The New Texas Historic Preservation Tax Credit

The New Texas Historic Preservation Tax Credit Presentation for San Antonio Conservation Society and the City of San Antonio Historic Preservation Office Sharon Fleming, AIA, DSHPO Director, Division of Architecture Valerie Magolan, MSHP Tax Credit Programs Specialist October 17, 2014

What s the story? During the recent 83rd Texas Legislative Session (FY 2012-13) House Bill 500 was introduced by Representative Harvey Hildebrand. Enacted revisions to create a Texas Credit for Certified Rehabilitation of Certified Historic Structures, pursuant to Chapter 171, Subchapter S of the Texas Tax Code. This section of the Code pertains to franchise tax.

AND SO. The Texas Historical Commission (the state agency for historic preservation) and the Texas State Comptroller of Public Accounts will jointly administer the new program entitled the Texas Historic Preservation Tax Credit. The Texas Historical Commission developed program rules that are found in the Texas Administrative Code, Title 13, Part II, Chapter 13 Texas Historic Preservation Tax Credit Program, as amended. Application forms and guidance documents are currently under development. The Program is intended to mirror the Federal Historic Preservation Tax Incentive Program with a few exceptions as required by the statute. The state tax credit may be used separately or in conjunction with the 20% federal tax credit for rehabilitation.

PROGRAM SUMMARY: This incentive requires that work to a historic property meet the Secretary of the Interior s Standards for Rehabilitation to qualify for the credit. Certified Historic Structures can include properties that are currently listed in the National Register of Historic Places, individually or as part of a district, designated as Recorded Texas Historic Landmarks or State Antiquities Landmarks. The credit is worth 25% of the eligible rehabilitation costs for the project, which must be at least $5,000 in value to qualify. In the absence of a state income tax, the credit is applied against a business s franchise tax liability. The program goes into effect on January 1, 2015 for properties placed in service on or after September 1, 2013 e.g. rehabilitation projects completed in FY 2014 and later.

What s all the excitement about? The opportunity to leverage the new 25% state WITH the 20% federal tax credits! The Federal Historic Preservation Tax Incentive Program is administered by the National Park Service (NPS), the Internal Revenue Service (IRS) and the State Historic Preservation Offices (SHPO). Since 1976, federal tax credit program benefits include: 38,700 vacant and underutilized buildings revitalized, 2.35 million jobs created and over $106 billion in private investment. 34 states now have various state tax incentives for historic rehabilitation to pair with the federal rehab tax credit program.

What has been the impact of the Federal Historic Preservation Tax Incentive Program in Texas? Since 1979, they have enabled a total of nearly $1.28 billion in rehabilitation investment, supporting over 29,000 jobs and generating $814 million in income. More than $254 million in federal tax credits for Texas individuals and businesses. An average annual investment of just over $75 million over the 2009-2013 period.

Since 1979, over 500 federal historic tax credit projects have been certified in Texas

Why is this program so important to San Antonio? Sheer Number of Historic Resources The Jersey Lillie Saloon/Judge Roy Bean s Opera House in Langtry

Dominance of historic multi-story commercial buildings Baxter Building, Harlingen

Strong Community preservation ethic The High Line, New York City

Experienced practitioners familiar with good preservation practices. Inexperienced surgeon

1978-1990 Certified HTC Projects in San Antonio, 43 projects Dullnig Building 101 Alamo Plaza Louisa Vaughan Building 1141 East Commerce Halff-Duke House 105 Madison Old First National Bank Building 239 E. Commerce Street Caile & Altrete House 526 E. Nueva St. German English School 421 South Alamo St. Bushnell Apartments 240 Bushnell 1148-1150 E. Commerce Street 1148-50 E.Commerce St. South Texas Building 239 E. Houston Street Old Continental Hotel 322-344 West Commerce St. Crockett Hotel 320 Bonham Or 302 E Crockett St Stevens Buildings 315 E. Commerce New Moore Building 110 Broadway Old Frost Bank Building 103 S. Main Castle Properties 109,111 Arcineaga, 335,339 S. Presa North Bridge Building 1149 E. Commerce Albert Maverick Building 515 E. Houston Crockett Block I & Ii 317-323 Alamo Plaza EMILY MORGAN HOTEL (Formerly Medical Arts Building) 705 E. Houston St. Carriage House Of Ike West House 422 King William St. Barr Building 213 Broadway Millrace Building (Brackenridge Park Station, Pump House #2, Or "The One Millrace Borglum Studio") Alexander Hart-Halff House 601 Howard Street Schultze Building 421 E. Commerce Scholz Palm Garden 105-109 N. Alamo Rilling Building 417 E. Commerce Old U.S. San Antonio Arsenal 646 South Main Avenue Monte Howell Leather Company Building 1201-1207 E. Commerce St., & 300 N Center Lone Star Building 126 Gonzalez St Morrison-Quinn House 710 N. Olive Street Old Joske's Building 111-115 N. Alamo St. Anthony Hotel 300 E. Travis St. Chandler Building 110 East Crockett St. Alex Sartor House 217 King William St. Hiram Partee Residence 605 Belknap Place Fairmount Hotel 401 S. Alamo Street Dreiss, Thompson, & Company Building 117 N. Alamo Street Dreiss Drug Store Building 119-121 North Alamo Carl Hilmar Guenther Home 205 East Guenther St. 108 Soledad 108 Soledad Menger Hotel 204 Alamo Plaza Kirkpatrick Building 123 Alamo Plaza

