Defending the Historic Preservation Tax Credit

Article excerpt

I. Introduction

Historic preservation is not merely "sav[ing] old buildings in order to save old buildings." (1) The preservation of historic buildings is not an end in itself, but a means to accomplish so much more. (2) The end result of historic preservation includes "downtown revitalization, neighborhood stabilization, affordable housing, luxury housing, heritage tourism, education, and ... economic development." (3) Missouri has been a beneficiary of historic preservation, as investors have spent billions of dollars redeveloping many of Missouri's historic buildings. (4) But this investment did not appear out of nowhere; Missouri's historic preservation tax credit stimulated much of this private investment. (5)

An historic preservation tax credit is a tax incentive used to encourage the redevelopment of historic buildings. (6) This income tax credit is calculated as a certain percentage of redevelopment expenses. (7) Most historic preservation statutes require that the property being rehabilitated be an historic building. (8)

Although this Comment promotes state historic preservation tax credits based on their ability to stimulate redevelopment, the preservation of historic buildings impacts society in many other ways. (9) In the long run, preservation has an "educational, environmental, cultural, aesthetic, historical, and social impact." (10) In the short run, the people who are going to make historic preservation happen (11) are much more interested in the economic value of historic buildings. (12) By using the platform of economic impact, advocates of historic preservation are able to make a more persuasive argument for an historic preservation tax credit. (13)

An historic preservation tax credit is effective only if it gives people enough of an incentive to pursue redevelopment. It is important to structure an historic preservation tax credit to maximize its effectiveness as an incentive. one of the main reasons that Missouri's historic preservation tax credit has been so successful is its structure. (14) Yet, there are many who argue that Missouri's historic preservation tax credit program should be significantly reduced in size because of the increasing cost of the credit and the need to balance Missouri's budget. (15) If the General Assembly votes to reduce or even eliminate the historic preservation tax credit program, there will be a significant decrease in the amount of private investment in historic buildings. Additionally, there will be lost tax revenue, less redevelopment, and more deteriorating old buildings.

Part II of this Comment discusses Missouri's historic preservation tax credit, and supplementing the discussion is some background on the federal rehabilitation tax credit. Part III explains how an historic preservation tax credit statute can be structured and outlines the advantages and disadvantages of these structural aspects. In addition, it discusses how historic preservation tax credits can be used as a redevelopment tool and the economic impact that these credits have had in Missouri. Part III of this Comment will review the recommendations made by the Tax Credit Commission appointed by Missouri Governor Jay Nixon. Finally, in Part IV, this Comment proposes changes to Missouri's historic preservation tax credit providing supporting arguments and debunking potential criticisms. The Comment concludes that reinvigorating Missouri's historic preservation tax credit will provide economic benefits to the state for years to come.

II. Legal Background

A. The Initial Use of Tax Incentives to Encourage Preservation of Historic Structures

The use of tax incentives to preserve historical buildings and discourage the demolition of older buildings began at the federal level in 1976. (16) Congress eliminated provisions of the tax code that "favored new construction over rehabilitation" and created new tax incentives that encouraged the redevelopment of older buildings. …