Tax credit bill could boost city project

ALBANY — A tax credit bill under consideration by Gov. David A. Paterson could provide a big boost to a major renovation program in downtown Watertown. That is, if the governor signs it.

The bill passed the Legislature in June. It is designed to improve commercial and residential tax credits available under the state's historic rehabilitation tax credit program.

One local property it could affect immediately is downtown Watertown's Franklin Building, which Neighbors of Watertown Inc. is redeveloping into apartments and commercial space.

Gary C. Beasley, Neighbors' executive director, said the legislation would help the Franklin project in two ways.

First, it would boost the tax credit to 10 percent of eligible rehabilitation costs, to a maximum of $5 million — a significant increase over the current 6 percent with a $100,000 cap.

Second, it would allow bifurcation of the tax credit, meaning that the credit can be shifted to the members of a development partnership most able to use it. Mr. Beasley explained that many such partnerships are composed of people and entities with national tax liabilities. Because current law does not allow splitting of the credit, partnerships with out-of-state investors may not take advantage of available credits.

"That's the key ingredient in this bill that allows us to use the credit at all," Mr. Beasley said. He said the new bill would create a $376,000 tax credit for the Franklin project.

Daniel Mackay, director of public policy for the Preservation League of New York State, said there is broad political support for this bill across the state because of its potential for local economic stimulus.

"At the centers of all of our upstate communities are downtown commercial districts and older historical neighborhoods, all of which will qualify for this program," he said.

Incentives in the new bill, Mr. Mackay said, can be a net revenue generator for New York. Refurbished residential and commercial properties would boost local property tax rolls while commercial tenants would generate sales taxes for localities and the state, but the current program is not used because its incentives are so low. The new bill is "taking an underperforming program and recalibrating it to be effective in upstate communities in particular," he said.

Commercial incentives include:

■ Increasing the state credit value to 50 percent of federal credit value.

■ Placing a $5 million cap on qualified rehabilitation expenditures.

■ Allowing for the transfer of credit within business partnerships to increase investor flexibility and attract out-of-state investment.

Residential incentives include:

■ Increasing the cap on qualified rehab costs to $50,000 per project.

■ Offering the option of taking the credit as a rebate at income levels of less than $60,000.

■ Extending the residential program to historic housing in distressed census tracts at or below 90 percent of the state median income.

Any owner-occupied residential properties or any income-producing commercial properties listed on state or national historic registers are generally eligible for the state rehabilitation tax credit.

States with similar programs — Maryland, Missouri and Rhode Island — have reaped economic benefits, Mr. Mackay said. In Maryland, for every dollar of tax credit earned, projects generate an average return to the state of $1.02 during the first year after their completion and $3.31 within five years.

Economic and tax gains in Missouri have offset "much if not all" of that state program's $74 million cost. In Rhode Island, every $1 million in state tax credits results in $5.35 million in total economic output, as measured through construction period taxes, real property taxes and post-construction sales and income taxes. All figures come from data supplied by the Preservation League.

One potential roadblock to getting the governor's signature is the estimated $35 million annual cost of the program.

"It's unfortunate that the state's budget and fiscal situation is what it is," Mr. Mackay said. But he said the real benefits come before the costs; as investors and developers see the improved credits and incentives, more projects will be spurred, meaning that jobs are created before the credits — the cost to the state — kick in.

"We're looking at costs hitting in the out-years with the stimulus hitting now," Mr. Mackay said. "We need incentives now to attract investment and launch projects now. The promise of the program is to put it in place now to deliver future benefits."

A spokesman for Gov. Paterson said no decision has been made as to the bill's fate."The governor will be acting on it by next Friday," Morgan Hook said. "It's on his desk. He is soliciting input from stakeholders to make his decision."