During the past legislative session, MEREDA's Public Policy Counsel, Andrea Cianchette Maker, attorney at Pierce Atwood, LLP, coordinated a loosely-knit coalition of developers and associations that worked closely together to educate Legislative leadership, and members of the Taxation Committee and Appropriations and Financial Affairs Committee about the implications of the proposal to cap the credit in 2015. Over a dozen members of MEREDA's Board and Legislative Committee members sent emails and made telephone calls to support the lobbying effort in the State House. The result was favorable, and the HTC remains fully funded for Fiscal Year 2015.
In a difficult budget year, the 126th Maine Legislature raised questions about the increasing fiscal impact of Maine's State Historic Tax Credit (HTC). To help balance the State Budget, a proposal was offered to cap the credit in Fiscal Year 2015. However, when legislators learned from members of the Maine Real Estate & Development Association (MEREDA) and other industry representatives that the HTC are applied after the investments and improvements on an approved project are completed, and the financing of these completed projects depends on the credits being paid out over a four-year period, legislators wisely choose to let the credit operate as it should.
We should all take note, though, that questions have been raised about how the State can manage its budget with this unrestricted tax credit on the books. This is a good news/bad news story.
The good news is with the enactment of a statewide historic tax program in Maine in 2011, the level of rehabilitation of Maine's historic buildings significantly increased. The addition of the state HTC to the federal historic tax credit tipped the scales so the finances can work to mend Maine's stock of historic buildings into active buildings, many of which are located in the hub of Maine's downtowns.
The economic stimulus generated by these projects is also impressive. During the rehabilitation of over 50 projects located in more than 25 communities across the State, the investment of over $310 million generated hundreds of construction jobs, and stimulated services and building supplies purchases, converting abandoned or underutilized buildings into rental generating, commerce centers and attractive destinations. The positive fiscal impacts of these projects included the attraction of $35 million in investments in Federal historic credits to Maine, new income and sales tax generation for the State of Maine’s coffers, and property tax generation on valuations on these rehabilitated properties that increased from $28 million to $84 million. Additionally, these projects stimulated significant ancillary development activity that does not qualify for HTC, but was spurred on by the availability of the HTC.
The challenge as viewed by legislators is that the fiscal impact to the State alone is a net loss, as the income and sales taxes generated do not offset the cost of the income tax credit. Furthermore, the annual fiscal impact of the program has risen each year as the program has come to full fruition, with credits paid accumulating over the first four years of implementation. However, now, as the first wave of four years of credits has passed, their impact disappears; so the overall tax impact will now likely reach a more consistent level.
Clearly, over the past few years, the HTC program has matured, Maine and many of its communities have benefited, and its fiscal impact has grown. While this trend was anticipated when the program was enacted, newer legislators did not have that context and were not as informed about the history and the trajectory of the program.
Being mindful of turnover in the legislature, MEREDA will develop a proactive plan to educate legislators on the significant benefits gained by the HTC to ensure its future stability and predictability.