Louisiana property developers and preservationists are often at odds, battling over whether real estate projects conform to local laws and maintain the architectural appeal of older neighborhoods. This month, they’ve found common cause over a popular state tax break for restoring historic buildings that is on the chopping block.
The Louisiana Rehabilitation of Historic Structures Tax Credit Program reimburses property owners up to 25% of what they spend renovating a structure in a downtown development or cultural district and up to 35% in rural areas. Since the program’s creation in 2002, it has been used to restore nearly 1,800 structures throughout the state, including landmarks like the World Trade Center in New Orleans, now a Four Seasons hotel.
Gov. Jeff Landry’s Louisiana Forward tax plan, unveiled last month, calls for streamlining the state’s tax system through a flat tax on corporate and personal income and doing away, at least for now, with the historic tax credit program and dozens of other tax exemptions, deductions and credits.
Gov. Jeff Landry speaks during a bill signing at LSU’s Memorial Hall on Tuesday, October 1, 2024.
All told, the reforms would end hundreds of millions of dollars in tax incentives. Landry and his allies have argued that coupled with their other reforms, the end to those breaks will make the state more competitive, bring jobs and boost the economy. Now, as state lawmakers prepare to take up the plan in a special legislative session that begins Wednesday, a flood of interest groups have started to organize to preserve their incentives, including the odd-couple pairing of real estate developers and preservationists who have joined forced to oppose ending the historic tax credit program.
The Louisiana Historic Tax Credit Coalition, an advocacy organization formed more than a decade ago and made up of more than 100 developers, preservation groups, attorneys and architects, has been sharing information about the proposed changes and what it would mean for their industry.
Developers that are part of the group say that ending the program, which would sunset on June 30, 2025, will kill projects at a time when restorations are already difficult enough because of steep insurance premiums, high interest rates and a tougher lending environment.
Moreover, they say, the historic rehabilitation credits have been critical to returning old, blighted buildings to commerce, which, in turn, have helped revitalize downtown districts in cities and main streets in small towns.
Developer Dyke Nelson has used the program to renovate seven historic buildings, including the Electric Depot and 440 on Third in Baton Rouge and the Municipal Complex in Lafayette. He said the financing was important if Louisiana residents want to see revitalized historic districts because renovating older buildings typically is more expensive than building new ones.
I Rivermark Centre is seen, Tuesday, July 18, 2023, in downtown Baton Rouge, La.
“This is a huge resource that enables us to be able to go into buildings that would not otherwise be renovated,” said Nelson. “If this program goes, we set the state back 30 years.”
Sandra Stocks, advocacy chairperson of the Louisiana Landmarks Society, said Louisiana has an enormous stock of historic buildings and that the credits have been “amazingly impactful” in preserving and restoring them.
Louisiana Revenue Secretary Richard Nelson, the architect of the tax plan, said the administration is not against historic rehabilitation tax credits specifically, but that the program doesn’t deserve special treatment as part of the broader tax reform plan.
“If we cherry picked and made an exception for historic buildings, we’d have to make an exception for everybody,” Nelson said. “We felt it was better to look at everything holistically.”
Cost vs. benefit
The push to keep the historic tax credits comes as lawmakers and the Landry administration are hearing from scores of lobbyists and interest groups making their case for preserving incentives that benefit them.
Supporters of the state’s film industry have some of the loudest voices and are pushing to keep the state’s motion picture tax credits. Earlier this week, Shreveport Mayor Tom Arceneaux traveled to Baton Rouge with the hip-hop artist 50 Cent, who is planning to build his G-Unit movie studio and entertainment complex in Shreveport, to make their case for the incentives supporting that deal directly with the governor, Arceneaux said. At the same time, Lt. Gov. Billy Nungesser has been advocating for a tax program that helps his office promote tourism in the state.
Landry, Nelson and other supporters of the tax overhaul have been telling everyone the same thing: The state has too many incentives and the tax system is outdated and archaic. In an op-ed in The Times-Picayune and The Advocate last month, Landry said the reforms were needed to avoid putting budget shortfalls on the backs of residents through higher taxes.
