Amid budget crunch, Louisiana Legislature to examine generous historic tax credit

    Baton Rouge’s illuminated downtown skyline, a tangible measure of the resurgence of development in the area, has been shaped by a relatively small and obscure state tax incentive that has kept intact an air of history in the Capital City.

    Taxpayers fund the Commercial Rehabilitation Tax Credit, a statewide incentive that gives developers who renovate historic, sometimes hundred-year-old buildings a check for 25% of the project’s cost. The credit comes at a cost of around $8 million to $13 million per year to the state budget, which has struggled with repeated shortfalls year after year.

    But for every dollar the state spends on the credit, it receives around $2.77 back in its coffers in tax revenue, according to the most recent study on the program in 2015.

    The program is projected to cost around $16.5 million this year, according to state Department of Revenue Data. The incentive expires in 2018, but the Legislature is expected to consider renewing it or rolling it back in the spring.

    The Louisiana Office of Cultural Development commissioned PlaceEconomics, a Washington, D.C., consulting firm specializing in these types of incentives, to conduct a study that will be  presented to the Legislature ahead of this year’s regular session.

    PlaceEconomics Principal Donovan Rypkema says Louisiana has one of the three “best” historic tax incentives in the country, largely because of the generous amount of money it provides and the ability to transfer the credit to other developers. When one person uses the incentive, Rypkema says, it has a “snowball effect,” leading to more and more projects nearby.

    Developers say it allows them to breathe new life into old, historic buildings they would not otherwise be able to, because such a task is so expensive.

    In downtown Baton Rouge, the results are evident. The Watermark Hotel, the Commerce Building—home to Magpie Cafe and luxury apartments—and the Hilton Capitol Center, which some say catalyzed the area’s growth, were all developed using the incentive. Since the program began in 2002, developers renovated 132 old buildings with the tax credit, some of them using a corresponding federal incentive on top of it.

    “It keeps intact the character of the city, the community,” says Davis Rhorer, the Downtown Development District’s executive director. “Taking older buildings and bringing them back to life can be challenging. It’s not easy. So this program helps make the numbers work.”

    Around 30 of the projects in Baton Rouge have been in the Downtown Development District, and dozens more were used in Mid City.

    Several years ago, architect and developer Dyke Nelson renovated The Tessier building at 342 Lafayette St., which has been around since the late 1700s or early 1800s and which Nelson says is the oldest commercial building in Baton Rouge.

    “The way I approach it as a designer is to be respectful of the building,” Nelson says. “We don’t try to overshadow it. We put our ego in check.”

    Nelson says he has renovated more than a dozen historic buildings in the parish, including several as a developer. Many of the projects have been smaller buildings that larger developers are not interested in, and the tax credit makes the projects feasible from a business standpoint, he says.

    Alison Saunders, who oversees the tax credit at the Louisiana Office of Cultural Development, notes that since the Hilton Capitol Center was constructed using the tax credit something of a renaissance of construction has occurred downtown. The credit has gained so much favor among developers that it’s becoming difficult to find historic buildings to renovate, she says.

    “Fifteen years ago, downtown Baton Rouge closed at 4:30 or 5 in the evenings and it was done,” Saunders says. “Now we’re seeing a lot of construction, and that was just unheard of back then.”

    —Sam Karlin

     

    View Rehabilitation Tax Credit in Baton Rouge in a full screen map

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