ORDINANCE NO. 15- Page 1

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1 ORDINANCE NO. 15- AN ORDINANCE OF THE CITY OF GALVESTON, TEXAS, APPROVING A FINANCIAL INCENTIVES PROGRAM FOR HISTORIC PROPERTIES PURSUANT TO SECTION OF THE TEXAS PROPERTY TAX CODE; ADOPTING CRITERIA FOR ELIGIBILITY FOR THE FINANCIAL INCENTIVES PROGRAM; MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECT, AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the City of Galveston is committed to the preservation of historic properties and resources within the City and encourages the recognition of historic landmarks across the city and reinvestment in Galveston s historic buildings; and, WHEREAS, the City seeks to encourage the redevelopment and revitalization of older neighborhoods. Financial incentives can encourage rehabilitation of existing historic properties and encourage the designation of new districts and Galveston Landmarks; and, WHEREAS, section of the Texas Property Tax Code allows for tax relief aimed at encouraging rehabilitation of historic structures; such as property tax abatement, property tax credits, and property tax exemptions; and, WHEREAS, the City s present tax exemption program encourages rehabilitation of commercial structures within designated historic districts. In 1999, the City adopted a tax exemption program to encourage rehabilitation of large-scale (greater than 10,000 square feet in floor area) historic commercial structures that are designated as a Galveston Landmark or are contributing structures in a Galveston Historic District. The City should consider extending this exemption (along with tax credits or tax abatements) to apply to historic residential properties, particularly those in designated historic or proposed conservation districts; and, WHEREAS, the proposed financial Incentives for Historic Properties program is supported by the goals of the 2011 Comprehensive Plan sections, HN-2.3 Create Incentives to Promote Housing Infill, Reinvestment and Homeownership: HN-2.7 Leverage Financial Tools and Incentives to improves Housing Conditions and Promote Neighborhood Revitalization ; and HP-3.4 Leverage Financial Tools and Incentives to Encourage Redevelopment of Historic Properties; and, WHEREAS on May 18, 2015, the Landmark Commission adopted a resolution in support of the adoption of Financial Incentives for Historic Properties. On July 6, 2015 upon review of comments by the City Council, the Landmark Commission modified its proposal of the Financial Incentives for Historic Properties program; and, WHEREAS, as further detailed in the Staff Report, attached and incorporated herein as Exhibit A, staff recommends approval of a Financial Incentives Program for Historic Properties; and, Page 1

2 WHEREAS, the City Council of the City of Galveston deems it in the best interest of the public to approve a Financial Incentives Program for Historic Properties and to adopt criteria for eligibility and approval in the program; and, NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF GALVESTON, TEXAS: SECTION 1. The findings and recitations set out in the preamble to this Ordinance are found to be true and correct and they are hereby adopted by the City Council and made a part hereof for all purposes. SECTION 2. The City Council of the City of Galveston hereby approves a Financial Incentives Program for Historic Properties consistent with section of the Texas Property Code and adopts eligibility criteria for Financial Incentives Program for Historic Properties as attached in Exhibit A, attached hereto and incorporated herein. If an applicant meets all eligibility criteria, the City Council may designate the structure as a historically or archeological significant site in need of tax relief to encourage its preservation. If City Council designates the structure as an historically or archeological significant site in need of tax relief to encourage its preservation, it may exempt all or part of the assessed value of a structure or archeological site and the land necessary for access to and use of the structure or archeological site. The abatement shall exempt from the incremental value above the existing value on the tax roll at the time the exemption is granted. SECTION 3. It is hereby declared to be the intention of the City Council that the sections, paragraphs, sentences, clauses and phrases of this Ordinance are severable and, if any phrase, clause, sentence, paragraph or section of this Ordinance should be declared invalid by the final judgment or decree of any court of competent jurisdiction, such invalidity shall not affect any of the remaining phrases, clauses, sentences, paragraphs and sections of this Ordinance. SECTION 4. All Ordinances or parts thereof in conflict herewith are repealed to the extent of such conflict only. SECTION 5. In accordance with the provisions of Sections 12 and 13 of Article II of the City Charter this Ordinance has been publicly available in the office of the City Secretary for not less than 72 hours prior to its adoption; that this Ordinance may be read and published by descriptive caption only. SECTION 6. This Ordinance shall be and become effective from and after its adoption and publication in accordance with the provisions of the Charter of the City of Galveston. APPROVED AS TO FORM: DONNA M. FAIRWEATHER ASSISTANT CITY ATTORNEY Page 2