1990-2010 Certified HTC Projects in San Antonio, 20 projects Kirkpatrick Building 123 Alamo Plaza 09/02/92 Certified- $72,000.00 Blue Star Arts Complex 1432 South Alamo Street 04/04/93 Certified- $1,083,500.00 Builder's Exchange Building 152 Pecan Street 01/20/95 Certified- $2,142,150.00 Calcasieu Building 202-214 Broadway 03/25/97 Certified- $2,549,178.00 The Maverick Building 606 North Presa Street 08/27/98 Certified $5,324,554.00 Robert E. Lee Hotel 111 West Travis Street 08/26/99 Certified $5,294,319.00 Navy Reserve Bldg / U.S. San Antonio Arsenal 09/14/99 Certified $7,562,017.00 Burns Building 401 East Houston Street 09/20/99 Certified $3,903,314.57 Southern Pacific Depot 1174 E. Commerce St. 12/13/99 Certified $4,295,000.00 Goad - Riata Cadillac Building 317 Lexington Avenue 07/11/00 Certified $8,900,000.00 Staacke Building (See Stevens Building) 309-315 E. Commerce Street 12/27/00 Certified $1,000,000.00 Stevens Building (See Staacke Bldg.) 315 E. Commerce 12/27/00 Certified $1,000,000.00 1160 E. Commerce Street 1160 E. Commerce Street 09/27/04 Certified $180,943.33 Dullnig Building 262 Losoya 11/30/01 Certified $1,400,000.00 123 Heiman Street (Alton Hotel) 123 HeimanStreet 04/30/04 Certified $550,580.57 138 East Magnolia Avenue 138 East Magnolia Avenue 06/22/06 Certified $84,950.16 Old Bexar County Jail 120 Cameron Street 10/10/06 Certified $3,035,576.00 Alamo National Bank Building 105 South St. Mary's Street 11/14/07 Certified $45,000,000.00 Aztec Theater 104 North Saint Mary's Street 08/09/10 Certified $15,000,000.00 Windows on Main 2500 N. Main Ave 09/23/10 Certified $316,230.00 $108,694,312

Blue Star Arts Complex certified for federal tax credits in 1993, $1.1 million in credits

The Aztec Theater: a multipurpose entertainment center, certified for federal tax credits in 2010, $15 million in credits

HEB s Corporate Headquarters, the Navy Reserve Building at the U.S. San Antonio Arsenal, certified for federal tax credits in 2010, $7.5 million in credits

Before After Heimann Building (formerly Alton Hotel) certified for federal tax credits in 2004, $2.5 million rehabilitation/$1 million new construction $500,000 in federal rehab tax credits, plus 25% New Market tax credits

Between 1990 and 2010, over $100 million expended on historic rehabilitation projects in San Antonio netting almost $20 million in tax credits with an average of about $1 million per project Example shown for 20 projects certified in San Antonio $108,694,312 Total Rehab Costs for Certified Projects, $97,824,881 Total Qualified Rehabilitation Expenditures $19,564,976 Project Credits $978,248 average credit per project Now, add a 25% state historic tax credit to your plans!!!

Who s eligible for the Texas Historic Preservation Tax Credit Program (THPTC)? Private individuals and for-profit companies Non-profit organizations* Government entities* *(not eligible for Federal program) What types of properties are eligible? Only historic buildings that are income-producing qualify for the credit. Structures such as bridges, ships, railroad cars, grain silos and dams are not eligible for the credit. Owner occupied residential properties are not eligible for the credit. What is the minimum project cost? $5,000 or the adjusted basis of the building whichever is lesser.

How is the THPTC credit taken? The state credit is taken against business franchise tax liability as determined by the Texas Tax Code. Credits may be transferred or sold by the property owner to an entity that owes that tax. How does a building become a certified historic building? The building must be listed on the National Register of Historic Places (individually or in a district), designated as a Recorded Texas Historic Landmark or State Antiquities Landmark. A Part 1 (A) is submitted to THC to evaluate its eligibility for historical designation or if it currently has any designations. The building must have a historical designation by the time credit is taken.

