Category Archives: Tax Credit News

In Memoriam: Alabama Historic Rehabilitation Tax Credit, 2013-2016


Now that the 2016 Legislative Session has officially come to a close, and with no prospect of a special session in sight, it is now appropriate to mourn the loss of the Alabama Historic Rehabilitation Tax Credit – one of the most popular and effective economic development tools the State of Alabama has known – and examine the failure of one of the most widely supported pieces of legislation this session.

First, however, we would like to express gratitude to the non-profits, individuals, colleagues, mayors, members of the media, business and industry leaders, and economic development professionals who came together and championed the cause.  The reporters and journalists who covered this legislation (too many to name here, which says a lot for the widespread support), in particular the Birmingham Business Journal and Birmingham News, were surprisingly aggressive in holding politicians accountable for their unsupportable positions by challenging their unsound arguments.

Unfortunately, we were not successful, but the last two weeks have helped us better understand (even if vaguely) why.  It seems that the death of the Historic Tax Credit may have been a sacrificial lamb for another tax break that presents the real budgetary challenge, made possible by secretive political deals surrounded by intrigue.

Until the public understands the Alabama Jobs Act – and the confidential deals being made with industrial recruits – it will be hard to connect the dots between the HTC death and the real (and much larger) black hole budget issue our legislative budget teams face, at least on the record anyway.  Senator Marsh asserted in the closing weeks of the session that a program with a maximum of $20 million in non-refundable credits per year is a problem, yet made no mention of a maximum $850 million in credits (a portion of which are fully refundable) that are not restricted to being awarded in any particular year!  Enter the Alabama Jobs Act.

For context, the maximum exposure from the Alabama Jobs Act dwarfs this year’s $100 million Medicaid shortfall by more than 8 times.

Yet, the public heard little if anything about the Alabama Jobs Act when it was passed last year (Alabama Act 2015-27) with broad support, including Marsh’s, in the legislature.  It wasn’t up for debate this year so little to no coverage was given during this year’s legislative session.

To be clear, I am not suggesting there is anything at all nefarious about the Alabama Jobs Act or the incentives it authorizes.  Quite the contrary.  In fact, Fusion supports the type of incentives in the Alabama Jobs Act, namely that each deal must demonstrate “that the amount of tax incentives sought are exceeded by anticipated revenues for the state.” Fusion actively supports such pay-as-you-go, revenue-positive incentives as a vital part of economic development, and we work hard when we have the opportunity to help clients avail themselves of such programs when they are trying to decide between states.

Multiple sources inside and outside the government have suggested that it was not the amount of HTCs outstanding, but rather angst about potential claims of credit under the Alabama Jobs Act that’s indirectly led to the death of the HTC.  I’m not sure what single deal or recruitment effort might have made the budget teams sweat in the closing weeks of the session.  Even if I knew, (and even if they know), what the deal is, the negotiations of such incentives are confidential, with projects referred to by code names.  This is as it should be in order to protect the interests of states and companies due to the sensitive nature of the site selection process.  (Even once site selection announcements are made, the terms of the incentive agreements are often still closely guarded).  The point is not to disparage the positive aspects of the Jobs Act but to point out that the HTC accomplishes the same positive goals.

Specifically, the Historic Tax Credit provides the same kind of net-benefit-to-the-state payback.  It’s just that the quantification of such payback on a project level is simply not explicitly required on a deal by deal basis in the authorizing legislation, as it is in the Alabama Jobs Act.  Even so, the HTC law required an economic impact study, which was performed, that showed a benefit to the state of $3.90 per dollar of credit.  These sorts of studies in various states, while varying in the types of data and assumptions used, and in the amount of return, have always shown positive returns for credits like Alabama’s.  It is for this reason that many, including our firm, have generally thought of the HTC as yet another great arrow in the quiver of the Department of Commerce for economic development in the State of Alabama.  As such, it comes as quite a surprise to learn that the Jobs Credit and Investment Credit were somehow set up as competing with the HTC in 2016.

Until this unnatural conflict is resolved in a future legislative session, it seems the legislature has – intentionally or not – sent a message to the State of Alabama that mega corporate tax breaks are more important than community-level incentives for economic development.  Further, by virtue of the outcome of the session, clearly Sens. Marsh, Pittman, and Orr, felt they needed to allow (as John Archibald so interestingly put it) “a tax increase on any cities with historic buildings that need repair, and on the communities and businesses that would benefit from their restoration” in order to provide tax credits (the refundable portion of which are tantamount to cash subsidies) to large corporations as incentive to locate in Alabama.  In a rational world, these programs would be on the same team pulling in the same direction for the good of the state.  Apparently by setting them apart, the legislature is telling us that there is a difference and that it has chosen to sit on the opposite side of the table from Main Street Alabama, Tourism, local residents, and companies already here in Alabama.

