Recent Study Quantifies Benefits of North Carolina Historic Credit
By Caitlin Jones & A. J. Johnson
4 min read
Tax Credit Advisor December, 2008: A recent study quantifies the economic benefits generated by North Carolina’s state historic rehabilitation tax credit.
The study, A Profit Past, A Price Future, was prepared by Rebecca Holton as part of an independent study at the University of North Carolina at Chapel Hill. The study obtained data through the North Carolina State Historic Preservation Office, and was based on interviews with experts in the field and a review of other statewide tax credit studies.
The study examined the North Carolina state historic credit from its inception in 1998, through 2007. It sought to demonstrate the return on investment to the state, and contends that the total benefits have far outweighed the program’s cost in terms of foregone state tax revenues.
The study says that North Carolina’s historic credit “has done far more than preserve valuable historic structures. While retaining irreplaceable assets, bringing new life to downtowns, and inspiring sustainable development patterns, it has also had a tremendous impact on the state’s economy.”
In 1998, North Carolina’s 5% state income tax credit for rehab of existing income-producing historic properties was replaced with a 20% tax credit, and a new 30% state rehabilitation tax credit was established for non-income producing historic structures.
Qualified rehab costs the tax credit may be claimed on include most hard costs. To qualify for the tax credit, a project must be a certified historic structure – either listed on the National Register of Historic Places, or a “contributing” structure in a National Register or local historic district. Rehab work must satisfy the U.S. Secretary of the Interior’s rehabilitation standards. The tax credit is claimed equally over five years, and unused amounts are refundable to the owner.
In 2006, North Carolina established a separate tiered income tax credit – the “mills credit” – for expenditures for the rehabilitation of qualified former industrial and manufacturing buildings. The entire credit amount is claimed in the first year. The state’s counties are assigned to three categories, or “tiers,” based on economic status. For Tier 1 and 2 counties, the mills credit rate is 40% and available for both income- and non-income producing buildings. Tier 3 counties are limited to a 30% credit for income-producing buildings.
Economic Benefits, Jobs
According to the study, the state historic tax credit facilitated the completion during 1998-2007 of 1,324 historic rehabilitation projects representing more than $830 million in project expenditures. These expenditures, it notes, generated $1.4 billion in economic output statewide, and created 8,630 jobs directly (14,100 total from multiplier effects). In addition, the study says the rehabilitation activities contributed $263 million in employee compensation and another $176 million of income generated from related activities.
“For each $1 million spent in qualified rehab expenditures,” the study says, “the overall economy saw $1.74 million in economic output, 17 jobs and $530,000 in employee compensation.”
The study notes that the state issued an estimated $179 million in historic credits during 1998-2007, or an annualized cost in foregone tax revenues of about $3.6 million.
The study also reports on the degree to which the state historic tax credit has leveraged other benefits. The latter have included federal tax credits, economic revenue from project expenditures, employee wages flowing into the economy, and increased state and local income and sales taxes. According to the study, each $1 in state historic tax credits during 1998-2007 leveraged $12.51 of these other benefits, for income-producing projects.
The study says while the federal historic rehabilitation tax credit has been used in North Carolina since 1976, the creation of the state historic credit in 1998 spurred increased preservation activity, causing the number of completed projects to effectively double in 1998-2007 compared to the previous 22 years.
The study says the greatest number of completed rehabilitation projects has tended to concentrate around “cultural” centers in the state, including Raleigh, Asheville, Charlotte, and Wilmington. But it notes activity has been high in smaller towns as well. The study lists the top 10 counties in terms of number of completed projects; gives a breakdown between the number of income-producing and non-income producing projects in each; and cites the total rehabilitation expenditures in each. Durham County leads in total rehab expenses ($178.7 million), while Buncombe County (Ashville) is No. 1 in number of income-producing projects (163).
According to the study, about 42% of completed income-producing projects have been for residential use, including 6,000 affordable housing units. The remainder has been commercial (23%), office (22%), and other. The study says income-producing projects have generated an average $842,000 in qualified rehab expenditures.