How does a project become a certified rehabilitation? A project description usually including architectural plans and specifications, photographs and a narrative description of each feature impacted by the project is developed by the applicant, aka Part 2(B). Rehabilitation work, exterior and interior, must meet the Secretary of the Interior s Standards for Rehabilitation to qualify as a certified rehabilitation. It is carefully reviewed by THC and NPS to determine if its meets the Standards, if not what conditions must be met for it to meet the Standards or if does not meet the Standards. Final Certification of the Completed Work is based on another review of the completed project by THC as Part C or 3 (and by NPS as Part 3).

How are the expenses submitted for the tax credit? The THC issues a Certificate of Eligibility for the state tax credit based on a determination that the project is a certified rehabilitation. An Audited Cost Report is submitted to the Comptroller with the Certificate which documents the project owners and costs. Note that only Qualified Rehabilitation Expenditures (QRE) as defined by Internal Revenue Code, Section 47(c)(2) apply. Costs associates with property acquisition, new construction, parking lots, sidewalks and landscaping are not eligible, see NPS rules. The credit is generally allowed in the taxable year that the rehabilitated building was placed in service/project completion. The Comptroller reviews and issues a Tax Credit Certificate.

Comparison: Federal and State programs

Port Arthur Savings and Loan Lubbock Federal Courthouse 1963 Citizens Bank, Lubbock Bassett Building, El Paso Potential new projects! Port Isabel Yacht Club *Preservation Texas 2014 Most Endangered

How do you apply? Tips for Part 1/A - Evaluation of Significance: Application processing takes 30 days, however new National Register listings generally can take 1 year for reviews and final approval by the State Board of Review and the National Park Service. Plan ahead. Hire a qualified consultant to write the National Register nomination. If the building is already listed on the National Register of Historic Places individually or as part of a district, this part of the application is more of a formality but do it early to confirm the property s status. The property s contributing and non-contributing features will be defined in Part 1/A.

How do you apply? Tips for Part 2/B Description of the Rehabilitation: Communicate with THC about the rehabilitation proposal early in planning stages, particularly if a change in use is proposed. Make sure to submit comprehensive photos of the interior and exterior before work takes place. An completed application is usually reviewed in 30 days, incomplete applications will delay the review process. Only work that was described in the text of the Part 2 narrative or amendments is approved. During construction, any changes to the design or scope will require submission of a Part 2/A Amendment. A review fee is calculated based on the estimated project costs. Fees range between $150 and $9,000.

Part 2 Example: It s all in the detail Describe what is there, what era it s from, and what the condition is. Describe exactly what work is proposed. (That includes materials, methods, etc.)

Part 2 Example: Not enough information

Part 2 Example: Clear, descriptive photos General view

Part 2 Example: Clear, descriptive photos Detail view

Part 2 Example: Unhelpful photos Above: architecture is obscured Right: photo is blurry and does not show architecture clearly

How do you apply? Tips for Part 3/C Certification of Completed Work: Part 3 is intended to show that the project is complete and follows the approved Part 2. Take photos in the same locations so we can clearly see the before and after. The Placed In Service date refers to when the project was completed. This could be but is not necessarily the date of the Certificate of Occupancy. Your tax credits will expire 5 years from this date.

Secretary of the Interior s Standards for Rehabilitation Standard 1: Choose an appropriate use. A property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment. Union Building, Fort Davis, pre-rehabilitation. Jeff Davis County Library, post-rehabilitation.

Standard 2: Preserve character-defining features. The historic character of a property shall be retained and preserved. The removal of historic materials or alteration of features and spaces that characterize a property shall be avoided. Moore and Tyler Groceries, Tyler. Heavy timber framing left exposed in apartments.

Retaining Character- Defining Features Image source: www.seldin.com

Image source: www.huduser.org

Standard 3: Maintain true historical development. Each property shall be recognized as a physical record of its time, place, and use. Changes that create a false sense of historical development, such as adding conjectural features or architectural elements from other buildings, shall not be undertaken. One-room schoolhouse, ca. 1920. After rehabilitation as a residence.

Standard 4: Consider later changes as potentially significant. Most properties change over time; those changes that have acquired historic significance in their own right shall be retained and preserved. Alamo Portland & Roman Cement Works, 1880. Converted to San Antonio Sunken Garden, 1917. People s National Bank Building, Tyler, 1932. Original design and later alterations by Alfred Finn.