Maybe there is another message though.  Could it be that we local leaders underestimate ourselves? Perhaps every county, no matter how large or small, urban or rural, should just look forward to landing its own Remington, Airbus, or Google.  After all, there are only about 60-odd counties left who don’t have one or two.  Manufacturing jobs do pay more and are harder to relocate than service jobs, right?  The downside is not too bad, either, as long as we don’t want to be unique as Alabamians.  Sure, by the time all those companies get here, their management and employees may have to live and do business in brand-new construction since the buildings that long gave each community character may well have fallen apart or been demolished.

But hey, we’re trying to be global and 21st century, so shouldn’t our places look and feel the same as anywhere else in the world?  Who needs a sense of place as long as we’re in the factory?  Creative and service industries, not to mention cultural/heritage tourism, don’t quantify their economic impact like the manufacturers do (or do they?) so it makes sense that no real argument is advanced for them.  We’ll all be fine…at least until the robots take over and access to technology is ubiquitous.  Can’t be anytime soon, right? Perhaps nine years is long enough that the legislature feels we (or at least they) shouldn’t worry about it right now.  They had lotteries to create, cities to overrule, and a governor to impeach in 2016.

While the legislature has passed the buck to just let whoever is in office later worry about where people will want to live, travel, and spend their money (and who will be able to do it) when 2025 rolls around, we will continue to advocate for the use of cost-benefit analysis in policymaking, and for sensible local-level economic development tools like the Historic Rehabilitation Tax Credit at every opportunity.  We hope that you will, too.  On to 2017.

Why do Historic Tax Credits matter to small towns in Alabama, too?


You may have read by now about this week’s decision by Alabama Senate President Pro Tem Del Marsh to allow the Alabama Historic Tax Credit to die without being considered by the Senate. He says he wants more information, despite a Novogradac study that was very thorough, in order to know whether its good for Alabama.  (It seems that 32 of 35 senators – including MARSH HIMSELF – who were co-sponsors aren’t convincing enough).

Much has been written about the effect of the decision on places like Birmingham and Mobile, but it occurs to me that many don’t know about the need for the HTC in smaller, Main Street communities in the State of Alabama.

My firm alone has had discussions with and in some cases done significant work in support of projects in at least five cities that would benefit from the credit.  I can say with certainty that one or more projects in the cities of Selma, Fayette, Monroeville, Union Springs, and Livingston, would need this credit to have a chance and that without it, financial feasibility is highly doubtful. No doubt there are many more such projects that would be dead in the water without this credit.

While our state continues to do an outstanding job of recruiting major corporations and industry to locate here, what are we doing to ensure that Main Streets in Alabama are revitalized?  Not very much, I’m afraid.  Instead of sending the message to rural communities that finding the next Mercedes or Airbus is the salve for their woes, we should encourage them to rebuild and make vibrant the communities that they have.  Even when a Honda or a Remington come to town, they want quality of life for their employees.  And when you restore a town square, reopen a historic hotel, or make it possible for people to open professional offices in unused spaces…that’s a win for everyone.

Unfortunately, we don’t have many of these success stories in Alabama just yet – they’ve been in pre-production so far, at least until the brakes were thrown on last week.  But the video below, from TEDx Cleveland’s Jeff Siegler, “Building Community Through Historic Preservation,” is a good trailer for the story we hope to one day tell about Alabama.

Senator Del Marsh Killing Alabama Historic Tax Credit

Why? Not because the program isn’t profitable to the state.

In fact, a study by preeminent CPA and consulting firm, Novogradac & Co. issued in January, indicates that the HTC program has been responsible for over 2,100 direct construction jobs, 1,370 permanent jobs, $384 million in investment in the State of Alabama.

Highlights of the study include:

  • The Alabama Historic Rehabilitation Tax Credit is responsible for 2,133 direct construction jobs and 1,373 operational-phase jobs. The operation jobs are expected to grow over time.
  • Projects utilizing the Alabama HRTC can be considered anchor tenants for several development districts, and provide significant “halo effects” in downtown areas.
  • A model of the program’s tax impact demonstrates that for every one dollar of tax credit allocation the state invests in the program, $3.90 is returned to state/local tax collections over a 20-year period.
  • The modeled tax impacts demonstrate that by 2019, the State of Alabama will break even on its current investment of $60 million in tax credit allocation.
  • According to the Alabama Department of Revenue, $630,281 of tax credits were claimed in the 2014 tax year out of the $2,249,101 of tax credits authorized through tax credit certificates issued by the Alabama Historical Commission for projects completed in the 2014 tax year.
(Read full study here: here)

Senator Marsh says he is holding up the bill because his Senators can’t budget. Does the Senator really expect Alabama voters to believe that? Can’t the Senate understand the simple conservatism of budgeting each year as if all outstanding tax credits will be claimed, thereby allowing the State Treasury to be pleasantly surprised with un-budgeted revenue in any year when less than the full amount of outstanding credits are claimed? Maybe the Senate thinks it needs to find a way to spend every possible cent of tax dollars that should be set aside for tomorrow. It would seem by Senator Marsh’s arguments that it already has done so in prior years. Either way, that simply isn’t true to the fiscally conservative values the GOP majority claim to espouse.

