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Across the country more and more states are taking advantage of the economic value of state historic tax credits that can be used in conjunction with federal rehabilitation tax credits to incentivize significant investment in the rehabilitation of buildings. Texas joined thirty-three other states when it passed a state historic tax credit in 2013. The financial incentives of this new piece of legislation are expected to spur the rehabilitation of historic buildings in large cities and small towns across the state. In order to be a successful statewide program the tax credit must be an attractive financial incentive for not only sophisticated investors, but also for small building owners with no previous tax credit or rehabilitation experience. The tax credit creates a new market of buyers and sellers, drawing the attention of local and national real estate developers and investors. The ability to combine state and federal historic tax credits changes the bottom line in real estate pro formas, leveraging historic buildings as assets. The availability of the tax credit for small preservation projects may have the greatest impact on historic preservation efforts across the states as smaller towns begin to see new investment in downtown commercial districts. This report explains how the tax credit was created, analyzes the strength of the policy, and makes recommendations for its implementation and use. This work addresses a series of important questions. Will the Texas Historic Preservation Tax Credit be an effective economic driver as compared to other state historic tax credits? What are the strengths and weaknesses of the Texas tax credit? This report analyzes the new Texas program and gages its potential to incentivize the rehabilitation of historic properties in a range of sizes and locales.
The use of property tax incentives for business by local governments throughout the United States has escalated over the last 50 years. While there is little evidence that these tax incentives are an effective instrument to promote economic development, they cost state and local governments $5 to $10 billion each year in forgone revenue. Three major obstacles can impede the success of property tax incentives as an economic development tool. First, incentives are unlikely to have a significant impact on a firm's profitability since property taxes are a small part of the total costs for most businesses--averaging much less than 1 percent of total costs for the U.S. manufacturing sector. Second, tax breaks are sometimes given to businesses that would have chosen the same location even without the incentives. When this happens, property tax incentives merely deplete the tax base without promoting economic development. Third, widespread use of incentives within a metropolitan area reduces their effectiveness, because when firms can obtain similar tax breaks in most jurisdictions, incentives are less likely to affect business location decisions. This report reviews five types of property tax incentives and examines their characteristics, costs, and effectiveness: property tax abatement programs; tax increment finance; enterprise zones; firm-specific property tax incentives; and property tax exemptions in connection with issuance of industrial development bonds. Alternatives to tax incentives should be considered by policy makers, such as customized job training, labor market intermediaries, and business support services. State and local governments also can pursue a policy of broad-based taxes with low tax rates or adopt split-rate property taxation with lower taxes on buildings than land.State policy makers are in a good position to increase the effectiveness of property tax incentives since they control how local governments use them. For example, states can restrict the use of incentives to certain geographic areas or certain types of facilities; publish information on the use of property tax incentives; conduct studies on their effectiveness; and reduce destructive local tax competition by not reimbursing local governments for revenue they forgo when they award property tax incentives.Local government officials can make wiser use of property tax incentives for business and avoid such incentives when their costs exceed their benefits. Localities should set clear criteria for the types of projects eligible for incentives; limit tax breaks to mobile facilities that export goods or services out of the region; involve tax administrators and other stakeholders in decisions to grant incentives; cooperate on economic development with other jurisdictions in the area; and be clear from the outset that not all businesses that ask for an incentive will receive one.Despite a generally poor record in promoting economic development, property tax incentives continue to be used. The goal is laudable: attracting new businesses to a jurisdiction can increase income or employment, expand the tax base, and revitalize distressed urban areas. In a best case scenario, attracting a large facility can increase worker productivity and draw related firms to the area, creating a positive feedback loop. This report offers recommendations to improve the odds of achieving these economic development goals.
