By TED CARTER
News that Mississippi had used up its $60 million in historic tax credits stunned Virginia Pace, a member of a development team seeking to convert downtown Jackson’s circa 1928 Edison-Walthall Hotel to a mix of apartments and retail.
In a phone interview last spring, Pace sounded bewildered, not to mention disappointed, that she and her partners must wait until the 2016 Mississippi legislative session to know whether any credits would be available.
“We’re not sure when we will be doing anything,” said Pace, spokeswoman for Evercore Cos., a Houston developer which plans to convert the hotel to about 100 apartments.
Pace’s firm is hardly alone among developers waiting to go to work converting historic buildings in Jackson’s Central Business District as well as in other parts of the state.
When the $60 million in tax credits ran out last year, historic preservation projects around the state on the verge of getting $9.34 million in credits ended up with nothing. Other projects that had been either awaiting approval or were preparing to file for eligibility stalled.
In addition to the Edison-Walthall, among these were downtown Jackson’s Regions building, the Lamar Life building and the former Eastland Federal Courthouse. Developers want to convert the buildings to a mix of rental residential and retail.
Help is on its way.
The Mississippi Department of Archives and History says it will ask legislators in 2016 to replenish the state’s depleted historic tax credit fund with a $60 million allocation. “We hope the cap will be raised to $120 million,” said Todd Sanders, tax incentives coordinator for the Department of Archives and History.
“The tax credit program has been very successful. Many projects wouldn’t have been completed without it,” he said.
The Department of Archives and History does not have a lobbyist but its quest for renewal of the tax credit program has an important ally in Mississippi House Speaker Philip Gunn of Clinton. Gunn said he sees the credits as an investment in the state’s economy as well as in preserving its past.
“It’s such a good deal. So many of our towns depend on it for economic development. We get such a good return on our investment,” he said.
In construction spending alone, the slightly less than $60 million the state has invested in historic preservation tax credits since 2007 have generated more than a quarter billion dollars, according to an impact study Mississippi State University’s Stennis Institute of Government prepared at Gunn’s request.
“I hope we can continue to develop this program,” Gunn said.
When funded, “Mississippi has a very good tax credit law,” said Ben Allen, president and CEO of Downtown Jackson Partners, a public-private entity that works to promote investment in the Central Business District.
Depletion of the credits “has definitely caused some heartburn around the state,” forcing people who are doing restorations to either delay their financing or to restructure their loans, said Jet Hollingsworth, a Butler Snow attorney who works with developers who use the 25 percent credits.
Many developers and property owners lack a tax liability sufficient to take full advantage of the entire 25 percent tax credit. So they sell the credits to third parties that do have a need, typically at a sizable discount.
The credits are especially attractive in that they can be carried forward for 10 years, allowing the holder to use them when they are most needed.
In a third-party sale of the credits, for example, a developer or owner can secure a historic tax credit with a “face value” of $500,000 and sell the credit to a third-party investor at a discount that often ranges from 20 percent to 50 percent.
At a 50 percent discount, the developer or owner ends up with an equity investment of only $250,000 rather than the full value of $500,000 for the historic tax credit.
Cash is also available through a discounted refund provision designed to both put cash flow into a project and to save the state money.
Here’s how the Stennis Institute explains the refund:
A developer or owner makes a rehabilitation investment that will create a historic tax credit with a “face value” of $500,000. If the developer or owner selects to receive a refund of 75 percent of the “face value” of the tax credit, this will reduce the state treasury’s liability exposure from $500,000 to $375,000 — a potential reduction, or “savings,” of $125,000 for the state.
The refunds are paid in equal installments over a two-year period.
Based on Mississippi’s current historic tax credit aggregate limit of $60 million, the allowance of a refund might be equivalent to savings of up to $15 million to the state treasury, assuming all holders of state historic tax credits exercised the option of taking a refund rather than deducting the full “face value” of the historic tax credit from their income tax liability, Stennis said in its report.
“This is not an unusual incentive,” Butler Snow’s Hollingsworth said of the refund provision.
The key thing to remember, Hollingsworth said, is that the state incentives and federal tax credits are designed to work in tandem. “When you take one piece out, the whole thing can crumble,” he said.
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info