3 I, Janelle Williams, Secretary of the City Council of the City of Galveston, do hereby certify that the foregoing is a true and correct copy of an Ordinance adopted by the City Council of the City of Galveston at its regular meeting held on July 23, 2015, as the same appears in records of this office. IN TESTIMONY WHEREOF, I subscribe my name hereto officially under the corporate seal of the City of Galveston this day of, Secretary for the City Council of the City of Galveston Page 3

4 Attachment A Planning and Development Division 823 Rosenberg, Room 401 Phone (409) [email protected] Galveston, Texas Fax (409) July 13, 2015 Mayor and City Council Members Galveston, Texas Dear Mayor and Council Members: Subject: 15PA-047 Consider an ordinance of the City of Galveston to approve a Financial Incentives for Historic Properties Program pursuant to Section of the Texas Property Tax Code. I. Background/Current situation on the subject in chronological order is as follows: a. 2006: In the Fall of 2006, the Landmark Commission established the adoption of Financial Incentives for Historic Properties as a goal. b and 2008: the Landmark Commission members and Staff reviewed the programs of other Texas cities and developed a proposal. In the wake of Hurricane Ike, financial incentives was not a priority of the Commission. c. 2011: Discussed by City Council, no action taken. d. May 18, 2015: The Landmark Commission adopted a resolution in support of the adoption of Financial Incentives for Historic Properties. e. June 25, 2015: The City Council reviewed the proposal at workshop and provided comments. f. July 6, 2015: The Landmark Commission reviewed the comments of the City Council and modified the proposal to include the following: a. Clarify that the tax benefits are transferable upon sale of the property; b. Removed the requirement of owner-occupied structures from the New Historic Districts, Galveston Landmarks and Neighborhood Conservation District portions; and c. Increased the tax exemption for new Historic Districts and Galveston Landmarks to 35%. Increased the tax exemption for new Neighborhood Conservation Districts to 25%. d. Reduced the timeframe for the tax exemptions for newly designated district to five years from 10 years. II. Analysis: Financial incentives can encourage rehabilitation of existing historic properties and encourage the designation of new districts and Galveston Landmarks. Staff has researched financial incentives for historic properties in 16 other communities. The research focused on Texas cities 1

