Government & Politics

End sought for limit on historic tax credits

TOPEKA — Historic tax credits help developers turn old, unused buildings into condos, hotels and office space, while preserving a city's unique architectural image, supporters say.

But new limits on how much in credits can be used statewide each year have put many projects — including some in downtown Wichita — on hold.

Eliminating the cap is one of Wichita's top goals during the legislative session that starts in January.

"Historic tax credits have played an important role in preserving some of Wichita's most notable landmarks, such as the Carnegie Library, which was renovated by Fidelity Bank," said Wichita Mayor Carl Brewer.

"Similar plans for the Broadview Hotel were short-circuited by the unintended consequences of last year's budget cuts by the state Legislature."

The program allows developers to tap into tax credits for up to 25 percent of the project, said Christy Davis, a preservation consultant with Davis Preservation in Topeka. The credits can be combined with a similar federal historic tax credit program and leveraged to borrow money.

Lawmakers last spring capped the amount of state tax credits that could be redeemed in 2010 and 2011 at $3.75 million per year.

The cap has put work on Wichita's Broadview Hotel on hold, said Herb Wedemeier, general counsel for Drury Southwest. DSW Broadview, which owns the hotel, is a subsidiary of the company.

When completed, the project could qualify for about $3.5 million in historic tax credits, he said. Under the new cap, that would leave little for other projects across Kansas.

Wichita projects

In Wichita, developers have used the historic tax credit on about 20 buildings, said Jeff Fluhr, president of the Wichita Downtown Development Corp.

The group supports restoring the tax credit program, he said. Developers need the program to be predictable before they are willing to invest large sums in redevelopment projects.

It isn't enough to simply replace old buildings with new construction, Fluhr said. Do that and you "start to take away the architectural heritage and character of our city."

Knowing what will be available with the historic tax credits is important as Wichita works on its 20-year downtown development plan, he said. It helps developers know what options are available.

When the tax credit was capped, developer David Burk was about six months into work refurbishing the old Wichita High School at 324 N. Emporia and converting it into 68 apartments called the Flats at 324. He expects people to start moving into the units in January.

Part of his financing was tied to about $1 million in state historic tax credits, which a bank had agreed to purchase. The tax credit cap threatened to put a loan taken out on the project into default, he said, until he cobbled together financing to keep the project going.

Burk owns Market Place Properties, which specializes in historic buildings. He said he has used the tax credits to refurbish other historic Wichita buildings, such as the Grant Telegraph building. The Old Town building had been vacant for eight years before he converted it to high-end apartments and office space.

The tax credits help secure funding to restore the buildings, but they are often multiyear projects and the tax credits aren't applicable until the work is completed, he said.

"A lot of these projects, they aren't a one-year project,'' he said. "So if you change the rules every year, that is really hard on a project.''

Burk said he is delaying a few other projects until he sees what happens during the legislative session.

Unintended consequence

Other developers may be watching as well. Projects across the state were affected by the change to the tax credit program, said Davis, the preservation consultant.

"It not only slowed down projects but it took some of these projects and took them to a screeching halt," she said.

Sen. Carolyn McGinn, R-Sedgwick, who has been working with groups on the tax credit program, said that while the intent was to save the state money during a revenue downturn, the change had an unintended consequence.

Although the tax credits might not be restored to their original level, lawmakers did not want to destroy a program that was helping with economic development, she said. Details of a potential fix are still being worked out.

"We don't want to wreck the major projects that are going to help the economy in the long run," McGinn said.

Development like the Broadview helps draw visitors to the city and gives people a place to stay near entertainment options such as Old Town, she said.

Refurbishing the buildings also helps the state, Davis said. Every dollar invested through the tax programs generates about $3 to $5 in private investment, she said.

The historic buildings don't just provide more living and office space. They add unique character to cities and towns, Davis said.

With a new building, a city "may get a building that satisfies their need for space but doesn't contribute to their sense of place," she said.