Historic tax credit faces - and deflects - slings and arrows of critics
This article first appeared in the St. Louis Beacon: Former state Sen. Jason Crowell, a Cape Girardeau Republican, was -- and still is -- one of the sharpest critics of the state's historic preservation tax credit program. In 2011, he compared the program to when his parents gave him a credit card "only for emergencies."
Crowell said he quickly spent money on other things, prompting his parents to cut up the credit card. He told his parents that if they did that, he would run out of gas, get kidnapped and murdered.
“Those are the same argument that these historic developers [are making],” Crowell said. “They’ve got mom and dad’s credit card. They’ve got the taxpayer’s credit card. They’re going to come out with the most outlandish crap just like I did. But it’s time – just like my mom and dad said after I told them those stories – to cut the credit card up."
It's time for developers, said Crowell, to be stripped of “this entitlement mindset" that they have a "God-given right to spend other people’s money for these programs.”
Some lawmakers – such as Crowell and state Sen. Brad Lager, R-Savannah – have long contended that the state's historic tax credit is an out-of-control entitlement that drains the state’s treasury. Lawmakers were successful in placing a $140 million cap on the program in 2009 – a move that the tax credit's supporters say was muted by the economic downturn. Further attempts to pare down the credit have faltered.
According to the Tax Credit Review Commission report, $212 million worth of historic tax credits was authorized in fiscal year 2009 -- which occurred before the cap was instituted. During that same time period, $120 million in historic tax credits were issued and $186 million were redeemed.
By comparison, during the 2010 fiscal year, almost $110 million in historic tax credits were authorized. During that same time period, $107 million in historic tax credits were issued and $108 million were redeemed.
Supporters of the tax credit fear the consequences of any further reduction.
"If the cap is reduced further, we’re going to come up against the fact that the cap won’t be enough," said Jerry Schlichter, an attorney who developed the historic tax credit program in the 1990s. "And so then, are people going to get in line and wait for these buildings when they’re not going to get the credit? No. They’ll go to other states with a friendlier attitude.”
'Doesn't represent my priorities'
In an interview, Lager said he doesn’t “believe you can have an entitlement in a government where you have a balanced budget requirement.”
“When you’re underfunding public education by $600 million, when you’re underfunding higher education by hundreds of millions of dollars, when you’re not funding transportation and you’ve got crowding out the Department of Corrections – all of which are fundamental responsibilities of government – but you’re spending hundreds of millions of dollars a year restoring old buildings, that just doesn’t represent my priorities,” Lager said. “And I don’t believe that represents the priorities of most people in our state.”
Lager contends that cities would be less enthusiastic if they had to contribute local funds to historic preservation projects.
“If anyone wants to argue it was key and fundamental in rebuilding the St. Louis core, I agree completely,” Lager said. “But if the state government is going to keep pumping this level of money, then the local governments should be as well. So it’s easy for everybody to be for it, because it’s somebody else’s money they’re spending.”
During his appearance on a recent Politically Speaking podcast, state Sen. John Lamping, R-Ladue, said the historic tax credit program was “completely out of control.”
"The demand for the size of their program really works against a lot of other things," Lamping said.
Some prominent Democrats also support clamping down on the incentive. Gov. Jay Nixon, for instance, has long sought to lower caps on tax credit programs, including the historic and low income tax credits.
State Sen. Maria Chappelle-Nadal, D-University City, wrote in her April newsletter that “while I might agree that renovating old, abandoned buildings can spur economic development in certain sections of our urban cores, I would much rather use those dollars to help senior citizens and disabled renters stay in their homes and remain independent.”
Chapelle-Nadal added that "we spend far too much time catering to the whims of big business and wealthy millionaires.”
To cap or not to cap?
For most of its existence, the state’s historic tax credit was uncapped. If developers met all the requirements, they would receive the tax credit.
“They don’t have to worry about having some bureaucrat come in and decide they get the deduction or not. They get it, and it’s not subject to a political or bureaucratic decision,” Schlichter said.
Many historic tax credit proponents have long contended that capping the program would have a “chilling effect” on development.
U.S. Bank’s Zack Boyers, for instance, said caps are difficult to manage.
“What a cap says is ‘well if you’re here at the right time, you’re going to get a credit. If you’re not here at the right time, you might not,’” Boyers said.
Still, a $140 million cap was placed on the program in 2009 – with an exception for small projects. But Boyers and others interviewed by the Beacon say that cap has not affected developers much over the last few years, mostly because the languishing economy often stifled rehab efforts.
From 2010 to the middle of 2012, $92 million worth of tax credits were issued for the three downtown ZIP codes. By comparison, $67.5 million worth of credits were issued in 2008 for that same area when the program had no cap.
“Since 2009, really the economy has been such a terrific drag on redevelopment effort that the cap itself as ceiling hasn’t been really been reached,” said Boyers, adding that the cap may become more of an issue if the economy improves and development projects begin to pick up speed.
Lager, though, said the $140 million cap was “not reasonable.”
He and other lawmakers spearheaded attempts to lower the credit's threshold even further – most famously in the 2011 legislative session. Those efforts failed primarily because of disagreements between the House and the Senate.
