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Cressey News

December 01, 2022

Let's harness our heritage to revitalize Tennessee main streets and communities | Opinion

The Tennessean | December 1, 2022

Bill Frist, Guest Columnist

Tennessee is rich in history, but the physical evidence of our heritage is increasingly threatened by our state’s dramatic growth. The structures that have served for generations as the center of spiritual, social, cultural and economic vitality are being torn down or left in disrepair because of the misguided notion that it’s always cheaper to build something new rather than restore and preserve the old.

For example, in rural areas across the state the inability to save important historic structures or landscapes that once played a vital role in the success and identity of those communities is widespread. Buildings around our many courthouse squares, within "Main Street" districts or places that were once farming homesteads are disappearing due to neglect, the lack of adequate financial resources or, like our cities, threatened by uncontrolled development.

Just in my hometown of Nashville, the nationally celebrated Music Row, which tells the story of country music and planted the seeds that built Music City USA, is being demolished at an alarming rate. Between 2013 and 2019, at least 55 music-related buildings were torn down, replaced by apartment and condominium buildings. The places that defined the heart and soul of Nashville, and of Tennessee, are quickly disappearing.

There is a way to save and revitalize the storied buildings of our downtowns and communities while repurposing them to spur economic growth at the local level. The answer is enacting a state historic preservation tax credit. The credit works by incentivizing substantial rehabilitation of historic buildings for income-producing or business use. It requires preservation of the historic character of the property and makes it feasible to preserve older structures that would otherwise be too cost-prohibitive to renovate or restore. Simultaneously, it can save our state’s tangible past in a way that conserves resources, reduces waste and creates jobs.

A pilot historic preservation and development grant program launched in our state in 2021 has already produced meaningful results, demonstrating interest and demand that can be built on with a permanent tax credit in Tennessee. Indeed, demand for the grant funds, which are dedicated currently to rural counties, outstripped available funds in the program's first year, with requests totaling $9.5 million for the $4.8 million available. This led to Gov. Bill Lee smartly increasing the grant program to $10 million for 2022. For 2023, we can make this grant program permanent and, ideally, further extend this opportunity to all Tennessee communities by codifying it as a tax credit.

History of the federal and state historic preservation tax credit

This tax credit is not a new idea. In fact, President Ronald Reagan made a federal version of the historic preservation tax credit permanent, providing a 20% income tax credit for the rehabilitation of income-producing buildings that are certified historic structures. According to the U.S. Department of the Interior, it has become the nation’s “most effective program to promote historic preservation and community revitalization through historic rehabilitation.” Latest figures show 47,000 completed projects since its enactment, leveraging over $116.34 billion in private investment.

We’ve put the federal credit to use in Tennessee, restoring the distinctive Jackson Terminal in Knoxville, the transformative Crosstown Concourse in Memphis and the iconic Ryman Auditorium in Nashville. You remember experiencing these landmarks. History that you can touch, that you can step into, carries an intrinsic value that once lost can never be reclaimed. These historic structures define the character of our communities, both large and small, across the state.

But in Tennessee, we are still falling short when it comes to preservation. We have the unfortunate distinction of being one of just 12 states without a state historic preservation tax credit.

Why the need for a state version of this credit? In states, it can be designed to provide targeted economic help to rural areas, disadvantaged areas and areas affected by disaster. And when paired with the federal credit, it can put restoration projects that were once too costly within reach. In fact, research has shown that in states where a historic tax credit has been enacted, the federal version of the credit receives more use – meaning more local business tax dollars stay in the state instead of leaving for Washington.

As a broad coalition of Tennessee mayors and county executives recently explained in a letter to the governor, “We hear time and again how property owners, especially those in areas with smaller populations, are unable to finance the needed repairs for their older and historic buildings,” which may include electrical, mechanical, plumbing, fire safety and roofing costs. “A tax incentive for the rehabilitation of historic buildings will attract investment and breathe new life into our communities.”

