Gov. Scott Walker’s line-item budget veto this week to Wisconsin’s historic tax credit program, reducing the per-project cap from $5 million to $500,000, could jeopardize dozens of real estate developments.
“We have several projects on the drawing board in different phases that will be directly affected to the point of being infeasible by this and in complete suspension right now,” said Sig Strautmanis of General Capital. “I can promise you there is one project we are working on right now in particular that absolutely depends on state historic tax credits and in all likelihood will come to a screeching halt unless the governor comes to an understanding about the potential impact of this.”
In his veto language, Walker said he objects to continuing a program with almost no limitation on the amount that can be awarded each fiscal year.
“The $5 million per parcel limitation does little to curtail the fiscal effects of this program, which has swelled to cause an annual tax revenue loss exceeding $60 million, making it one of this state’s most expensive economic development incentives,” Walker said. “Reducing the per parcel cap to $500,000 per parcel leaves unchanged the incentives for many of the projects in smaller communities across Wisconsin, while reducing the state’s fiscal exposure on larger projects.”
The change goes into effect on July 1, 2018.
Since 1989, the state has offered a historic tax credit on qualified projects. In 2014, Wisconsin modified its program to increase the amount awarded from an aggregate cap of 5 percent to 20 percent.
During the current budget cycle, the state Legislature voted on a per-project cap of $5 million.
The $5 million cap would not have been detrimental to Milwaukee-area projects.
Of the $177.6 million awarded to Wisconsin projects since fiscal 2014, 54 percent, or $96. 2 million, was awarded to Milwaukee projects, according to the Wisconsin Economic Development Corp., which awards the credits.
Only three projects received more than $5 million in historic tax credits, according to WEDC.
“What I am confused about is that the governor, who has a very strong jobs creation agenda, did this,” Strautmanis said. “To me, the state Historic Preservation Tax Credit is a jobs creation program.”
From 2014 to 2016, 15,680 full-time equivalent construction and operations jobs were created by the historic tax credit program, according to a study by Baker Tilly.
These same projects yielded more than $92.4 million in construction taxes and more than $35.2 million annually in taxes from operations, and created more than $16 million in new property taxes, according to the study.
Tracy Johnson, president and chief executive officer of the Commercial Association of Realtors Wisconsin, said after working hard to educate legislators about the importance of the tax credit, the development community was stunned by Walker’s decision. “We advocated hard for this issue and it was a coalition effort with preservationists, community development, the League of Municipalities and others,” Johnson said. “We are a well-oiled machine and we have the people and the system. We will continue to educate the people who make the decisions.”
Joshua Jeffers, president of Milwaukee-based J. Jeffers & Co., who has spent much of his career specializing in converting historic buildings, predicts the decision will prompt many developers to move projects into the pipeline as quickly as possible. “These projects typically involve a lot of layers of financing and the state historic preservation tax credit program is often the last piece of the puzzle that makes the project feasible,” Jeffers said. “This will have a huge, huge, huge impact on all projects.”
When Jeffers converted the Mackie Building, 225 E. Michigan St., from offices into apartments he received $2.5 million in historic tax credits for the $14 million project. He also restored the Mitchell Building, 207 E. Michigan St., using $1.6 million in historic tax credits for the $8 million project.
He and developer Melissa Goins of Maures Development Group LLC are transforming the historic Garfield Avenue Elementary School in Milwaukee’s Bronzeville neighborhood into apartments using $1.3 million in tax credits for the $16.9 million project.
“It would have been impossible to do these projects without the credits because we would not have been able to leverage other sources of financing,” Jeffers said. “With historic rehab, you are working with old world building materials, expensive products and you really don’t have as many tradespeople who know how to do the work. It is very costly.”
This article was originally published by BizTimes Milwaukee.