Background MUNICIPALITIES AND DOWNTOWN REDEVELOPMENT IN SOUTH CAROLINA: • Over past 30 years, shift focus from remediation to Expanding The Tool Kit development • Need for commercially vibrant, historically distinctive downtowns • Emphasis on quality of life, tourism, livability • Existing governmental mechanisms (TIF districts; GO bonds; utility revenue bonds) geared toward infrastructure and context. Good for setting the table but not putting anything on it • Need to develop “product” 1
Direct Government “Product” Greenwood Cultural Facility • Libraries, museums, performing arts centers, parks, • 1911 Federal Building recreation facilities, as well as government facilities • Jointly redeveloped by City, County, Self Foundation • Some new mechanisms to drive these in addition to with federal, state, local governmental and private traditional tools (like GO bonds) include installment funds. Total Cost of $1,750,000 purchase revenue bonds, hospitality and • 20,118 square feet housing museum galleries, accommodations bonds, new market tax credit conference and recreational facilities, visitor and financing. tourism center, foundation and arts council offices • Development of collaborative and mixed use facilities • Examples: Greenwood Arts Center; Francis Marion Performing Arts Center in Florence; Florence County Museum 2
Greenwood Federal Building/Cultural Francis Marion University Performing Arts Facility Center • 64,000 square foot facility built on site of abandoned motel in downtown Florence • Contains 850 seat main theater, 150 seat “black box” theater, University classroom and office space, nonprofit offices • $30M project, jointly developed by FMU, City, County, and Drs. Bruce and Lee Foundation • First FMU presence in City of Florence in the University‟s 40 year history 3
Francis Marion University Performing Arts Florence County Museum Center • $12M, 28,000 square foot facility • Jointly financed by County, State, and Drs. Bruce and Lee Foundation • Partnership with existing 501(c)(3) Florence Museum • County portion funded with hospitality fee revenue bond 4
Florence County Museum Incentivizing Private Investment • Expanding tax base, creating jobs • Not much in standard municipal tool kit in this regard • Most direct investment incentives at County level and geared toward manufacturers • A couple of tools that are available and that are driving projects in South Carolina • Special source revenue credits (direct subsidy resulting in tax abatement with possibility of leverage) • Federal and state rehabilitation tax credits (largely coordination and facilitation role with some possibility of subsidy through participation) 5
Special Source Revenue Credits SSRC Project: Hotel Florence • South Carolina Code Sections 4-1-175 and 4-29-68 • 53 room boutique hotel and 180 seat restaurant in 1905 building in downtown Florence • Properties given multi-county business park (MCBP) designation are eligible to receive credits against • $4.2M project property taxes (which are “fees” generated by MCBP) • Developer approached City and County for incentives to offset “cost of infrastructure serving the… project” • Centerpiece was 7 year, 85% SSRC • Level of credits and duration flexible • Would generate $533,000 in credits to developer/owner • Credit granted by County Council • Existing TIF created problem • Unlike FILOT, available to any commercial activity • Will generate approximately $1M in state and federal • Can‟t overlay on TIF District historic rehab tax credits • Potential for leveraging through special source bonds 6
Hotel Florence Hotel Florence 7
Rehabilitation Tax Credits Old Florence County Library (Before) • Several Types • Range from 10% to 25% of eligible project expenditures • Federal historic rehab credit (10 or 20%, depending on National Register status) • State rehab credit (10%), follows federal • State retail rehab credit (10%), minimum 40,000 sf • Textile facility rehab credit (25%) • Abandoned building rehab tax credit (25%); authorizing bill died in General Assembly earlier this month 8
Old Florence County Library (After) Old Florence County Library • 1925 County Library with 1970s addition • Removed addition and returned building to original appearance • 24,000 sf leased by Turner Padget law firm • $5M project • Over $1M in tax credits • Largest commercial investment in Downtown Florence in 50 years 9
