Incentives Watch: The Rise, Fall and Rise Again of Wisconsin’s Historic Rehabilitation Credit

In 2013, Wisconsin quadrupled the Historic Rehabilitation Tax Credit in the state from 5 percent to 20 percent of qualified expenditures through Wisconsin Act 20 in July and Wisconsin Act 62 in December. The fiscal estimate published in December predicted the change would result in only a $3.9 million reduction in revenue. Perhaps partially because of the low fiscal estimate, no cap was placed on the aggregate amount of credits that could be issued. On June 25, after handing out $35 million in historic rehabilitation credits, the Wisconsin Economic Development Corporation issued a moratorium on new credits until the fiscal impact on the state budget could be studied. However, on July 14, Governor Scott Walker lifted the moratorium, once again allowing the credits to be issued.

Walker’s reinstatement of the tax credit immediately drew praise all around, from mayors to newspaper editors to politicians to, unsurprisingly, historical preservationists. After all, the credit was popular all around. The December bill passed with overwhelming bipartisan support. And it’s not difficult to see why the bill is so popular. Older buildings are expensive to rehabilitate and without tax credits, the buildings will often either remain unimproved or eventually be razed to make room for new buildings. Not only do the tax credits save old buildings, but they also spur economic development.

The economic impact of historic rehabilitation credits has only been recently studied, but preliminary analysis shows a good return on investment. Last month, the National Trust for Historic Preservation released a study showing that for every dollar spent on historic tax credits leads to $4 of private investment. A 2012 study on Minnesota’s historic rehabilitation credit is even more optimistic, showing every dollar of tax credit leading to eight dollars of economic activity.

Of course, historic rehabilitation would likely not be feasible with just state credits. There is also a federal rehabilitation credit, equal to 20 percent of qualifying expenditures. The federal credit enjoys the same popularity as the state credits. U.S. House Rep. Dave Camp (R-MI), proposes, in the 2014 Tax Reform Act to eliminate the federal rehabilitation credit. The proposal caused the National Trust for Historic Preservation to place the federal credit on its endangered historic places list. However, the federal tax credit is likely safe for now. First, the repeal of the federal rehabilitation credit is only a small part of Camp’s proposal, only warranting about two paragraphs of discussion in a nearly 200-page document. And second, the proposal has failed to gain any political traction from either Republicans or Democrats, both of whom largely ignored it.

Continue the discussion on LinkedIn:  Was reinstating the historic rehabilitation tax credit a smart move by Wisconsin?

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By:  Rishi Agrawal

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