York City developer warns cutting tax credits will hurt revitalization
As Congress tries to pull together enough votes to pass a major overhaul of the country’s tax system, one of York City’s most active developers is warning that “shortsighted” efforts to end revitalization tax credits will hurt the city and region in the long run.
Legislation passed Thursday, Nov. 16, by the U.S. House cuts the corporate tax rate from 35 percent to 20 percent and reduces personal income taxes for many.
The House bill tries to balance those cuts by eliminating a variety of deductions and tax credits, including Historic Tax Credits and New Market Tax Credits.
Developers rely heavily on these two federal tax credits to fill the funding gap between the total cost of redevelopment projects and the money raised through private investors and bank loans, according to Josh Hankey, president and CEO of RSDC, formerly Royal Square Development and Construction.
“The tax credit programs infuse equity into the project and create a situation where we can borrow a reasonable amount from the banks and bring in a reasonable amount from capital investors,” Hankey said. “Without the tax credits, the numbers just wouldn’t work.”
Critical funding: When launching RSDC’s Landmark Properties Project in April, Hankey said the $8 million redevelopment project on East Market Street would not have happened without a substantial federal New Market Tax Credit.
As one of the region’s community development entities, the Community First Fund received a $7 million allocation from the New Market Tax Credit Program, which provides funding for the construction or renovation of commercial buildings in low-income communities.
The Community First Fund awarded $2.1 million of the tax credit to RSDC for the project, which accounted for a quarter of the total cost of redevelopment.
Hankey was joined at that April announcement by U.S. Rep. Scott Perry, who said at the time that the money “bridges the gap” for funding.
“What this small infusion does is help revitalize and encourage other investors to come in,” Perry, R-Dillsburg, said.
Perry voted Thursday, Nov. 16, to approve the House’s Tax Cuts and Jobs Act.
In a statement Thursday, Nov. 23, Perry said "many constituents expressed concern to me" about the House's plan to eliminate the tax credits, "which have incentivized economic activity and job creation in the 4th District."
Noting that the U.S. Senate's tax reform bill includes the tax credits "with some revisions," Perry said he's "actively engaged with my colleagues on a final agreement that promotes job creation, bigger paychecks and a fairer, simpler tax code."
RSDC's $14 million Market Street project to redevelop the former Woolworth, Zakies and Weinbrom buildings also would not have happened without a multi-million New Market Tax Credit, Hankey said.
The Yorktowne Hotel redevelopment project also is relying on these tax credits, he added.
‘Shortsighted’ reform: Since the Historic Tax Credit program’s inception in the 1970s, it has been used as a way to redirect federal tax dollars bound for Washington, D.C., back to local communities, Hankey said.
The program has leveraged more than $84 billion in private investments to preserve and renovate 42,000 historic properties over the past four decades, according to the U.S. National Park Service, which administers the tax credit program.
“The thing that is forgotten about in that shortsighted view is that … this is a way of reinvesting in our communities,” Hankey said.
With the U.S. House looking to end the tax credit, lawmakers are “simply redirecting this money that would have gone to communities to Washington,” Hankey said. The House’s proposal undermines “the ability of small communities like York to fund an economic rebound.”
Senate tax bill: Similar tax-reform legislation is working its way through the U.S. Senate, but the upper chamber’s bill maintains current funding levels for the Historic and New Market tax credits for at least the next year.
After voting Thursday, Nov. 16, to approve the Tax Cuts and Jobs Act as a member of the Senate’s Finance Committee, Republican Sen. Pat Toomey released a statement that simply pointed to several economists’ support of the “pro-growth tax reform” bill that “will generate significant economic growth.
Hankey said he is optimistic the tax credits will survive the legislative process, but he wants lawmakers to support the tax-credit programs for a number of years, not just 2018, to boost investor confidence in often expensive and tricky redevelopment projects.
“I hope that as our lawmakers are deciding how to treat these tax-credit programs — and hopefully deciding to keep them —that they are also cognizant of giving them longevity,” Hankey said. “I think it’s extremely important that these programs show that they have longevity so we can continue to attract investors.”