Key Federal Tax Incentives What is a Tax Credit? • Rehabilitation Tax Credit (IRC Section 47). Credits vs. Deductions A Credit Offsets Tax Liability Dollar for Dollar • New Markets Tax Credit (IRC Section 45D). Deduction Credit Income $100 $100 Less: Deductions (20) - Taxable Income 80 100 Gross tax Due @ 35% 28 35 Less: Credits - (20) Net Tax Due @ 35% 28 15 10
How Tax Credits Deliver Capital Example 1: Historic Tax Credits (HTCs) • Downtown office and retail Project Total, $97. Sample Structure • Federal tax credits not sold, but passed to investors • Multiple phased project with through partnerships General Partner Tax Credit Investor Developer Equity, $19.5 additional HTC equity expected for • Require structuring with partnerships and equity 1% Owner 99% Owner future phases Soft Debt, $10 contributions 99% Credits Project • Generally, partnership • HTC represented key piece of agreements contemplate exit of tax credit investor after financing to meet business Hard Debt, $53.3 compliance period requirements of developer 11
Example 2: Combining New Markets Tax Agenda Credit (NMTC) & HTC Halves Sponsor Equity • Types of Federal Historic Tax Credit • Calculating the Credit Project Total, $19.7 • Renovation of historic hotel • Qualifying for the Credit NMTC Equity, $3.0 • Federal HTCs, State HTCs, Federal NMTCs each with its own investor • Claiming the Credit Tax Credit Fed. HTC Equity, $3.0 Equity, $8.2 • Multiple parties involved • Current Deal Structures State HTC Equity, $2.2 • Low put price to exit tax credit • Questions equity at compliance period Developer Equity, $4.0 • Market lender cooperated with structuring to increase money in Hard Debt, $7.5 first loss position and decrease exposure 12
The Rehabilitation Tax Credits There are Two Types of Federal HTC: 10% & 20% Credit Internal Revenue Code Section 47 13
Important Dates in the History of the The 20% Rehabilitation Tax Credit Rehabilitation Tax Credits Fundamentals • 1976: First federal tax incentives for historic • Tax Aspects Administered by the IRS. preservation (accelerated depreciation/ amortization). • Preservation aspects jointly administered by NPS and • 1978: First federal tax credit for rehab of historic State Historic Pres. Offices (SHPOs). buildings (10%). • Tax Credits = dollar for dollar reduction in tax liability • 1981: Three tiered tax credit (25%, 20% and 15%), (contrast with deduction). including first credit for rehab of older, non-historic • RTC is the most important (in dollar volume) federal buildings. preservation program. • 1986: Current two tiered structure; passive loss limitations imposed. 14
The 20% Rehabilitation Tax Credit Federal Approval Process Statistics • 937 projects approved by NPS in 2011* • 3 Part Application Process – Part 1 – Historic Status • In 2011, roughly 69% of HTC projects were for multi-family – Part 2 – Design Approval housing, 16% for office space, 3% for commercial space* – Part 3 – Project Completion • State and National Park Service Review • Of the 94.5% of Projects receiving Part 3 approvals that used other incentives or publicly supported financing, 48% used state historic – 60-Day Minimum Review tax credits* • Secretary of Interior‟s Standards for Rehabilitation *Source: Annual Report for Fiscal Year 2011: Federal Tax Incentives for Rehabilitating Historic Buildings National Park Service 15
What Types of Buildings Qualify? What Kinds of Buildings Qualify? • The IRS Rules: Depreciable Building Requirement • Almost Anything But a Personal Residence – Must be a “building”. Building is defined as a structure or edifice – Apartments enclosing a space within its wall and usually covered by a roof. – Hotels – Building must be depreciable. Depreciable buildings are generally – Office Buildings those used for nonresidential (i.e. commercial) or residential – Warehouses rental purposes. (See Section 168(e)) – Distribution Facilities – Back-Office Support/Computer/Call Centers – Sports Facilities – Mixed Use of Any of the Above 16
What Types of Buildings Qualify? (cont‟d) What Types of Buildings Qualify? (cont‟d) The NPS Rules: Certified Historic Structure Requirement The NPS Rules: Certified Historic Structure Requirement Option #2 Option #1 Building is located in a Building is listed in the registered historic National Register of district and certified by Historic Places. the Sec. of the Interior as being of historic significance to the district. 17
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