Standard 5: Protect distinctive construction and craftsmanship. Distinctive features, finishes, and construction techniques or examples of craftsmanship that characterize a property shall be preserved. First City Building, Beaumont, 1962. Concrete screen wall. Socorro Mission, El Paso County, ca. 1840. Hand-hewn beams, carved brackets, and adobe walls.

Standard 6: Repair rather than replace. Deteriorated historic features shall be repaired rather than replaced. Where the severity of deterioration requires replacement of a distinctive feature, the new feature shall match the old in design, color, texture, and other visual qualities and, where possible, materials. Replacement of missing features shall be substantiated by documentary, physical, or pictorial evidence.

Standard 7: Avoid destructive physical and chemical treatments. Chemical or physical treatments, such as sandblasting, that cause damage to historic materials shall not be used. The surface cleaning of structures, if appropriate, shall be undertaken using the gentlest means possible.

Standard 8: Protect significant archeological resources. Significant archeological resources affected by a project shall be protected and preserved. If such resources must be disturbed, mitigation measures shall be undertaken. Fort Davis, adobe ruins.

Standard 9: Make alterations and new additions compatible. New additions, exterior alterations, or related new construction shall not destroy historic materials that characterize the property. The new work shall be differentiated from the old and shall be compatible with the massing, size, scale, and architectural features to protect the historic integrity of the property and its environment. Rosales House, Austin. Rear addition. Arnold s Bakery (Shoehorn), East 11th St., Austin. Side addition.

Compatible Contemporary Design Above: contemporary, but not compatible Right: compatible AND contemporary

Compatible Contemporary Design Image source: www.jamersonlewis.com

Standard 10: Make new additions reversible. New additions and adjacent or related new construction shall be undertaken in such manner that if removed in the future, the essential form and integrity of the historic property and its environment would be unimpaired.

How to avoid the top errors that can sink Tax Credit projects 1.Do not start work before consulting THC. Starting demolition, or ordering materials before approval can be an expensive mistake.

Any previous alterations by the current owner affect eligibility. This Texas building was ineligible for Tax Credits due to work that was done previously, before consulting THC. Brick was painted Vinyl windows and metal grilles were installed Openings were inappropriately bricked in

2. Do not expose structural materials or systems in a historically finished space, such as a retail space. This includes brick, stone, metal, concrete, or unfinished wood. We know it s popular, but it doesn t meet the Standards. Above: This project in Fredericksburg was unfortunately disqualified because of the exposed stonework.

However, a utilitarian or industrial space (such as a warehouse, barn, or factory), may be an appropriate place to have exposed structure and systems. If it was exposed when you got it, you can keep it that way.

3. You probably don t need to replace your windows. Window replacement is not approvable unless the window cannot be repaired. Repairing and adding storm windows are great options for continued use and efficiency.

4. Rooftop additions are rarely approved. There are only two cases where one might be accepted. First, if it is virtually invisible from the ground. Above: this addition completely overpowers the historic building. Right: The roof deck is still too visible, but with some edits it would likely pass.

Second, if there was historically a similar rooftop structure in that location. The Rogers Hotel building in Waxahachie once had a rooftop trellis. It would be appropriate to rebuild a similar structure in the same location.

5. Saving money does not trump historical and architectural concerns. (That s what the tax credit is for!) This project in Virginia converted a historic stable into retail, with loft apartments above.

The stable originally had wood flooring & wood windows. Developers used fiberglass windows and laminate floors without approval. They had to go through remediation or forfeit their credits.

6. Building code does not trump historic & architectural concerns. Bank building, looking in from main entrance View looking out main entrance

They needed an elevator for code, but the integrity of the building comes first.

THC and the developer worked out a less intrusive location for the elevator.

This electrical access panel on a Virginia property almost cost these owners their tax credit.

7. Local historical review is not the same as tax credit review. CLGs have different priorities than we do. THC and NPS use a whole building approach that prioritizes the interior, exterior, and all sides of the building. Just because something passes local review, doesn t mean it will pass tax credit review. This addition in an alley was approved by the local review board, however the design must be edited to qualify for tax credits.

The Moral of the Story: We want everyone to qualify for this opportunity! Work with us as soon as possible, and keep us in the loop throughout your project.

Now let s preserve Texas!

Resources Valerie Magolan, Tax Credit Programs Coordinator at THC 512-463-3857 valerie.magolan@thc.state.tx.gov Greg Smith, National Register Coordinator at THC 512-463-6013 greg.smith@thc.state.tx.gov Information about the Texas Historic Rehabilitation Tax Credit: http://www.thc.state.tx.us/preserve/projects-andprograms/preservation-tax-incentives Information about the Federal Rehabilitation Tax Credit: http://www.nps.gov/tps/tax-incentives.htm