“Do I want to do away with the program? No. Do I believe that the program is too large and out of control as it is currently is structured? Yes,” Lager said. “But a reasonable cap that is more aligned with what other states do fixes the problem.”
Back and forth
This year, state Sen. Eric Schmitt, R-Glendale, sponsored legislation that included lowering the caps for historic and low income tax credits.
In March, the Senate passed legislation to restrict historic tax credits to $50 million a year; it would have also placed a $55 million cap on low-income housing tax credits.
“I support the historic preservation tax credit. It’s done a lot,” said Schmitt during an episode of the Politically Speaking podcast. “But we’re trying to say ‘what is the right level?’"
Schmitt would like to bring the caps down to "provide opportunity for other incentives to move forward, other ideas that people have had.”
After that vote, State House Speaker Tim Jones, R-Eureka, indicated that the Senate caps were too steep. He told the Associated Press that the caps for the two programs should be between $100 and $150 million. A panel set up by the governor proposed limits in the $90 million range.
DFC Group President Steve Stogel was co-chair of the Tax Credit Review Commission, which recommended lowering the cap. Stogel was a major figure in rehabbing the Old Post Office, which among other things used state and federal historic tax credits.
“It makes sense,” Stogel said. “Because you’ve got to pay for education and you’ve got to pay for interest and you’ve got to pay for state employees and you’ve got to pay for all this stuff. And it’s not just about empty buildings. You’ve got to have educated people that want to live in them or work in them.”
Lager said he would support lowering the cap to $75 million – which he said would still make the program bigger than other states.
But SPACE Architects founder Tom Niemeier said a low cap can be a “deal-breaker” for redevelopment because developers often have to spend tens of thousands of dollars to prepare a tax credit application.
“We’ve always been able to talk to (developers) with a lot of confidence saying ‘you’re going to be able to get your credits,’" he said. "But if all of a sudden now we’re hitting that cap before all the applications have been filled, then we have to tell them ‘we’re pretty sure you’re going to get your tax credits. You might get your tax credits.’
“It’s going to kill a lot of these deals right out of the gate."
Full court press
After Schmitt’s bill passed the Senate, Niemeier joined other supporters of the program on a full-court-press to "save" the credit.
In addition to a bus tour across the state, supporters of the program threw “cold calling” parties. These “parties,” Niemeier said, featured supporters of the program calling legislators and "letting them know exactly what these tax credits mean not just to the St. Louis community, but Missouri as a whole.”
Near the end of session, the House passed legislation to lower the historic tax credit cap to $90 million. Slay was also supportive of any cuts that didn't "decimate" the program.
But Lager scuttled that bill on the last day of session, arguing that caps on historic and low income tax credits were still too high. He gained some attention on the last day when he claimed that House leadership was “corrupt.”
He told the Beacon that proponents of tax credit programs -- including banks and developers – had a disproportionate influence on House leadership.
“I don’t think it – I know it. I’ve watched it. I sat in the room and heard it said,” Lager said. “Many of these guys; they’ve given to me, too. I’m not acting like I’m the purest guy here. They’ve given to me and I’ve always said ‘I appreciate your help and support and I’ll always have an open door. But I still want caps. I’m not changing my position on this.’”
For his part, Jones told reporters on the last day of session that he wasn’t going to respond to Lager’s comments and emphasized that he had sought to improve what in previous sessions had been strained – or even hostile -- relations between House and Senate GOP leaders.
And Jones' predecessor -- House Speaker Steve Tilley, R-Perryville -- said in 2011 that the claims that the House was overly influenced by tax credit recipients "absolutely ridiculous."
Schmitt said in May that he was disappointed by the demise of his legislation. He said on the podcast that calling lawmakers "corrupt" wasn't productive, quipping that even he and his wife disagree some of the time.
During his speech on the Senate floor, Lager expressed doubt that lawmakers would be able to come to a consensus on major tax credit changes.
He repeated that assertion during his interview with the Beacon.
“I’d say today – in late June – I do not see a path to real reform,” Lager said. “Because I don’t not believe that the people that have given the contributions will ever allow the elected officials to negotiate a deal that’s good for the taxpayer."
State Sen. Jamilah Nasheed, D-St. Louis, expects more opposition next year because the legislature “tends to turn the volume up a little louder on issues that they feel can fare well in their districts” during election years.
“I don’t think they look at the human value and the fact that people are living in affordable homes,” Nasheed said. “Think about it. If we didn’t have the tax credits, we wouldn’t have Washington Avenue. We wouldn’t have Tower Grove. We wouldn’t have the development in the Delmar Loop.”
But Niemeier said supporters of the program need to be on guard next session. And while Schlichter said he is still worried about the continuing fight over tax credits, he's willing to compare the value of the credit to any other of the state's incentives.
"The case is there. It’s been made. It continues to be made. And it’s simply a result of some people feeling that because it’s a sizable usage that it should be slashed," he said. "But let’s talk about slashing the homeowner interest deduction for wealthy people who’d buy the same house anyway? Why do we need that? Why do we need some of these other credits that are not productive economically? And if they are, let’s have a one-on-one comparison rather than saying ‘look at this one – just because it’s big, slash it.’"
Beacon Presentation editor Brent Jones contributed information to this story.