March 20, 2008
There Are Credits, and There Are Credits
I may be incorrect about this, but the historic tax credits appear to be of a different nature than the movie industry tax credits. The latter are ultimately advance giveaways of tax money yet to be collected. The credits are handed to a production company, which can sell them to third-parties that aren't at all involved in the filming to offset taxes that they were going to pay anyway. It's a subsidy.
The historic tax credit, it seems, is more of a discount on taxes related to projects that may not happen without the incentive:
The 1891 estate with 12 bedrooms, 15 bathrooms and breathtaking ocean views is among the many properties that qualified for Rhode Island’s historic structures tax-credit program, which offers property owners and developers breaks on income taxes worth 30 percent of qualified historic-renovation costs.
Working in construction, I suppose I've an indirect interest in these credits, but I'm more or less ambivalent about them. That said, such credits follow a model that Rhode Island should implement more broadly: encouraging economic activity by discounting the costs imposed by government. Consider:
Governor Carcieri recently introduced a separate proposal to retroactively cap the number of credits redeemed every year, a move that would save nearly $25 million this year and $21 million in the next. Several real estate developers plan to sue the state if the governor's plan becomes law, according to local developer Colin Kane, head of the Peregrine Group, which has invested $15 million in an East Providence development he says he would have to abandon.
One must adjust for words spoken in advocacy, of course, but it isn't a stretch to imagine that such projects as Kane's wouldn't happen under the full burden of Rhode Island's tax laws. In other words, without them, there would be less economic activity for the government to tax in the first place.
Watching our government attempt to digest its deficit in the absence of one-time windfalls (or failing to digest it) brings to mind the game of chess. Nobody seems capable of thinking more than two steps ahead (to the step after "I lose my giveaways and special interest support"). That's a queen that ought to be exposed.
Justin,
There are 2 Historic tax credit programs. One for individual home owners and one for commercial companies rehabbing historic buildings.
The 1 program taking the heat is the commercial program that was cited by Washington, DC as the most innovative in the whole United States and a model for the rest on the country. The commercial companies actually pay the monies up front and at the end of the project receive the tax credit. Percent rebate of their monies which RI is able to invest and gain interest on while holding.
The commercial historic tax credits have put a lot of carpenters and wood workers to work as well as many other trades. Created new housing at all economic levels and putting vacant structures back on the tax rolls.
By playing with and changing the Historic Tax Credits the General Assembly could drive jobs and business out of RI.
“Each $1.0 million of State tax credits in fact leverages $5.35 million in total economic output.
For the 5-year period since enactment (2002-2007), more than $78 million in federal historic tax credits have been awarded to Rhode Island projects—an increase of 700%.
• Economic Impact - The total direct construction employment generated by the $1.53 billion investment in historic rehabilitation is estimated at approximately 17,725 jobs earning $677.54 million in wages. Indirect employment impact within the State during the construction period is estimated at 8,436 jobs earning an estimated $277.52 million in wages. Total permanent employment at these locations is anticipated to be over 7,200 jobs earning $321.02 million annually. The 277 projects are forecast to generate a total of $2.46 billion in economic activity throughout the State. During the first five years of the Historic Tax Credit program (2002 through 2006), Rhode Island experienced more investment in historic rehabilitation than in the previous 25 years combined” per 2007 Economic & Fiscal Impact Analysis.
State of Rhode Island Historical Preservation & Heritage Commission Tax Credits & Loans: Commercial & State: About the HPITC
http://www.preservation.ri.gov/credits/commstate_about.php
Independent Studies: Economic & Fiscal Impact Analysis 2007
http://www.preservation.ri.gov/pdfs_zips_downloads/credits_pdfs/hpitc_pdfs/ hpitc-study_pdfs/hpitc_analysis-2007.pdf
Independent Studies: Economic & Fiscal Impact Analysis 2005
http://www.preservation.ri.gov/pdfs_zips_downloads/credits_pdfs/hpitc_pdfs/ hpitc-study_pdfs/hpitc_analysis-2005.pdf