Perhaps there are other, politically undisclosed reasons for holding up this widely supported and job-creating legislation (which, by the way, passed the House this month by an huge margin of 91-4). The votes to pass the bill are there in the Senate, which is ready to act…when it is given the chance. Senator Marsh, for his part, has not allowed any action on the bill the since being engrossed by the House.

“Historic rehabilitation tax credits are not ‘welfare for the wealthy’ as some detractors have alleged.  Far from it.  In fact, HTC’s actually enable projects that have long odds or would never otherwise have a shot. Expiration of the Alabama Historic Rehabilitation Tax Credit will actually return historic preservation in Alabama to being exclusively the domain of the wealthy – or the State Treasury itself.” – Brandon Hill, President of Fusion Advisory Services

The assertion that no HTCs ave been claimed to date is false. Further, there is plenty of data to show the expected timing of project completion and likely claims of the credits. In fact, much of this data has been collected, in part, by my firm as well as other project sponsors and industry leaders and submitted to the Alabama Historical Commission. Even more data was collected by Novogradac & Co. in the performance of their study. Why is this data not good enough for Senator Marsh? If his budget arguments are in earnest, then why can’t the Senate budget using common sense?

“So much for grassroots, Main Street type, projects in non-metro Alabama cities like the courthouse square in Monroeville, the St. James Hotel in Selma, the Cannon Building in Fayette, the Josephine Hotel in Union Springs, and the Hunt House in Livingston.  These communities have long awaited a program like this to accomplish their restoration and heritage tourism goals.  If Senator Marsh gets his way, it looks like these communities will be waiting a lot longer for this job-creating investment” – Brandon Hill, President of Fusion Advisory Services

Senator Marsh, here’s a free budget lesson: It would be simplest and most conservative to simply assume at the start of each budget year that all outstanding credits could be claimed. Proceed from there. (Hint: it’s the same way you balance a checkbook).

Don’t allow the Senate to put the state in an artificial bind by spending tax dollars that are effectively claimed by tax credit reservations. These aren’t bad checks the State of Alabama can’t cash. Commissioner Magee and the good people in her office at the Department of Revenue are doing a fine job of keeping track. We’ve written the checks already, we know how much they are for, and we know that the return on investment (390% in dollars, and countless jobs) is worth it.

Dear Senate: Balance the checkbook.

Success! The Economic Impact of Alabama’s Historic Tax Credit

Novogradac & Co. Report Demonstrates Overwhelming Success of Alabama HTC, Evidence Justifies Extension

In only 3 years, HTC program responsible for over 2,100 direct construction jobs, 1,370 permanent jobs, $384 million in investment in Alabama

January 27, 2016

MONTGOMERY, Ala. – The results are in, and it’s official: The State of Alabama’s three-year experiment with Historic Rehabilitation Tax Credit was an overwhelming success.

We’ve seen the evidence from Mobile and Birmingham markets about the economic activity that was jump-started.  Specific projects such as the Lyric Theater and Redmont Hotel – long-since thought impossible to bring back to economic viability – have surprised many by coming back from the dead in a big way.  However, proof that the HTC was providing a real economic impact has so far been anecdotal.  For some legislators, the lack of hard evidence provided political cover for outspoken opposition to extending the program.

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Two New Reports Paint an Incomplete and Inaccurate Picture of the New Markets Tax Credit

August 11, 2014

Birmingham, AL – The New Markets Tax Credit Coalition in a press release today responded to two reports that were critical of the new markets tax credit (NMTC). In its report, “New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness,” the U.S. Government Accountability Office (GAO) said that NMTC investors receive an unduly large annual return. In its statement, the NMTC Coalition counters that GAO overestimated those figures and that actual NMTC investor returns are aligned with market rates of 6 to 7 percent annually. The group also responded to a report released by Sen. Tom Coburn, R-Okla., “Banking on the Poor,” which suggested that the NMTC has not succeeded in helping struggling communities. The NMTC Coalition asserts in its response that the program has delivered more than $60 billion in capital to businesses in the nation’s poorest communities.

Treasury Announces $3.5 Billion in New Markets Tax Credit Awards to Revitalize Low-Income and Distressed Communities

June 5, 2014

Birmingham, AL – The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) today announced $3.5 billion in New Markets Tax Credit awards aimed at revitalizing low-income communities and increasing economic opportunity nationwide. A total of 87 organizations (Allocatees) across the country will receive tax credit allocation authority under the calendar year 2013 round of the New Markets Tax Credit Program.

“The New Markets Tax Credit Program creates jobs and critical investments in low-income neighborhoods and rural communities across the nation,” said Amias Gerety, Acting Assistant Secretary for Financial Institutions. “Often the New Markets Tax Credit is the most critical piece of the puzzle when trying to finance important economic development projects across the country. Its ability to attract private-sector capital into some of the most economically distressed and underserved communities is a hallmark of this important economic development program.”

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