Virginia has been a national leader in historic preservation for many years. One of the many areas where this is reflected is in the use of historic tax credits in the Commonwealth. As of FY 2012, the most recent year for which such data are available, Virginia ranks third in the nation in total dollar volume of estimated qualified rehabilitation expenditures at project completion, behind only Massachusetts and Missouri. Preservation Virginia retained the VCU Center for Urban and Regional Development to conduct an analysis of the economic impacts of historic rehabilitation, financed in part through the Virginia Historic Rehabilitation Tax Credit Program and the Federal Historic Tax Credit Program, from 1997 to 2013. This analysis builds upon reports and updates completed by VCU for the Virginia Department of Historic Resources in 2007, 2010 and 2012. Like those earlier reports, this study documents the significant economic returns that Virginia realizes from preserving and re-using historic properties. Similarly, a study published in 2012 by Virginia’s Joint Legislative Audit and Review Commission concluded that unlike some tax preference programs that do not achieve their stated goals, Virginia’s Historic Rehabilitation Tax Credit Program effectively achieves the goal of promoting the rehabilitation of historic structures. Although this report is able to document only the easily quantifiable returns of economic activity and tax revenues, historic preservation brings many additional benefits to society. These include aesthetic and psychological benefits that help citizens understand their heritage and which improve the attractiveness of places to residents, businesses and tourists. Ultimately, these impacts strengthen the economy and augment the tax base as well. Tax credit usage in Virginia has occurred more often in urban areas, such as Richmond, Hampton Roads, Northern Virginia and Roanoke, than in rural areas. This is understandable, since urban areas have more buildings, as well as a larger percentage of the stock of historic buildings. However, tax credit-financed projects have been completed in most communities throughout the Commonwealth, reflecting both the utility and perhaps the future expansion potential of this program. (See Map ES 1, below.) From 2000 (when the Virginia Historic Tax Credit was raised to 25% of qualified rehabilitation expenditures) through 2011 (the most recent year for which all Virginia tax credit projects have been completed and certified), an average of 174 projects have been certified each year. The number of rehabilitation projects increased steadily from 1997 to 2005, when it reached its peak of 235 projects certified per year. The Great Recession of 2008-09, which had a very significant effect on the construction industry overall, caused a moderate decline in historic rehabilitation activity.
... An 8 year plan to preserve Lowell's historic and cultural resources in order to tell the story of the Industrial Revolution in the 19th century; included in the plan are mills, institutions, residences, commercial buildings and canals; describes the areas covered; discusses preservation standards, public improvements, financing, related programs, etc.; provides architectural information, dates of construction, history, plans for building reuse, etc. of specific structures in the Lowell National Historic Park and Lowell Heritage State Park ...
Since it was first published in 1994, The Economics of Historic Preservation: A Community Leaders Guide has become an essential reference for any preservationist faced with convincing government officials, developers, property owners, business and community leaders, or his or her own neighbors that preservation strategies can make good economic sense. Author Donovan D. Rypkemareal estate consultant and nationally known speaker and writermakes his case with 100 "arguments" on the economic benefits of historic preservation, each backed up by one or more quotes from a study, paper, publication, speech, or report. In this eagerly awaited 2005 edition, he gives these arguments even more clout by adding new information and insights gained in the last decade. Count on Rypkema to be entertaining, provocative, and convincing as he describes and demonstrates how strategies that include preservation help communities make cost-effective use of resources, create jobs, provide affordable housing, revive downtowns, build tourism, attract new businesses and workers, and more.
Designation of historic properties and historic districts is increasingly used as a means to revive central city neighborhoods and to promote urban economic development. While preservation activities are thought to generate positive externalities for surrounding neighborhoods, these external effects have been difficult to quantify. Using a database of tax appraisal records for residential properties in Abilene, Texas, this study demonstates that there are significant, positive externalities associated with historic designation. We perform simple cost-benefit calculations and find that the internal and external benefits more than outweigh the (non-zero) costs associated with historical designation. Moreover, from the city of Abilene's perspective the property tax incentives provided to historic reinvestment are outweighed by the added property tax revenue created by the increased value.