“Each time we encounter budget shortfalls, special interests flood the capitol, while hard-working families bear the brunt of financial strain. For too long we have looked the other way or tried to just patch things up with temporary fixes or gimmicks,” Landry said. “We know we need both structural and cultural change.”
If the flat tax plan passes this month, the administration could revisit individual incentive programs during the regular session next year, Nelson said.
Richard Nelson, Louisiana State Representative for District 89 and candidate for Governor, speaks during the National Association of Realtor’s Riding with the Brand tour stop in Shreveport, Louisiana, at the Shreveport Convention Center Tuesday, Sept. 19, 2023.
The incentives are substantial compared to the state’s $47 billion annual budget. According to a study by the Louisiana Department of Revenue, the state’s five largest tax incentive programs, including the historic rehabilitation credits, cost the state more than $423 million in 2022.
The motion picture investor tax credit, which doled out $146 million, and Quality Jobs program, at $143 million, were the costliest incentives. The historic rehabilitation credits ranked as the third-most expensive, at $58 million. This year, the cost will be closer to $86 million.
The study said that incentives have a positive effect on the state’s economy even as they impact the state budget. For every $1 given away in historic building tax credits, the state economy grows by nearly 25 cents.
But Nelson said the bigger issue is the need for a streamlined and simplified system that will make the state more competitive and attractive to businesses.
“In real estate development, what matters the most is having tenants and we have significantly high vacancy rates because we don’t have the businesses to fill our buildings,” he said. “The goal is to build competitiveness and attract businesses here.”
Creating a sense of place
Advocates of keeping the historic tax credits say the state’s analysis doesn’t take into account the spinoff effect of returning an old empty building to commerce and the impact it has on the surrounding neighborhood. They point to examples like Freret Street, which was transformed in the post Katrina years from a run-down strip of old storefronts to a trendy shopping and dining district, or Dyke Nelson’s 440 on Third apartment building in Baton Rouge, which is home to the first downtown supermarket in the state’s capital in decades.
“Rehabilitating historic buildings creates something that is generational,” said state Rep. Michael Echols, R-Monroe, who is also a real estate developer and has used the credits on more than a dozen projects. “Old buildings create a sense of place.”
Echols and others cite a 2017 study by Washington D.C.-based consultants PlaceEconomics prepared for Lt. Gov. Billy Nungesser’s office that found nearly $2.9 billion has been invested in the state through state historic tax credit projects.
The Louisiana program was modeled after a federal program created by the Reagan administration in 1986 that allows for reimbursements of up to 20% on qualified expenses. Most developers aim to pair the state and federal credits together. Currently, 38 states offer historic rehabilitation tax credits. More than half offer at least as much as Louisiana, and other states, including Texas, have modeled their programs on the one in Louisiana.
“I get the administration is looking at this because they want to be competitive with other states,” said Tom Leonhard, CEO of HRI, which has used the program on more than a third of the $2 billion worth of projects it has done in Louisiana. “Well, the states they want to be competitive with all offer credits like ours.”
‘Closing the gap’
Developers say one reason they need the tax break is because historic projects are typically more costly and can take longer to complete than new construction. Also, they say, banks these days only lend about 60% of what a historic renovation project costs, if they’re willing to lend at all.
Others say it’s important to calculate the spinoff effect of renovating historic buildings. Attorney Richard Roth has used the tax credits renovating several buildings in New Orleans, including the Fidelity Bank building on Carondelet Street and the former Morris FX Jeff School, now an apartment complex on North Rendon Street.
He said he spent $1 million purchasing the former school from the city of New Orleans and $8 million renovating the building and turning it into 26 apartments. In addition to the cost of the renovation, Roth calculates that he paid $600,000 in state payroll, income and sales taxes doing the renovation and says the property now generates local property taxes of roughly $120,000 a year.
He received $1.4 million in state historic tax credits.
“You have to look at the whole picture to appreciate the benefit of these projects and the program that makes them possible,” he said.