Financial Incentives June 25, 2015

Background 2006 – Landmark Commission established the adoption of financial incentives for historic properties as a goal – Staff researched other cities and developed proposal; reviewed proposal with Landmark Commission. Not supported by City management – Proposal discussed by Landmark Commission and City Council. No action taken – Landmark Commission passed a resolution supporting the adoption of financial incentives.

Background Authorized by Sec of the Texas Tax Code Financial incentives are a common element in historic preservation programs in Texas Staff reviewed: Amarillo, Austin, Beaumont, Dallas, Denton, El Paso, Fort Worth, Houston, Plano, San Antonio and Waco

Existing Historic Tax Incentive Granted by City Council Must be Galveston Landmark or Contributing to a Historic District Eligible properties must include a minimum of: 10,000 to 14,999 gross leaseable area (GLA) per project, and $1 million of capital improvements for a three-year tax exemption 15,000 to 19,999 GLA per project, and $1.5 million of capital improvements for a five-year tax exemption 20,000 GLA, and $2 million of capital improvements for a seven-year tax exemption.

Existing Historic Tax Incentive Used only three times since adoption in 2000 – Texas Building, Hendley Building, Medical Arts Building

Existing Historic Tax Incentive Scale of Building required to meet current program – 10,000 square feet

Proposal Adopt a Financial Incentives for Historic Properties program with three elements: Substantial Rehabilitation New Historic Districts and Galveston Landmarks New Neighborhood Conservation Districts

Substantial Rehabilitation Galveston Landmark or Contributing to a Historic District Residential or commercial structures. Property owner invests at least 50% of value of the building Receives a 10-year “freeze” on City taxes Property owner continues to pay City of Galveston taxes on the pre- improvement assessed value for 10 years. Property owner pays taxes to the remainder of the taxing entities based on the current, post-improvement assessed value.

Substantial Rehabilitation Qualifying improvements must extend the life of the building, such as roof, foundation, and siding work; electrical, plumbing, and HVAC systems work Improvements that increase the energy efficiency of the building, while retaining its historic integrity, may also be considered. Such improvements may include: rainwater harvesting, renewable energies, attic and floor insulation, interior window insulation, and radiant barriers. “Sweat equity,” for labor provided by the property owner, may be included in the cost of work

Substantial Rehabilitation Process First step – application to the Landmark Commission (LC) for participation in the program. LC reviews scope of work to determine conformance with Design Standards Work is completed Second step – application to the Landmark Commission for verification of program requirements TDB – Tax Exemption approved by City Council? Some cities do, some don’t Final – property owner files exemption with Central Appraisal District

Substantial Rehabilitation No loss of funds to City Amount of City taxes remains constant for 10 year period At 11 th year, Property Owner pays City taxes on current assessed value Increased staff time Increased Landmark Commission workload Possible increased City Council workload

Examples – Substantial Rehab 1614 Avenue M Lost Bayou Historic District $27,740 CAD Value

Examples – Substantial Rehab Improvement Total % Increase 2004 $19,260 $27, $105,240$122, % Cost of Work$21, year tax revenue$4,827 Tax Freeze$1,096 Savings$3,731 Current CAD Value: $203,680 ($1,087 Tax Revenue)

Examples – Substantial Rehab 1718 Avenue M ½ Lost Bayou Historic District $41,770 CAD Value

Examples – Substantial Rehab Improvement Total% Increase 2004$34,580$41, $120,920$135,300224% Cost of Work$25, year tax revenue$5,344 Tax Freeze$1,650 Savings$3,694 Current CAD Value: $223,630 ($955 Tax Revenue)

Examples – Substantial Rehab 1511 Church East End Historic District $15,690 CAD Value

Examples – Substantial Rehab Improvement Total% Increase 2004$11,360$15, $50,100$58,760275% Cost of Work$75, year tax revenue$2,321 Tax Freeze $620 Savings$1,701 Current CAD Value: $81,520 ($435 Tax Revenue)

New Historic Districts and Galveston Landmarks 25% tax exemption on City taxes 10 years Owner-occupied structures New Neighborhood Conservation Districts 15% tax exemption on City taxes 10 years Owner-occupied structures

Purpose Incentive for the establishment of new historic districts, Galveston Landmarks, and Neighborhood Conservation Districts. No new historic district since Only 22 Galveston Landmarks and one NCD. Discourages gentrification if property values increase after historic designation study by the Center for Urban Policy Research at Rutgers University, found that property values in a historically designated neighborhood are between 5% and 20% higher than similar non-designated neighborhoods. The study identifies property tax incentives as a means of encouraging rehabilitation while dampening displacement.