Nearly half a century of data have demonstrated that this tax credit is more than a significant preservation tool. It’s a conservative approach to creating jobs and stimulating the economy. The federal credit has created over 2.4 million jobs nationwide, and a state version would build on this.

How other state economies have benefited

Tennessee is an outlier in the Southeast. Every bordering state offers this state tax incentive to revitalize and repurpose their historic buildings, and their economies are reaping the benefit.

In Louisiana, every $1 the state provides in commercial historic tax credits spurs nearly $9 in additional economic activity. Arkansas’s $21.5 million in state historic tax credits has drawn nearly $224 million in private investment. And the city of Bristol, which lies on the Tennessee-Virginia state line, uniquely demonstrates how Virginia’s state historic tax credit makes a difference within one city’s borders. Indeed, the Virginia portion has seen 12 historic renovation projects totaling $72.6 million, while the Tennessee side has received less than one-seventh of that investment with only three historic projects totaling $10 million.

Analyses of rehabilitated historic sites have shown that surrounding properties also benefit, with a demonstrated increase in property values. And studies have found that a state’s investment in historic rehabilitation pays for itself through tax revenues and other benefits within four to nine years after a building becomes operational.

Broad support for a tax credit in Tennessee

The Tennessee Historical Commission, which celebrated its 100th anniversary in 2019, emphasized in its 10-year preservation plan the goal of establishing a state historic tax credit. Other groups, including the National Trust for Historic Preservation, American Institute of Architects Tennessee, a broad coalition of Tennessee mayors and county executives, the Tennessee Main Street Program and multiple nonprofit preservation organizations such as Historic Nashville Inc., Memphis Heritage and Knox Heritage, have advocated in support as well.

This support hasn’t fallen on deaf ears. On Nov. 10, the Tennessee Department of Economic and Community Development presented its budget requests to the governor for the coming fiscal year. They include an important request to make the Historical Development Grant Program permanent by funding it at $10 million annually. Changing the pilot grant program established in 2021 from a one-time budget expenditure to a recurring item in the budget is an important step forward for historic preservation, and I strongly encourage Lee to include this request from ECD in his final budget. I would also encourage expanding the communities and projects that are eligible to participate, either through the grant program or by smartly enacting a state tax credit all could benefit from.

In this coming legislative session, the Tennessee General Assembly has the opportunity to enact legislation establishing a state historic tax credit and can design it with Tennessee’s needs in mind. The most recent legislative proposal, introduced by state Sen. Jon Lundberg and state Rep. Kevin Vaughan in 2021, closely mirrored the successful federal credit first established in 1976. Property owners must acquire and rehabilitate a historic property with their own funds before becoming eligible for the credit, which covers 25% of qualified rehabilitation expenses. Eligible properties must be listed on the National Register of Historic Places, and additional incentives are available for projects on Tennessee main streets or rural counties, in a qualified Opportunity Zone or in an area declared a state of disaster by the governor. The proposed Tennessee credit was also structured to set aside 65% of annual credit funds for projects in rural, main street and distressed areas.

Without a state income tax, the credit is designed to be applied to franchise and excise taxes and insurance premium taxes, something the recipient of the credit can sell to other business owners in need of tax relief. This creates a secondary market that allows historic preservation to make smart financial sense, and it’s a model that Texas has had great success with.

Gov. Lee’s support for rural historic preservation, evidenced by his successful enactment of the Historical Development Grant Program that has seen record demand, has been a much-needed investment in our physical history. Making this grant program permanent is a worthy investment. Expanding the opportunity to save our state’s history in all counties and communities with a provision that has been shown to simultaneously stimulate the economy is the next right step, and can be achieved by enacting a state historic tax credit in this coming legislative session.

It’s time for Tennessee to harness our heritage and join 38 other states in encouraging smart, preservation-minded growth.

Full Article Posted in the Tennessean