ALBANY – It may do little to help long-stalled dreams of rehabilitating large buildings like Buffalo’s Central Terminal or the AM&A’s building.
But Gov. Andrew Cuomo’s new proposal to rework the state’s existing tax breaks for renovating historic commercial structures could kick-start smaller development projects across upstate and especially in the Buffalo area, developers and officials believe.
Some are calling it a “game changer” for the renovation of historic buildings.
Cuomo’s new plan, contained in his 2013 proposed state budget, fails to raise the level of tax breaks from the current $5 million per project to $12 million, as many had wanted. In fact, he vetoed that feature in a bill last month.
But the proposal extends for five years the tax credit for rehabilitating commercial structures listed on a federal registry of historic properties. That credit was scheduled to expire next year.
The extension sends a major message to investors who would be unable to take on projects without the tax breaks, developers and others said.
“His proposal provides certainty that this incentive will be available for a number of additional years, and making the credit refundable will attract new investors and higher investments to historic rehabilitation projects across New York State,” said Daniel Mackay, director of public policy at the Preservation League of New York State.
The new measure also changes the state’s tax code in such a way that developers say it will lure more out-of-state investors, who before could not share in the tax breaks.
“There will be a boost in the investment amount and, I think, more significantly, investors and syndicates waiting on the sidelines are going to be more interested in creating the infrastructure they need to invest in New York,” said Steven Weiss, a Buffalo lawyer who advises developers on tax matters and who serves as a board member of the Preservation League, the lead group that has pressed for the historic tax credit.
The state five years ago began offering tax breaks to developers who rehabilitate historic structures listed on the National Register of Historic Places. An estimated 15,000 or so commercial structures are on the registry and are located in financially distressed areas.
Using income statistics by federal census tracts, the program targets economically troubled areas of the state, essentially making this effort an upstate-dominated program. In Buffalo, for instance, about 90 percent of the city’s land area qualifies.
Buffalo developer Rocco Termini got $5 million in state tax credits – the current and proposed ceiling – for his $45 million renovation of the Hotel @ the Lafayette.
“This will get more people interested in doing additional projects,” he said of the new Cuomo plan.
The developer and lawmakers say they hope to persuade Cuomo during budget negotiations to raise the cap beyond the $5 million level as a way to encourage development of larger structures.
Sen. Mark Grisanti, a Buffalo Republican, successfully got through the Legislature last year a tax credit bill with the higher ceiling, but Cuomo vetoed it in December.
Now Grisanti said he would like to raise the cap more slowly, by $2 million or so a year, instead of trying to double it all at once.
The governor’s budget does not extend an existing tax credit program for rehabilitation of historic residential structures, but such a plan could be part of budget amendments the governor can make within 30 days after submitting his 2013 budget.
The governor’s budget division puts the price tag for Cuomo’s commercial structure tax credit plan at $20 million annually in the first couple of years before it grows to $30 million in the final three years. Lawmakers insist the program is revenue-neutral because it creates short-term construction jobs and permanent jobs in structures that are renovated.
Cuomo’s plan to extend the program through 2019 – which the Legislature is all but certain to embrace – is crucial, backers said.
“These projects often take years to plan and finance, and if a developer and investor aren’t confident the program will be there, they won’t put that time in. So right now, they know the program is good through the end of 2019, and they can have the confidence the funding will be there when their project ends,” said Assemblyman Sean Ryan, a Buffalo Democrat.
The new proposal will allow developers to take the full maximum tax credit as a tax refund. That means if a developer spends $1 million on an eligible project but the developer’s business only has a total state liability of $200,000, the state will provide $800,000 in a tax refund in a single year to cover the completed rehabilitation work. That, the theory goes, will make more money available for additional projects.
The plan also lifts restrictions to allow developers to share the tax breaks with investors, even if those investors do not have a New York tax liability. There is, for instance, a large network of funding sources operating outside New York State – including banks, utility companies, syndicates of investors and companies such as Chevron and Sherwin-Williams – that invest in real estate ventures such as historic rehabilitation projects.
But many, operating outside New York’s borders, do not have New York tax liabilities, so the credits could not go to them. The new plan makes it easier for a developer in Buffalo, for instance, to share the tax breaks with those investors, which backers say will encourage the flow of out-of-state investment dollars.
“It’s really an elegant solution to a bad problem. By blocking out non-New York investors, we’ve been telling the rest of the country not to invest in New York, which is not a good message,” said Weiss, the Buffalo lawyer.
The credit’s restriction to economically struggling areas makes most of upstate available for the program. It becomes less available in areas south of Albany, given the greater wealth of many downstate communities. In the past of couple years, about three-quarters of the projects that qualified for the credits were from upstate, according to the Preservation League.
The 5-year-old program got off to a rocky start and saw changes early on that delayed its implementation.