Preserving yesterday for tomorrow, today: support a State Historic Tax Credit

By Sam Spencer, DNC committeeman

When I’m not representing Maine on the Democratic National Committee, I’m doing my day job as a real estate developer. Since returning to Maine in 2003, I have worked on multiple development projects, but most of my efforts have centered on working to redevelop the historic mills in the twin cities of Saco and Biddeford. Most recently, through our company Spencer Monks Development, my partner Bobby Monks and I have been working to redevelop the Riverdam Mill in Biddeford, a sprawling 330,000-square-foot complex located on the Saco River.

ysam.jpg (45759 bytes)There are many historic buildings throughout Maine that are currently being underused. Buildings like Riverdam, which were once the site of thriving manufacturing operations are often only partially tenanted, if not completely vacant, suffocating local markets throughout the state as blights on the local landscape. But these mills and other historic structures are in fact tremendous assets. Many are situated in central locations, with access to downtowns and views of the rivers they once drew water from to power their operation. These properties are a crucial part of a community’s identity.

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Before and after: Riverdam Mill in Biddeford that will be redeveloped  to the architect’s rendition above.

But there is a reason why developers, over the years, have chosen not to redevelop these buildings. Such projects are not as straightforward as new construction on a green-field site. When redeveloping buildings once used for manufacturing, developers must cope with significant environmental issues in the building and soil, compromised building integrity, failing heating and plumbing systems (if there are any at all), noncompliance with codes, and a lack of parking for new uses, to name just a few potential problems. In short, the cost of redeveloping an old mill can be more expensive and certainly more complicated than building new.

In an effort to prevent their heritage from meeting a wrecking ball, many local and state governments around the country have worked to create "public/private partnerships" in order to rehabilitate these types of properties and in a larger sense, the entire communities in which they are located. For instance, in places like Lowell, Massachusetts, Providence, Rhode Island, and Manchester, New Hampshire, the public and private sector have worked hand in hand over many years to redevelop their historic mills. I have visited these redevelopments and the results are astonishing.

A critical piece in successful public/private partnerships to redevelop historic properties around the country has been the creation of a State Historic Tax Credit. According to the National Trust for Historic Preservation, over half of all states have a State Historic Tax Credit program in place to encourage the responsible redevelopment of existing historic buildings listed on the National Register of Historic Places. These State Historic Tax Credits are usually offered to developers in addition to the Federal Historic Tax Credit, and projects must qualify for the federal program to utilize the state program. GrowSmart Maine, along with the Maine Downtowns Coalition and other like-minded allies, is leading an effort to bring an enhanced tax credit program to Maine. Legislative Document 262 (LD 262), An Act to Amend the Credit of Historic Properties, would refund 25 percent of the cost of renovating a certified historic structure and remove the $100,000 cap on an existing historic renovation credit program. The bill is sponsored by Representative Ted Koffman (D-Bar Harbor) and cosponsored by Representative Steven Beaudette (D-Biddeford), along with many other cosponsors, including both Democrats and Republicans.

There are plenty of reasons why we should all be pushing to adopt LD 262, but before considering the benefits of this legislation, it is worthwhile to explain how it would actually work.

For qualifying properties, LD 262 would provide tax credits to the developer equal to 25 percent of the cost of renovations. To qualify for these tax credits, buildings would have to meet the requirements of the Federal Historic Tax Credit, which include being a certified historic structure — that is, on the National Register of Historic Places or contributing to a registered historic district. A substantial rehabilitation is necessary, and the work must meet the secretary of the interior’s Standards for Rehabilitation. The state tax credits represent a dollar-for-dollar reduction in state taxes owed, and would be distributed over a four-year time period. Developers have the option to sell the credits to potential partners in the development project and so a commercial bank, for example, could provide an upfront injection of equity into the project (that would help in making the development more feasible) in exchange for the rights to the credits over the four-year period. There are also other sources of funding required to make any project a reality, such as private-sector equity and bank debt. Historic tax credits (federal and state) certainly do not translate into guaranteed projects (or guaranteed profit). But, they help in initially attracting developers to historic rehabilitation projects and, without these credits, it is highly unlikely that many such redevelopment projects would ever transpire.ymill.jpg (34463 bytes)

 

"Charting Maine’s Future: An Action Plan for Promoting Sustainable Prosperity and Quality Places" outlined several recommendations pertaining to Maine’s quality of life, sense of place, and the built environment. The Brookings Institution recommended that Maine create

Nathan Szanton, John Richardson, Gov. Baldacci, Bobby Monks, Rep. Steve Beaudette,                              John Bubier, and Sam Spencer tour the Riverdam Mill in Bidderford.

 

a permanent Quality of Places Fund that would, in part, be designed to revitalize our cities and towns to absorb future growth and reduce pressure on rural areas. The report pointed out that the "growth of rural and suburban areas has happened in part because we have made it difficult to build in older communities" and that in response the state should "encourage more growth in our existing communities and less in the rural areas." Legislation similar to LD 262, such as the Federal Historic Tax Credit program and other State Historic Tax Credit programs, has achieved these very goals in other states. Downtown revitalization and smart growth development go hand in hand with the redevelopment of centrally located, underutilized, historic structures. In Maine, we simply cannot afford to pass up these kinds of economic development opportunities.

