At NTCIC, we live and breathe historic preservation every day. With 17 years of experience as a subsidiary of the National Trust for Historic Preservation, we operate as a mission-oriented tax credit syndicator, raising investment capital through federal tax credit programs like the Historic Tax Credit and the New Markets Tax Credit to finance the revitalization of historic buildings, especially those located our country’s most distressed communities.
In 2017, these critical tools for investing came under a tremendous threat as Congress and the new administration undertook the most significant overhaul of the federal tax code since 1986. Despite having long-standing support from both Democrats and Republicans in communities large and small, both credits were included in the category of “special interest credits and deductions” that were targeted for elimination. So NTCIC ramped up our already robust commitment to the preservation not just of individual buildings but of the critical tools to preserve thousands of them.
I am delighted to report that we have achieved a remarkable result. The New Markets Tax Credit (NMTC) has been retained for three additional years, as contemplated in the prior tax legislation, the PATH Act of 2015. And the 20 percent Historic Tax Credit (HTC) has been retained with a modification that will require the credit to be taken over a 5-year period. This change to the credit is estimated to reduce the cost of the credit (as scored by the Joint Committee on Taxation) by approximately $2 billion over 10 years. As a point of reference, a similar savings for scoring purposes would have reduced the credit to 16%.
While the change to the HTC may cause the value of the credit to decrease because the net present value of the credit taken over 5 years will be less than its current delivery in a single year, we remain very encouraged by the outcome. Considering that the HTC was actually repealed in full in the first version of the reform package released by the House Ways and Means Committee in early November and was reduced by half in the first version contemplated by the Senate Finance Committee two weeks later, the preservation of the credit at the 20% level is a significant win.
Based on our preliminary discussions with investors, we are optimistic that the potential reduction in credit pricing will be partially offset by other changes to the tax code that will provide a positive counterbalance to the value of the credit. The lowered corporate tax rate, for example, will reduce the impact of the so-called 50(d) income in master lease transactions which will provide a pricing benefit. In addition, we anticipate that state tax credit pricing may increase in a number of states once changes to the state tax deductions take effect.
We are grateful for our colleagues in the broader preservation community and in the tax credit industry who worked closely with us to preserve the HTC. Our colleagues at the National Trust for Historic Preservation and partners in the Historic Tax Credit Coalition tapped into thousands of advocates who asked their Members of Congress to preserve the HTC in the final tax package. And our voices were heard. Longstanding HTC supporters such as Sens. Ben Cardin, D-Md., and Susan Collins, R-Maine, and Reps. Mike Kelly, R-Pa., and Earl Blumenauer, D-Ore.—who sponsored the Historic Tax Credit Improvement Act – worked with Rep. Mike Turner, R-Ohio, Chair of the Historic Preservation Caucus to encourage colleagues to support the HTC. They were joined by new supporters such as Senator Bill Cassidy, R-La., and Congressmen David McKinley, R-W.Va. who championed efforts in the Senate and the House to retain the credit. We also appreciate the support of dozens of members such as Congressmen Rod Blum, R-Iowa, Brad Wenstrup, R-Oh, and Rep. Bruce Westerman, R-Ark who wrote letters to Republican leadership requesting retention of the credit and members like Congressman Tom Garret who spoke about the value of the HTC on the House floor. In the Senate, Sens. Chuck Grassley, R-Iowa; Pat Roberts, R-Kan.; Johnny Isakson, R-Ga.; and Tim Scott, R-S.C. supported a more wholesome retention of the credit as it was considered by the Senate Finance Committee. Letters of support can be viewed at https://live-national-trust-community-investment-corporation.pantheonsite.io/htc-nmtc-letters-support/
As Congress returns to D.C. in 2018, we will be reaching out to our champions to support renewed advocacy efforts to restore the value of the credit and to make technical corrections that ensure it works effectively for all transactions. We anticipate that we will be able to realize the vision of the Historic Tax Credit Improvement Act. Now that we’ve preserved the credit, we will be able to improve and enhance it to be an even more effective pro-growth tool to revitalize our country’s heritage for the benefit of a new generation of Americans.