Here & Now

Sharp Cuts To Historic Rehabilitation Tax Credit

Frederica Freyberg:

In tonight’s closer look, one of Governor Scott Walker’s budget vetoes has some developers scrambling and unsure whether their projects can go forward because the governor put a $500,000 cap on the historic tax credit. It had been set at 20% of the total project cost. The legislature’s budget put a $5 million cap on the credit program for rehabbing historic buildings. But Walker scaled that back, saying he objects to continuing this program with almost no limitation on the amount that can be awarded each fiscal year, saying the program has grown to cause an annual tax revenue loss exceeding $60 million. We check in now with Matthew Jarosz, Director of the UW-Milwaukee Historic Preservation Institute, which describes itself as dedicated to the preservation and adaptive re-use of historic buildings. Matthew, thanks very much for being here.

Matthew Jarosz:

Thank you.

Frederica Freyberg:

So what was your reaction when you saw that veto of the governor’s?

Matthew Jarosz:

Well, we were quite surprised. We suspected through several months of interaction with some of the legislators that there might be a desire to cap the program. So we collected a lot of data over the summer, really since April or so, on all of these projects, over 118 projects around the state, to really get a sense of what they meant and perhaps what this cap might mean. And we also did it in the context of programs around the country and other states. And really a lot of the successful programs were uncapped. And we had been, as you described, uncapped for three years. So we were hoping very much that the program would continue and some of the economic numbers that have been created and concluded by Baker Tilly show that it’s a tremendously successful program. So it caught us by surprise quite frankly a week and a half ago when we saw the $500,000 project cap.

Frederica Freyberg:

What does it do to the kinds of projects that are ongoing now or had people wanted to start?

Matthew Jarosz:

Well, when the program for the last couple years had no capping restriction, clearly there was a flood of projects of a lot of kind of pent-up possibility of reusing historic buildings that hadn’t happened for 15 years. We tracked the projects for 15 years. And there were something in the average about 11 per year that were being done because the credit at that time was down at 5%. So once it was elevated to 20%, there was sort of this pent-up demand that hit us.

Frederica Freyberg:

In fact, since 2014, I understand, about $177 million went out to Wisconsin projects through this program, more than half of those in Milwaukee. Were developers just kind of gobbling up this money and going on this rehab binge?

Matthew Jarosz:

Well, there was probably a dimension of that. Now, it came three years ago. That was a bit of a surprise that they were elevated. We had tried for years before then to show the virtues in states like Minnesota, Iowa, Illinois and other states who had higher tax credits, what a great stimulus and catalytic program it was in those states. So at that point all of a sudden that was a surprise. But clearly then developers got their act together. But what we’ve found in our numbers, in our research, is after two or three years, who was doing projects and where changed fairly dramatically, to small towns in Wisconsin, to smaller projects.

Frederica Freyberg:

Now, the governor wanted the program to emphasize job creation potential, but you maintain that it does do that. How so?

Matthew Jarosz:

Well, we looked at and we’ve spent a good deal of time at the institute really trying to gather up all the pertinent information. But of course we didn’t stop there. We’ve hired Baker Tilly to look at those numbers and to analyze that and found that over almost 11,000 jobs were created in that three year period, full-time construction jobs. 5,000 as permanent jobs after the buildings were restored. So maybe the numbers weren’t great, but they certainly were pretty good.

Frederica Freyberg:

Let me ask you — and we have some photos that you provided of examples of some of these historic tax credit projects. I mean, what kind of old buildings, what kinds of new uses, where are they located?

Matthew Jarosz:

Well, we have a variety — and I kind of gave you a variety of scale of projects. We have of course some very large multimillion projects, but also some very small main street projects. There’s a great small restaurant in Dodgeville that used the tax credits, a barbecue restaurant in Dodgeville. The smallest project you can imagine and from small, medium to large projects. And as a matter of fact, a kind of wave now of smaller projects that have been coming through because owners and developers could count on that credit because it wasn’t capped. There’s really some speculation — and we’ve talked to developers who might not risk going into the program — you have to invest in an architect. You have to really do this properly in order to get the credits. And I think that in some ways a lot of development won’t happen because of that kind of capping uncertainty.

Frederica Freyberg:

You were saying that many of these buildings that might be rehabbed with this credit would just sit vacant for decades.

Matthew Jarosz:

Listen, I’m not going to speculate about what happens in the future but we have the numbers of what has happened now in the past. For the three years, 60% of those buildings that were remodeled, rehabbed, using the tax credit program, had been vacant for over 20 years.

Frederica Freyberg:

All right.

Matthew Jarosz:

So, I mean, there’s the proof in itself, that any other programs weren’t moving the dial on these vacant buildings. This program came along and all of a sudden these buildings left vacant, some for 50 years, left vacant now all of a sudden had the kind of bridge loan that this offers. Because it isn’t a grant. It eventually comes back via higher property values and jobs and so forth.

Frederica Freyberg:

All right. Well, we need to leave it there. Matthew, thank you very much.

Matthew Jarosz:

Thank you.