Gov. Andrew M. Cuomo, after his recent veto of the increase in the historic tax credit, had pledged to improve the current program in his 2013-2014 state budget. I would like to suggest some methods to make the program better for the state of New York and the development community:
*The program is scheduled to sunset in 2014. We need to reauthorize the program for a 10-year period. This will allow adequate planning time for some large, complex projects.
*New York State requires that the purchaser of the state credits must also purchase an equal amount of federal tax credits. This bundling significantly reduces the market for both federal and state credits. As a consequence, there are dramatically fewer bidders for the credits. This lowers the prices obtained. The buyers of these credits know that these restrictions have substantially lowered the list of possible bidders. This has allowed them to pay less for the credits. This means a historic project gets approximately 68 cents to 48 cents for every $1 in credits. It would cost the state no more to unbundle, but would provide more equity for difficult development projects.
*The state's behavior has also reduced the value of the credits. Three years ago, Gov. David A. Paterson enacted a law that would limit the amount of tax credits a company could take yearly to $2 million. This severely impacted the return companies received from purchasing credits, because if they purchased more than $2 million they had to take them over multiple years. The new Legislature should exempt this program from any post-tax and budget Legislature changes.
*Because of the lack of confidence and therefore the slim market for the credits, the state should allow the developers to take a non-taxable, refundable credit.
This would work similar to the Empire Zone Real Property tax refund. A developer would get a $1 refund for every $1 in state credits. This would cost the state no more but would provide approximately 32 cents more in equity for the development. The refund would be fully taxable for federal tax purposes but would be offset with first-year depreciation.
*Regionally significant projects should have no cap on them. Before these projects are eligible, they must be approved by the Regional Economic Development Council. Each region would be limited to two projects per year and councils would meet quarterly to approve projects. This would allow the state the power to control the cost.
These changes would cost the state no more than the current program but would be more efficient and produce more equity, which means more projects and more jobs.
Rocco Termini is president of Signature Development in Buffalo. His company recently restored the Hotel @ the Lafayette.