State Politics

Historic buildings’ future in limbo thanks to budget stalemate

N.C. Rep. Steve Ross, a Burlington Republican, speaks about historic tax credits during an event in 2015 with then-Gov. Pat McCrory
N.C. Rep. Steve Ross, a Burlington Republican, speaks about historic tax credits during an event in 2015 with then-Gov. Pat McCrory hlynch@newsobserver.com

Historic building renovations across the state are in limbo thanks to the budget stalemate. Developers say many of their rehabilitation projects aren’t financially feasible without the state’s historic preservation tax credit, which is set to expire Jan. 1.

Both House and Senate leaders have agree to keep the tax credit until at least 2024, but the extension is part of the vetoed budget. It’s possible the stalemate could continue into 2020, and so far the historic tax credit hasn’t been part of a “mini-budget” bill floated in the legislature. Senate leader Phil Berger said in a news conference Tuesday that it will likely emerge in legislation this week.

The uncertainty surrounding the tax credit has already made it hard for developers of historic properties to secure financing. Banks and investors are skittish about backing the projects if the tax benefit isn’t guaranteed. Projects already under construction are rushing to finish work by the end of the year to qualify for the credit.

Sam Sari of the Winston-Salem-based Landmark Group said his firm has two redevelopment projects “very much threatened” by the potential loss of the tax credit. One is an effort to turn a 1920s hospital in Waynesville into affordable housing. Sari said the tax credit equates to about $1 million in the project’s budget, and it’s “highly unlikely to move forward” without it.

That would put the dilapidated hospital building back in the hands of Haywood County government, which would then have to spend tax dollars to maintain or demolish it. Sari’s other threatened project is the renovation of apartments for seniors in a historic school building in Edenton.

And while not every historic building renovation would be in jeopardy without the tax credit, preservationists say property owners are likely to use cheaper, less authentic materials and designs if they’re not following the guidelines of the tax credit program.

“I think people will do less stuff that is historically accurate without the carrot of the tax credits,” said Sara Lachenman of Durham-based Four over One Design.

John Holmes of Raleigh’s Hobby Properties said the tax credit expiration likely wouldn’t stop his renovation of the long-vacant Raleigh Sandwich Shop building on downtown’s Wilmington Street, but it could affect the design.

Holmes’ company is fixing up one of downtown’s last empty storefronts for a restaurant planning a “modern take” on the old sandwich shop that operated there from the 1930s through the ‘80s. Holmes said the tax credit allows him to replicate the building’s original look because he can afford “to spend money where we normally wouldn’t on architectural detailing and making sure we try to get it right.”

Rep. Steve Ross, R-Alamance and sponsor of the tax credit extension in the House, said he’s optimistic lawmakers will be able to pass the extension soon.

“I’m almost certain this is all going to work out,” Ross said last week. “Sen. Ted Alexander is working with me to try to get things moved.”

Legislators could consider one of two versions of the extension. One option is to copy the budget provision into one of the “mini-budget” bills, which would extend the tax credit without changing the program.

Another option is House Bill 399, which passed the House in a near-unanimous vote in early June but has since been parked in the Senate Rules Committee. In addition to the extension, that bill would also make the credit more generous, including an additional boost for projects in disaster relief areas. “I’m going to make another attempt to get the House version that’s in the Senate pushed through,” Ross said.

The Senate has historically been more reluctant than the House to support expanded tax credits. The historic tax credit was eliminated for months in 2015 after its last expiration date came and went without action, as Senate leaders initially declined to take action on the House’s extension bill.

That year, it took a lobbying push from then-Gov. Pat McCrory and a long-delayed budget deal between the House and Senate to get the credit restored.

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