States Create Tax Incentives to Preserve Inner Cities

Article excerpt

Real estate was booming all over the country until 1986, with more space built in the 1980s than the rest of American history combined.

That included more than 4 million square feet of office space and thousands of homes in Oklahoma City.

Then came the Tax Reform Act of 1986, which all but eliminated real estate as a tax shelter. The annual depreciation deduction was reduced while the capital gains tax rate was increased to a maximum of 28 percent.

Individual tax rates were reduced, but many real estate transactions had been structured to lose money for tax purposes, and real estate losses no longer could be used to offset earnings from other sources. The result of all this was a reduction of real estate value by 15 percent to 20 percent.

Now, with real estate in a long hard recession on the East Coast and in Southern California as well as in Oklahoma and other energy-producing states, opportunities are growing in historic preservation, according to a report by Donovan Rypkema in the Historic Preservation Forum.

Some states already have reacted by providing their own tax incentives for preservation to spur the revival of old inner-city neighborhoods. It's something for Oklahoma to study, with inner-city neighborhoods needing help to avoid further demolition and deterioration in Oklahoma City, Tulsa and other communities, and to make a comeback.

A variety of approaches have been developed by Arizona, Colorado, Georgia, Kentucky, Illinois, Iowa, Louisiana, Maryland, Mississippi, Montana, New Mexico, North Carolina, Oregon, Rhode Island, South Carolina, Washington and Wisconsin. Others are being considered by Florida, Indiana, South Dakota and Virginia. Texas has had a local tax relief option since 1977.

Opportunities listed by Rypkema range from the current buyer's market with low real estate prices to low rents, liquidation by the Resolution Trust Corp. of properties formerly owned by failed savings and loans, bank-owned property through foreclosures, a willingness to donate property and available expertise by architects, engineers and agents needing work.

"If preservation organizations are aggressive in acquiring properties when everyone else is trying to sell them," said Rypkema's report, "they will be in an excellent position to reap the benefits when the market does improve. Money is to be made through the warehousing of properties in a down market." The real estate recession will be "long and deep," Rypkema said, creating opportunities for preservation organizations willing to take the risk.

With development pressure down from the 1980s, public and non-profit organizations can take advantage of the times with two goals:

Preserve historic properties and neighborhoods with aggressive acquisitions and programs.

Provide for the long-term viability of preservation organizations through donations to build endowments. Historic Preservation which has been successful in the preservation of Heritage Hills in Oklahoma City, has gained its strength partly because of early donations.

Here is a look at how a few of the states have tried to take advantage of preservation opportunities.

In Texas, at least 18 cities and towns have established tax-incentive programs for preservation. They followed a 1977 state constitutional amendment allow local governments to provide tax relief to encourage preservation of cultural, historical and natural history resources.

San Antonio has one of the most successful programs. Owners of historic residences, including rented structures, can have their property taxes frozen for 10 years at pre-rehabilitation levels. Commercial property owners are exempted completely for five years if they undertake major work on an historic building.

Consider what that might mean to a property such as the Skirvin Plaza Hotel, which is closed in downtown Oklahoma City. …