5 due to the state s tax system the lack of a state income tax causes property taxes to be a larger percentage of an individual s tax burden. A primary purpose of the proposal is to act as an incentive for the establishment of new historic districts, Galveston Landmarks, and Neighborhood Conservation Districts. The City of Galveston has not designated a new historic district since the Lost Bayou Historic District was established in There are currently only 22 Galveston Landmarks and one Neighborhood Conservation District. Another purpose of the exemptions is to discourage gentrification if property values increase after historic designation. Historic Preservation and Residential Property Values: An Analysis of Texas Cities, a 2000 study by the Center for Urban Policy Research at Rutgers University, found that historic designation generally has a positive impact on property values. The property values in a historically designated neighborhood are between 5% and 20% higher than similar nondesignated neighborhoods. The study identifies property tax incentives as a means of encouraging rehabilitation while dampening displacement. III Comprehensive Plan: The following sections of the 2011 Comprehensive Plan support Financial Incentives for Historic Properties: HN-2.3 Create Incentives to Promote Housing Infill, Reinvestment, and Homeownership Positive financial incentives should be provided to encourage investment in infill and restored structures, as well as conversions of rental property to homeownership. Incentives should include tax abatement, particularly for infill development, as well as direct financial assistance to first time homeowners. For tax delinquent structures and vacant lots, the City should institute a program similar to the New Orleans Tax Sale, whereby such delinquent properties are made available for infill development by the City to willing investors or first time homebuyers, at nominal cost. HN-2.7 Leverage Financial Tools and Incentives to Improve Housing Conditions and Promote Neighborhood Revitalization As recommended in the Historic Preservation Element, the City should make use of all available local, state, and federal financial resources and incentives to support reinvestment in older and historic neighborhoods. The City should leverage federal funding sources, incentive programs, and tax credit programs; explore ways to take full advantage of State enabling legislation permitting local tax relief for reinvestment in historic properties; consider creating revolving loan and other financial assistance programs; explore the potential to waive permit fees and expedite reviews for reinvestment projects; and consider expansion of the City s Receivership Program to recycle abandoned and tax delinquent properties. HP-3.4 Leverage Financial Tools and Incentives to Encourage Redevelopment of Historic Properties The City of Galveston should make full use of all available local, state and federal financial resources and incentives in support of, and reinvestment in, older and historic neighborhoods. From federal funding sources, the incentives available include tax credits for historic 2

6 preservation and affordable housing, as well as Community Development Block Grant (CDBG) funds for capital improvements such as the Neighborhood Amenities Program, or to provide a revolving fund and low-interest loan program for qualified rehabilitation efforts. In addition, the State of Texas allows for tax relief aimed at encouraging rehabilitation of historic structures: property tax abatement, which decreases or delays taxes for a fixed time period; property tax credit which decreases the tax bill in proportion to the renovation investment; and property tax exemption which avoids increased assessments due to property improvements. The City s present tax exemption program encourages rehabilitation of commercial structures within designated historic districts. In 1999, the City adopted a tax exemption program to encourage rehabilitation of large-scale (greater than 10,000 square feet in floor area) historic commercial structures that are designated as a Galveston Landmark or are contributing structures in a Galveston Historic District. The City should consider extending this exemption (along with tax credits or tax abatements) to apply to historic residential properties, particularly those in designated historic or proposed conservation districts. In developing a comprehensive set of financial tools and incentives to support historic preservation goals, the City should consider the following: Consider extending the current tax exemption option or add some type of tax abatement or tax credit incentive to residential properties that are rehabilitated or undergo major maintenance/repairs. The duration of the benefit should be for a minimum of five years, but preferably ten years. In implementing this incentive, the community must understand the extent to which the deferred increase in tax revenue will be offset by the general improvement of the surrounding area that will ultimately increase property values. PRESERVATION PLAN The City of Galveston s Historic Preservation Plan also supports Financial Incentives for Historic Properties: Goal: A coordinated system of incentives and benefits stimulates preservation and conservation in Galveston. 29. Provide direct financial incentives to promote preservation of historic resources in Galveston. 29.B. Consider programs to provide direct Financial assistance to property owners. Explore programs to provide direct financial incentives to help assist owners who utilize best practices in property stewardship. Such funding would be most appropriate for projects that undertake sensitive rehabilitation of historic resources that are especially important to the overall community. Convention Center revenues are a potential funding source for direct financial incentives. Programs to provide direct financial assistance should be coordinated with programs currently operated by the Galveston Historical Foundation. 30. Provide local tax incentives to encourage preservation of historic resources in Galveston. 3

