Missouri Legislation Restricts Historic Preservation Tax Credits

attorney Chris Pieper of the Blitz, Bardgett & Deutsch law firm st louis

By Chris Pieper

Recent legislation reduces the amount of Historic Preservation Tax Credits (HTC) available annually and imposes additional restrictions on developers seeking HTC to support historic rehabilitation projects.

Senate Bill 590 and Senate Bill 773, enacted during the 2018 legislative session, reduce the annual aggregate cap on HTC for projects receiving $275,000 or more in tax credits from $140 million to $90 million, with an additional $30 million available for projects on properties located in qualified census tracts.   Qualified census tracts are defined as having a poverty rate of 20% or higher, as determined by the Missouri Department of Economic Development (DED) based on U.S. Census data and updated every five years.  The legislation calls for DED to publish a map depicting all qualified census tracts, grouped by tracts with 20% to 42% poverty rates, and 42% to 81% poverty rates.

Missouri has the highest annual cap on HTC authorizations in the nation.  Over the past three fiscal years, DED has authorized an average of $114 million in tax credits annually, which is slightly below the newly-reduced $120 million annual cap.  If the full $120 million in HTC is authorized in a given fiscal year, the legislation authorizes the cap to be adjusted for inflation.

In addition to the lower annual cap, the legislation requires DED to consider a number of factors in evaluating applications seeking HTC tax credits for projects seeking greater than $275,000 in tax credits.  The factors DED is to consider include the amount of the “projected net fiscal benefit” of the project to the State and locality, which is determined by DED (based on the REMI economic model) based on the state and local tax revenues to be generated as a result of the projected jobs and capital investment, less the amount of the HTC tax credits and any other state and local subsidies.  DED is also to consider (1) “the overall size and quality” of the project, including the estimated number of new jobs and “the potential multiplier effect of the project”; (2) the level of economic distress in the area; and (3) “input from the local elected officials” regarding “the importance of the proposed project to the municipality.”

The legislation imposes additional restrictions on applicants for HTC, including by requiring a copy of all necessary land use and building approvals to be submitted with the preliminary application and evidence of financing to complete the project, such as a line of credit or letter of commitment, to be submitted within 60 days after authorization for tax credits.  The legislation also reduces the time in which projects authorized for tax credits must commence from two years to nine months, requiring applicants to incur at least 10% of estimated project costs within nine months of authorization.

The legislation also imposes additional project costs by increasing the tax credit fee charged to HTC recipients from 2.5% to 4% of the tax credits issued.  The proceeds of the current 2.5% fee charged on DED-administered tax credits are used to support statewide economic development initiatives, including business expansion efforts by DED, business recruitment efforts by the Missouri Partnership (in partnership with the Hawthorn Foundation), marketing activities, and international export initiatives.  Legislative researchers estimate that the increased fee could begin generating an additional $1.8 million annually by 2020.  The legislation provides that 37.5% of the fee revenue generated from the 4% fee charged on HTC is to be appropriated for business recruitment and marketing.

Finally, the legislation provides transition rules for the lowered cap like those employed in the last major modification to the HTC program in 2009.  The transition rules exclude the following projects from the lowered cap: (1) projects authorized prior to October 1, 2018; (2) projects applying for HTC prior to October 1, 2018 that have incurred the lesser of 5% of their total project costs or $1 million and received Part I approval from the U.S. Department of the Interior (DOI); or (3) projects applying for HTC prior to October 1, 2018 that have received certification from the State Historic Preservation Office (SHPO) that the rehabilitation plan meets DOI standards and that the rehabilitation costs exceed 50% of basis in the property.

Chris Pieper’s practice focuses on Regulatory and Government Solutions, Public Finance and Incentives, Real Estate, and Litigation.  Chris recently returned to private practice following service in state government, including as Chief of Staff to the Governor, Director and General Counsel of the Missouri Department of Economic Development, Deputy General Counsel for the Missouri Department of Natural Resources, Legislative Director for the Missouri Department of Revenue, and Special Assistant Attorney General.