PROVIDENCE – On Thursday, May 24, 2012, the Rhode Island Public Expenditure Council (RIPEC) will release its comments on the reauthorization of the Historic Preservation Investment Tax Credit (HPITC). The comments provide an overview of historic preservation tax incentives at both the federal and state level, and issues for consideration if the state is to reinstate the credit. The report finds that the economic benefits of the HPITC may support the temporary reauthorization of the credit as a means to stimulate the state’s economy. The report is available here.
As the economy – and revenues – begins to recover, the state will be faced with two choices: undo structural changes that were made in response to the economic downturn, or take an investment-based approach to the budget. While RIPEC believes that the state should not take any actions that will contribute to its structural deficit, historic credits from abandoned projects may allow for a targeted, short-term economic stimulus. Allowing new developers to apply for the abandoned credits may provide a much-needed boost to the state’s economy, particularly as the current economy may not be robust enough to support development, particularly for commercial properties, without the credit. Importantly, a temporary reinstatement also allows for a comprehensive evaluation of the credit’s efficacy in stimulating economic activity and job creation.
In the long-term, Rhode Island may benefit from full reinstatement of the credit; however, this decision should be a part of an overall review of the state’s tax policy. For example, are the credits, which effectively lower corporate tax burdens, more effective at generating economic activity than lowering the corporate tax rate, particularly given the state’s high marginal tax rate? The state must also consider the structure of the credit, including, but not limited to, the value of the credit, per project or statewide caps, and carry forward periods.
Full restoration of the HPITC must be done in a thoughtful manner, based on an evaluation of the efficacy of the credits, whether they generate a return to the state, and how they fit into the state’s overall tax system. However, a temporary reinstitution of the credits – allowing new developers to apply for the roughly $26 million in outstanding credits – may provide both a solid economic stimulus in an area of particular weakness in the state’s economy, and an opportunity to systematically evaluate the economic value of the credits.