Notes Results in initial reduction in City revenue Reduction may be eliminated as property values increase Potential for increased Staff and Commission workload as number of historic properties increase

Examples – New Historic District, 25% Total 2014 revenue$334,330 Eligible revenue$248,353 Non-eligible revenue $85,977 Adjusted revenue$272,242 Revenue loss $62,088 Average savings $253/year $2,530 total Projected Revenue after 10 years$401,196 Denver Court

Examples – New NCD, 15% Texas Heros Total 2014 revenue$83,085 Eligible revenue$48,826 Non-eligible revenue$34,260 Adjusted revenue$75,761 Revenue loss $7,324 Average savings $96/year $960 total Projected Revenue after 10 years$99,702

Next Steps Adoption of Ordinance by City Council Public Outreach

Other Historic Tax Credits Federal Tax Credits: 20% of project cost for substantial rehabilitation Commercial or rental housing buildings Building must be listed on the National Register of Historic Places Administered by the Texas Historical Commission and National Park Service 10% of project cost for substantial rehabilitation Commercial buildings built before 1936 Specific physical test for retention of external walls and internal structural framework Administered by the Internal Revenue Service

Other Historic Tax Credits State of Texas Historic Preservation Tax Credit Implementation began in January % credit on substantial rehabilitations – applied to Franchise Tax Commercial or rental housing buildings Building must be: National Register of Historic Places Recorded Texas Historic Landmark (RTHL) State Antiquities Landmark Register Historic District Administered by the Texas Historical Commission and State Comptroller

Other Financial Incentive Tools

Neighborhood Empowerment Zones (NEZ) Chapter 378, Local Government Code Designated area within a municipality, created to promote: Affordable housing; An increase in economic development; An increase in the quality of social services, education or public safety; or The rehabilitation of affordable public housing in the zone

Neighborhood Empowerment Zones (NEZ) Chapter 378, Local Government Code Within zone, authorizes a municipality to: Waive or adopt fees development fees in the zone Abate municipal property taxes Refund municipal sales tax on sales made in the zone Set baseline performance standards, to encourage use of alternative building materials that address concerns relating to the environment, building costs, maintenance, energy consumption

Neighborhood Empowerment Zones (NEZ) Texas Cities that Participate in NEZ: McKinney, Fort Worth, Laredo, Taylor, Seabrook, Burnet, Texas City, Woodhaven, Red Oak, Fair Oaks Ranch, San Antonio, Denison…etc

Neighborhood Empowerment Zones (NEZ) Considerations Property owners opt-in (participation is not required) Can be tiered with different incentives for different land uses Can be tailored for business districts, neighborhoods, historic districts Costs to municipality are minimal – outweighed by private investment Staffing/Administration needs

Façade Improvement Grants Usually a matching fund grant for site and structural improvements Typically associated with commercial corridors Forgivable loan – 20% per year over 5 year period

Home Improvement Incentive Program Operates like a tax abatement, except provided as a one-time rebate Rebate equal to 10 times the amount of the increase in City taxes For example: A home improvement project is approved in January 2015, and completed in July Property tax value would be calculated before and after the improvements. If the difference in property tax totals $200, the homeowner would receive a $2000 rebate.

Volunteer Efforts People Helping People Program (Dallas, TX) CDBG-funded materials and volunteer assistance for minor repairs homes of elderly/disabled Cowtown Brushup (Fort Worth, TX) CDBG-funded materials and volunteer assistance for painting 100 homes in 2 weekends Volunteer Assistance Program (Richardson, TX) Donated materials and volunteer assistance for code violation properties whose owners lack the resources to abate