Michael Backman: Texas’ New Historic Preservation Tax Credit Program

Michael Backman
Michael Backman

Many developers rank “historic preservation” up there with “public hearing” or “tree ordinance” on their list of professional headaches. The State of Texas hopes to change that.

The State Historic Preservation Tax Credit Program , launching this month, will alter the financial dynamics of preservation. Through the state program, developers will be eligible to receive a Franchise Tax credit equal to 25 percent of their rehab costs. This credit is in addition to the Federal Historic Tax Credit of 20 percent of rehab costs.

Assuming the credits can be sold at 85 cents on the dollar, these programs represent a potential equity infusion of 38 percent of rehab costs (inclusive of developer fees). Of course there are strings, but far fewer than those attached to other public funding such as CDBG/Home grants, Low Income Housing Tax Credits, and New Market Tax Credits.

Coupled with local preservation incentives—such as the City of Dallas Historic Property Tax Exemption—these credits should jump start statewide preservation efforts. It’s about time.

According to a report issued in June by the Historic Tax Credit Coalition, of the $4 billion in Federal Historic Tax Credits issued from 2001 to 2013, less than 4 percent went to Texas projects ($149 million). On that scorecard, we rank behind 13 other states including, remarkably, Rhode Island. Our total is less than half the credits claimed in Louisiana and only a fifth of those claimed in Missouri. Not surprisingly, the states that rank ahead of Texas are among the 35 that already had State HTCs.

This matters because our underutilization of the Federal HTC program has cost us jobs.  A single dollar in Federal credits leverages $4 in additional direct expenditures – which in turn spurs twice as much indirect economic activity. Expect Texas developers reverse course in January and finally start making this multiplier effect work in the Lone Star State’s favor.

Michael Backman is vice president at Mason Joseph Co. Multifamily Finance. Contact him at [email protected]

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