7 The City of Galveston has not designated a new historic district since the Lost Bayou Historic District was established in Local tax exemption programs should be established to encourage the establishment of new historic districts, Galveston Landmarks, and Neighborhood Conservation Districts. Tax exemption programs should also address the potential impacts of gentrification if property values increase due to historic designation and rehabilitation. Note that tax exemption programs raise legal issues in adoption process, length of validity and application that should be reviewed to ensure compliance with the Tax Code. To encourage preservation of historic resources with tax incentives, the City should: 30A. Promote the City s existing property tax exemption program for income-producing properties. The City s property tax exemption program for income-producing properties is currently underutilized and should be promoted to owners or potential owners of historic commercial properties. 30B. Complete development of additional local property tax exemption programs. In March of 2011, City staff recommended a tax freeze program to the Landmark Commission. The program would apply to rehabilitation and improvement projects involving at least 50% of the value of individual local landmarks and contributing structures in local historic districts. It would freeze local property taxes at pre-improvement value for a period of 10 years. Before granting a tax freeze, the Landmark Commission would have to certify that the project met the intent of the Design Standards for Historic Properties. Implementing a property tax exemption program that may be used by residential property owners is important, as described in High Priority Actions on page C. Complete development of a tax exemption program to promote local designation of historic resources and conservation districts. In March of 2011, City staff recommended a tax exemption program to the Landmark Commission. The program would reduce local property taxes by 25% for a period of ten years for newly designated owner-occupied individual historic landmarks and structures in newly designated local historic districts. It would reduce local property taxes by 15% for a period of ten years for owner-occupied structures in newly designated neighborhood conservation districts. III. Recommendation: Approval S:\Planning\Planning Division\PA\15PA\15PA-047\15PA-047 RPT.docx 4

8 Financial Incentives for Historic Properties 1. Substantial Rehabilitation for Historic Properties property owner invests at least 50% of value of the building and receives a 10-year freeze on City taxes. The property owner continues to pay City of Galveston taxes on the pre-improvement assessed value for 10 years. The property owner would pay taxes to the remainder of the taxing entities based on the current, postimprovement assessed value. The same benefit is proposed for both residential and commercial structures. a. In order to qualify for the program, the building must be located in a locally designated historic district or be designated as a Galveston Landmark. If located in a historic district, the building must be Contributing or Compatible. Properties that are Non-Contributing may be considered if the proposed work would result in a reclassification to Contributing or Compatible. Properties classified as Intrusion would not be eligible. b. The owner must invest an amount equal to at least 50% of the preimprovement value of the property (i.e. the appraised value of the house per the Galveston Central Appraisal District, not including the land value, before the work begins). Sweat equity, for labor provided by the property owner, may be included in the cost of work. c. Qualifying improvements must extend the life of the building, such as roof, foundation, and siding work; electrical, plumbing, and HVAC systems work; and any other related structural work. Other improvements, such as interior work may be considered upon commitment to competition of structural work. d. Improvements that increase the energy efficiency of the building, while retaining its historic integrity, may also be considered. Such improvements may include: rainwater harvesting, renewable energies, attic and floor insulation, interior window insulation, and radiant barriers. e. The Landmark Commission will review the scope of work in order to ensure conformance with the Design Standards for Historic Properties of Galveston, Texas. The Landmark Commission will also verify that the work was performed correctly before the tax freeze would be granted. f. Upon approval and verification by the Landmark Commission, the request will be forwarded to the City Council for final approval. g. The tax freeze is transferable upon sale of the property. 2. New Historic Districts and Galveston Landmarks 35% tax exemption on City taxes for all property owners in newly designated historic districts and for Galveston Landmarks. Tax exemption would last for a period of five years. Tax exemption for Galveston Landmarks only applies for new designations outside of existing historic districts. The Tax Exemption shall be granted by City Council upon designation of new historic districts and Galveston Landmarks. The tax exemption is transferable upon sale of the property. 3. New Neighborhood Conservation Districts 25% tax exemption on City taxes for all property owners in newly designated NCDs. Tax exemption would last for a period of five years. The tax exemption shall be granted by City Council upon designation of new Neighborhood Conservation Districts. The tax exemption is transferable upon sale of the property. S:\Planning\Planning Division\PA\15PA\15PA-047\Proposed Incentives doc 1