In October, we posted a piece explaining the need to repair New York's fledgling historic tax credit program. Specifically, we were concerned about the lack of investor demand - or "appetite" - for New York's historic tax credit (HTC), which has left languishing more than a few upstate New York historic rehab projects. As one possible solution, we called for the addition of "bifurcation" language to the HTC law. Simply put, bifurcation would have permitted separate investors to claim the federal and New York HTCs, respectively, thereby increasing the pool of potential investors (i.e., demand).
While bifurcation has yet to materialize, New York's 2013 budget process yielded an equally encouraging solution to the HTC supply/demand problem: "refundability". As the name suggests, for projects placed in service after January 1, 2015, the HTC law now will permit a taxpayer to seek a cash refund for New York HTCs that it can't claim (due to a lack of New York tax liability). In practical terms, this will free developers to seek investment from the more robust "federal-only" investor pool existing nationally, rather than being limited to the smaller group of investors seeking both federal and New York tax shelters. More demand means better "pricing", which translates into a higher yield for developers. As nice byproducts, New York will leverage more investment from its HTC program and upstate communities will enjoy more of what they desperately need: outside investment, sustainable development and jobs.
Refundability is featured in some of the nation's best performing state HTC programs, so this legislative tweak will only strengthen New York's already well-crafted program. With the extension of the program through 2019, perhaps New York developers finally can settle in and begin to transform even more of upstate New York's significant historic resources.
Written by Jason Yots, a tax credit attorney and the President of Preservation Studios LLC, a Buffalo-based historic preservation company with offices in Rochester, NY and Pittsburgh, PA. www.preservationstudios.com.