Threatened rehab tax credit has benefitted older cities and towns
The hastily drafted tax bills being debated in Congress right now, like any major tax legislation, create a whole new crop of winners and losers. And one prospective group of losers are older cities and towns across the country, and particularly ones in Pennsylvania.
At risk is something called the Rehabilitation Investment Tax Credit, or, as Washington's plethora of abbreviations go, the RITC. It is eliminated from the tax code in the bill passed by the House and significantly modified in current Senate plans.
It's not surprising if you've never heard of the RITC. But you've certainly seen its results in the scores of old and historic buildings being rehabilitated all over our area.
The redevelopment of places like Pittsburgh's Strip District and East Liberty, the downtown center of Greensburg, and major parts of small historic towns like Bellefonte and Carlisle have all been sparked over the past 15 or 20 years by the RITC.
It's little known but tremendously effective. From Erie to Philadelphia, from Waynesburg to Reading, most people who have dealt with it call it “the engine of renewal.”
In Greensburg, for example, the rehabilitations of the Palace Theater, the two blocks adjacent to it and the railroad station all benefited from the RITC. In Pittsburgh there have been more than 400 rehab projects, large and small, that have benefited from the RITC over the last 30 years, a substantial measure of the credit's importance.
Here's how it works. Since the early 1980s owners of older buildings have been able to earn a tax credit equal to 20 percent of their investment in updating and rehabilitating any building that is individually designated historic or that contributes to a qualified historic district. There's also a tax credit amounting to 10 percent for non-historic structures built before 1936.
In the Senate bill, the 10 percent credit for non-historic structures is eliminated and the 20 percent credit for historic structures is changed so that the credits are phased in over five years. That weakens the incentive of the historic credit, but is still better, in the eyes of preservationists, than the absence of any rehabilitation credits, as in the bill already passed in the House.
That 20 percent credit for historic structures has been especially powerful. To earn the tax credit buildings must be income-producing and must meet federal standards for preserving the historic character of the rehabilitated buildings.
That's a strong incentive to historically sensitive rehabilitation, and developers have been using the tax credits to their — and our — advantage especially heavily in the last 20 years.
In Pittsburgh's East Liberty neighborhood, two prominent buildings on both sides of the famous cathedral-like East Liberty Presbyterian Church had turned into graffiti-covered eyesores. Both were more than 100 years old, and they stood unused — decrepit and decaying — for many years.
But on one side of the church, a richly decorated building that once housed the East Liberty YMCA underwent an award-winning conversion into the recently opened Ace Hotel. On the other side, the 13-story Highland Building, which was empty for 20 years, was converted into new apartments. It was designed as an office building in 1910 by famed Chicago School architect Daniel Burnham. The RITC was crucial to both.
The new apartments are said to be attractive to young people, such as those who work for Google at its Bakery Square offices, a 10 minute walk up the street. Those offices are in a seven-story former Nabisco bakery that had also been vacant before renovation.
Other notable Pittsburgh RITC projects include the Heinz Lofts on the North Side, the Cork Factory in the Strip District, and Downtown buildings such as the Union Trust Building, the Oliver Building, the former Kaufmann's department store, and most of the buildings around Market Square.
Rehabilitation of older structures is not just an esthetic or a historic preservation issue, but it is economically viable too. In effect, it pays for itself.
A study by the National Park Service and Rutgers University says that for every dollar granted through the historic tax credit, about $1.20 in new value is created by construction activity, business taxes, income taxes and state and local property taxes. And that doesn't even begin to measure the value to the community of keeping fine old historic structures intact.
John Conti is a former news reporter who has written extensively over the years about architecture, planning and historic-preservation issues.