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Historic preservation projects to get financing boost with reinstated tax credit

BY Sunday, January 17, 2021 12:35pm

Owners of historic homes and buildings will soon be able to apply for funding through a newly reinstated state tax credit for historic preservation projects that was eliminated in 2011 as part of former Gov. Rick Snyder’s tax reform strategy.

Senate Bill 54 was sponsored by Sen. Wayne Schmidt, R-Traverse City, and signed into law by Gov. Gretchen Whitmer on Dec. 30. The new legislation amends the state Income Tax Act to provide a historic preservation tax credit of up to 25 percent of qualified costs to rehabilitate historic buildings, structures and sites that are certified by the State Historic Preservation Office.

The funding tool’s reinstatement is beneficial for communities across Michigan, but especially for the city of Kalamazoo, which has the highest number of historic buildings in the state per capita at 2,060 properties. About 15 percent are commercial buildings while the rest are residential, said Sharon Ferraro, historic preservation coordinator at the city. Before the tax credit was eliminated in 2011, property owners in Kalamazoo spent more than $3.6 million to rehabilitate historic buildings.

The reinstated historic preservation tax credit is geared toward residential uses and smaller commercial buildings, which fills a gap since homeowners can’t apply for the federal historic preservation tax credit, Ferraro said.

“With an older building, you need a little more to fix it up,” Ferraro said. “Having a tax credit available to fit into your financial plan is quite often the thing that makes it possible for a business or commercial investment.”

Two historic preservation redevelopments in downtown Muskegon — Amazon Apartments and Artworks Apartments — likely wouldn’t have happened if not for the federal and state historic tax credit before it was eliminated in 2011, said Jamie Pesch, the city of Muskegon’s historic district director. 

“We don’t have a ton of commercial (historic) buildings, but the ones we do have have definitely seen their struggle in the city,” Pesch said. 

‘Tangible tie to the past’

Before property owners or long-term lease holders can apply to use the new tax credit, the State Historic Preservation Office needs to conduct a formal rulemaking process, which will include public comment over the next several weeks. 

“These are buildings that are already here and hooked up to infrastructure,” Ferraro said. “It’s more economically responsible and more sustainable to preserve what’s here than build new.”

Pesch called historic preservation a “tangible tie to the past.”

“These are probably the most visible things that exist in the community that people can point to,” Pesch said. “All these buildings have stories and authenticity.”

Since 2011, Pesch said a number of historic homeowners have asked the city about incentives for making repairs that can be costly for older homes.

“There was nothing to fill the gap when it went away,” he said. “The state was really the main source of additional funding that was available for those people. I think we’re going to get a lot of interest from them.”

The city of Muskegon has more than 400 properties across its historic districts in and around downtown that span a mix of residential and commercial with just a few vacant lots, as well as a historic park, Pesch said. 

With trends toward remote working and downtown office buildings emptying, Ferraro said there could be potential for the tax credit to help renovate office buildings into residential uses in some instances. Regardless of how the tax credit is used on the commercial side, “It’s another possible funding opportunity on the plate for businesses,” she said. 

‘Place matters’

Under the historic preservation tax credit, the total of all pre-approved credits could not exceed $5 million in a calendar year, and taxpayers couldn’t claim a credit of more than $2 million for a single property.

When Sam Cummings, managing partner at CWD Real Estate Investment Inc., redeveloped a building at 25 Ionia St. SW in Grand Rapids several decades ago, he leveraged the site’s historic status to help make the project economically feasible, he said.

Cummings said he is in favor of the state tax credit, and of historic preservation in general. But he understands the logic behind its elimination in 2011, he said.

“The former governor was an accountant, so he was against having an unquantified tax credit out there, having an unquantifiable thing on the balance sheet for the state of Michigan,” Cummings said. “My hope is that it’s wildly successful now and in the next year and budget cycle we will be armed with data from its success and the legislature will increase the amount.”

Having data about how the tax credit is used — particularly now with a cap — will benefit the program long term, he said.

“Place matters and good design matters,” Cummings said. “Good architecture is lasting value and there’s no question historic properties and districts provide our placemaking. Preserving history is a valuable thing.” 

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