In addition to aiding in the effort to revitalize downtowns and contribute to smart growth development, the adaptive reuse of historic structures is an incredibly effective economic development tool. The Brookings Institution explains that Maine spends only $10 per capita on economic development initiatives, which is lower than 37 other States. According to a recent report produced by Maine Preservation, LD 262 will increase historic rehabilitation investment from its current low level to up to $91 million per year. This investment, in turn, will create as many as 1,000 new jobs each year, according to Professor Charles Colgan of the Muskie Institute.

Dr. Charles Lawton of Planning Decisions, Inc. completed a detailed analysis of the fiscal impacts of LD 262 to Maine’s state and local governments and projected a net fiscal gain to the state government for the first five years, followed by six-year period of shortfall, until the moving back into the black, permanently. This analysis did not even take into account the likely increase in the value of nearby real estate, which would obviously create additional tax revenues.

According Grow Smart Rhode Island, Rhode Island passed a State Historic Tax Credit in 2002 and since then 277 projects are underway. For every $1.00 of state credit, there has been $5.35 in total private and public investment.

Like Rhode Island, Lowell, Massachusetts, has done a remarkable job of redeveloping their mill space in the downtown areas. Originally under the leadership of then Senator Paul Tsongas (you may remember him running for president in 1992), over the last 25 years the nonprofit, public and private sectors in Lowell have worked to redevelop approximately six million square feet of mill space into high-tech office space, university space, museums, affordable housing and market-rate housing. There is absolutely no reason why this kind of progress cannot take place in Maine cities. A couple of months ago, we led a group from Biddeford, including Mayor Twomey and members of the Biddeford City Council, to tour the redeveloped mills of Lowell. When we met with city officials and developers involved in the various redevelopment projects, their message was clear: The successful redevelopment of historic properties into thriving, contributing assets cannot and will not take place without strong, progressive leadership from the public sector and that a state historic tax credit is the necessary first step.

In the absence of a broad statewide Historic Tax Credit program, select projects in Maine have received special historic tax credits from the Maine Legislature. Last year, the Hathaway Creative Complex, a 236,000 square-foot mill in downtown Waterville secured a tax credit similar to LD 262. According to the developer, Niemann Capital, Maine General Health has signed on for a 200-employee office, and plans have gone public for 66 residential apartments. Negotiations for additional tenants to fill office, retail, and restaurant space continue. All great news for Waterville.

At Riverdam, we have plans to build 80 units of mixed-income housing (the first housing project ever in the Biddeford Mill District!) and rehabilitate the existing commercial and light industrial space currently plagued by unreliable systems and life safety issues. Our site is spectacularly unique and geared to smart growth development, as employees and residents of Riverdam would be a short walk away from the downtowns of Biddeford and Saco, the Amtrak train station on Saco Island, and will enjoy stunning views of the Saco River. There are almost a countless number of historic properties throughout the state with similar benefits, but they simply will not be realized without the adoption of LD 262.

There are alternatives to not adopting LD 262, but these are not courses that we should consider. If LD 262 does not pass, many existing historic buildings will remain, at best, underutilized and at worst vacant and dangerous. Riverdam, for example, currently presents a number of life safety issues, including numerous code violations and a lack of automated building security. One approach would be to tear down these distinct structures to make way for new construction, but this is arguably the height of environmental irresponsibility as there is a tremendous amount of embodied energy in historical structures, which includes raw material extraction and transport, along with the construction of the building. In addition, part of Maine’s competitive advantage in attracting businesses and residents is its sense of place. The most responsible and effective approach is to enhance the assets that Maine is blessed with, not ignore them or tear them down.

LD 262 has strong support throughout both the public and private sectors and in particular has the support of Governor John Baldacci. In his State of the State address on January 9th, 2008, Governor Baldacci, who recently toured the mills of Biddeford, explained that "economic prosperity demands that we invest in our workforce, in our open landscapes, and in our historic downtowns. Even now, we cannot become so focused on today that we sacrifice the investments that will make us stronger tomorrow. When I visit places like Lewiston and Auburn, Biddeford and Saco, and Waterville, I see the enormous potential for redevelopment ... That’s why I am supporting an historic rehabilitation tax credit. For a modest investment, we can attract millions of dollars worth of growth, which will bring new jobs, new revenues, affordable housing, and new life to our cities and towns." Clearly Governor Baldacci believes that where there is a mill, there is a way.

The speaker of the House, Glenn Cummings, is also helping to lead the effort to pass LD 262. Speaker Cummings was quoted saying that LD 262 "grows the size of the pie long term and helps us build on our strengths ... Maine has the potential to reinvigorate these historic buildings; that is truly an asset."

Time is of the essence, as Maine’s historic buildings are being threatened by a lack of attention and investment. The primary coalition in support of LD 262 is made up of historic preservation groups, downtown advocates, developers, nonprofits, architects, and affordable housing agencies alike. This is a piece of legislation which can help revitalize downtowns all across Maine, has wide-ranging support, and it is in all of our interests to make it a reality.