Preservation

Preservationists and Developers Say Pennsylvania Needs to Boost its Historic Tax Credits

February 21, 2024 | by Kimberly Haas

Major renovations began at F. A. Poth Brewing Company’s Cold Storage Facility in 2018. After six years the project, lead by the building’s owners MM Partners, is now complete. | Photo: Michael Bixler

The financing of a commercial development project is often a patchwork of funding sources: equity partners, bank loans, tax credits, and more. When it comes to the rehabilitation of historic buildings, the federal government and most states offer a special tax credit. While the Federal Historic Preservation Tax Incentives program provides a 20 percent income tax credit, there is a wide range among the states in their programs.

The Commonwealth of Pennsylvania allocates up to $5 million per fiscal year for its Historic Preservation Tax Credit program, which is administered by the Department of Community and Economic Development and the Pennsylvania Historical and Museum Commission. The maximum credit is 25 percent of qualified expenditures with a cap of $500,000.

According to Mindy Crawford, executive director of Preservation Pennsylvania, a private nonprofit preservation organization, the requests to the program each year are roughly eight times the amount of funds available, resulting in a highly competitive program.

Over the years, David Waxman, the founder and managing partner at MM Partners, a real estate development company in Philadelphia, has received three of the credits for rehabilitation projects, including the former F.A. Poth Brewing Company at 31st and Jefferson Streets in Brewerytown, which was completed in 1891 and designed by architect Otto C. Wolf. “$250,000 isn’t going to make or break a multi-million-dollar project,” he explained, “but it can be helpful, like in the case of our Bornot Lofts development, where $250,000 really helped when some things ended up costing more than budgeted.”

By contrast, each of the states surrounding Pennsylvania allocates more funding, ranging from Delaware’s $8 million, to Ohio, currently at $120 million, to the programs in New York and West Virginia, which have no cap at all.

Another difference between Pennsylvania and those other states is the method of selecting awardees. While programs such as Ohio’s rank each applicant on certain criteria, including the project’s potential economic impact and prioritizing buildings that are currently not in use, Pennsylvania chooses which projects to fund via a random number generator.

The former Metropolitan Opera House at 558 N. Broad Street. | Photo: Michael Bixler

The limited funds, the stiff competition, and the random selection method can be disincentives, said Robert Powers, president of Powers & Company, a Philadelphia-based consulting firm that specializes in the preservation and rehabilitation of historic buildings, including The Met Philadelphia and Philadelphia Electric Company’s Delaware River Generating Station, currently being transformed into The Battery residential and workplace development. “Developers ask, ‘Is it worth it, to get $50,000 or a $100,000 versus all the effort I have to put in?’”

Powers was speaking in October at an event he was moderating at the Uptown Knauer Performing Arts Center in West Chester. The program, “Strengthen the PA Historic Tax Credit,” signaled the launch of a year-long effort sponsored by Preservation Pennsylvania and the Preservation Alliance for Greater Philadelphia to increase the tax credit in the next budget year. The panel discussion included representatives from the historic tax programs in New Jersey, Ohio, and the federal government.

“Pennsylvania tends to be one of the biggest users of the federal tax credit,” noted Crawford. “Imagine what we could do if we had more money.”

“If the state credit were 15 percent, and the federal credit comes in at another 20 percent, you put in 10-15 percent cash, and you could more easily go to a lender for the 55 percent financing to balance it,” said David Waxman.

The arts center in West Chester is an example of the effectiveness of the Historic Tax Credit program. Its building was a former National Guard Armory, designed in 1916 by Philip H. Johnson, who served for 30 years as architect for the Philadelphia City Department of Public Health and Charities, designing many hospital buildings, fire houses, and recreation centers. It housed the West Chester National Guard unit for nearly 100 years, as well as providing space for community dances, conventions, and fairs. The unit moved on to a new facility in 2012 and the building was put up for sale. In 2015, it was purchased by for-profit Uptown! Bravo Theatre LLC. It was renovated into the performing arts center, which is operated by a nonprofit organization. According to board member A. Roy Smith, the total project cost of $5.2 million received a historic tax credit from the state.

With the legislated definition of “historic” clocking in at 50 years, David Waxman sees a potential for the Historic Tax Credit program to be part of the current conversation about converting office buildings into residential properties. “With companies in B and C class offices fleeing to A Class properties, any office building pre-1973 would qualify,” he said.

The conversion of Philadelphia Electric Company’s Delaware Generating Station into residential and event space is nearing completion. The industrial behemoth underwent facade improvements in 2022-23. | Photo: Michael Bixler

Pennsylvania state representative Ben Waxman, whose district includes much of Center City, said commercial real estate is in less demand in Center City today, resulting in rapid devaluation. “I’m concerned about ‘zombie’ buildings, where the owner or operator walks away from it,” he explained. “I’m trying to explore different tools to encourage conversions, to make these buildings more productive, valuable assets.”

Another use for an increased historic tax credit would be to expand the program to include owner-occupied buildings. The current program only funds income-producing properties, but a bill submitted to the state legislature, sponsored by Joe Ciresi (D-Montgomery) and R. Lee James, (R-Venango) would change that.

With the preservation organizations setting a goal of an increase to $50 million per year, the next step is to figure out how to lobby for that increase.

Pennsylvania Senator Nikil Saval, whose recent legislative success established the Whole Home Repairs Program, which funds home repairs and weatherization for residents, pointed out, “Often, legislation gets done during the budget process. The historic tax credit is often seen as a budget discussion. Legislators must be made clear on the benefits. Advocacy needs to create links between the immediate economic benefit and the long-term community improvement, maintaining the social fabric.”

Aidita Milsted, director of historic preservation at the New Jersey Economic Development Authority, added, “Preservationists have to show that rehabbing old buildings is green, rather than tearing them down and putting all that material in the landfill.”

The Preservation Alliance and Preservation Pennsylvania are reaching out to like-minded organizations to build a statewide coalition to make the case for an increase in the Pennsylvania Historic Tax Credit program. Within the state legislature, a bill is being drafted and preservation-minded members of the General Assembly are being sought to sign on to it, with an aim to introducing it after the current year state budget is finalized.



Tags:    

About the Author

Kimberly Haas is a staff writer for Hidden City Daily. She is a long time radio journalist, both nationally and locally with WHYY and WXPN. In particular, she enjoys covering Philadelphia’s neighborhoods, culture and history, as well as urban sustainability and public policy, in both print and audio.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.