law 134 to provide a 30% credit (for qualified expenses) towards the redevelopment of historic properties around the state. According to a report sponsored by Grow Smart Rhode Island (GSRI), redevelopment of historic buildings through this credit created more rental apartment units during the five-year period of the credit (2002-2006) than in the previous 25 years combined. About 20% of those new units were affordable, which also exceeded the previous 25-year period. In total, Rhode Island’s $460.16 million investment supported a $1.53 billion real estate development portfolio. The projects developed using the tax credits led to 17,725 direct construction jobs, 8,436 indirect jobs and a projected 2,700 permanent jobs, generating $1.276 billion in wages. Municipalities also benefitted by gaining an additional $766.9 million to their assessable tax bases as a result of these projects.

Despite these benefits, legislators repealed the law in January 2008. Legislators cited the program’s unpredictable costs as their reason, a factor compounded by the State’s serious budget crisis. The tax credit program was not capped, so lawmakers could not predict how much the cash-strapped state would spend each year in credits. Additionally, as the credits could be sold to banks and other corporations, it was also difficult to calculate who would cash-in the credits and when they would impact the state budget. Others identified unintended consequences of the program including displacement of low-income residents and businesses as a result of increased property values.

These critiques of the program are justified, but easily surmountable – especially in light the program’s impressive popularity and benefit to Rhode Island’s economy. Placing an annual cap on the dollar amount of the credits each year could rectify the problem of unpredictable costs. The displacement aspect is a little trickier. Increasing property values is a positive for local governments and can bring needed amenities to neighborhoods in need of investment. But communities need to plan for the needs of their low-income residents – the usual occupants of underdeveloped, underutilized properties targeted by the program. There are a number of ways communities can include housing for low and moderate income households such as: 1) prioritizing projects requesting the credit that produce affordable housing, commercial and mixed-use projects; 2) streamlining the development review process for projects that include affordable units; or 3) reducing project fees with a sliding scale based on the percentage of low to moderate income units in the development. These policies, and many others, could help retain local residents and businesses while leading to increased economic gains for the community and state.

For instance, Common Ground, a New York based non-profit, used historic preservation tax credits (in part) to redevelop the historic Hollander Foundation Center in downtown Hartford, Connecticut. The development provides housing for low- and moderate-income individuals in a market where they would be otherwise priced out. The building, which had been vacant for 25 years, now provides 70 affordable and moderately priced rental units and 13,000 square feet of market-rate commercial space where there was none.

Reinstating Rhode Island’s Historic Preservation Tax Credits and prioritizing affordable developments would help to both revitalize Rhode Island’s urban communities and mitigate the negative effects on low-income people. A revised program could once again stimulate the type of development that occurred with the previous credit – and bring with it new jobs and economic growth for Rhode Islanders. A revised program could also make affordable housing projects more economically feasible, and would put underutilized properties back on the tax rolls and increase revenues for municipalities.

Read more: Rhode Island Considers Reinstating Historic Tax Credit [National Housing & Rehabilitation Association, June 16, 2011]