Penny wise, pound foolish, but pretty is as pretty does

A commercia1 revitalization tax credit bill, recently introduced by Sen. Kay Bailey Hutchison (R-Texas), is designed to attract more than $7 billion of private-sector investment for some of the most troubled neighborhoods and communities in the United States.

A top legislative priority of the American Institute of Architects (AIA), the bill as designed now would “create jobs, generate tax revenue and improve the physical appearance of these specially designated revitalization areas,” according to Hutchison.

“This bill will encourage business investment in the areas of this country that need it most,” says Terrence McDermott, executive vice president and CEO of the AIA. “A commercial revitalization tax credit would fill a gap in the range of measures designed to make declining neighborhoods good places to live and work.”

Recent federal actions, as well as actions of some local and state governments, have sought to encourage local solutions to local problems by urging the establishment of empowerment zones, enterprise communities or other revitalization areas. The citizens and businesses of these areas consider the problems they face, develop a vision for their future and a strategy for achieving it.

Their work employs a variety of resources, federal and non federal, public and private, along with regulatory reforms and tax incentives in coordinated fashion, to address the needs that they have determined. New block grants for housing, community and economic development proposed as part of the reorganization of the Department of Housing and Urban Development would support and encourage these local incentives.

Missing, however, from the mix of financial incentives is a tax credit for business expansion and rehabilitation in order to facilitate the physical development necessary for job growth to occur. If business is to expand or renew itself in distressed areas, the AIA says, incentives directed to business development costs are necessary. The AIA proposes such a credit. The legislation would provide businesses and entrepreneurs with an option of taking either:

* a one time 20 percent tax credit that can be carried for ward, if necessary, against the cost of new construction or rehabilitation; or

* a tax credit of 5 percent per year for 10 years. A lifetime cap would be placed on creditable expenses.

Each credit would be available to defray the construction costs of new and expanded business development within the specially designated areas.

Eligible activities would not include costs for normal maintenance and repair, but would include new construction and major alterations or historic preservation. There would be a lifetime cap per project of $10 million on the amount of expenditures eligible for the credit.

In the proposed legislation:

* Eligible areas would include neighborhood strategy areas set up to use federal formula grant programs, like the Community Development Block Grant program (involving more than 1,000 communities with populations greater than 50,000, plus additional small communities eligible for state-administered block grant funds) or other specifically identified revitalization area established under federal, state or local law;

* A rehabilitation or expansion must exceed 25 percent of the “current tax basis” except that several projects together totalling at least 25 percent during any calendar year may be considered together as a qualified rehabilitation or expansion;

* Projects must start (i.e., at least 10 percent of the total anticipated project costs must be incurred) by the end of the first calendar year following the allocation of the credit. States may recover a credit that is not used and apply it to somebody else;

* Up to 30 percent of the creditable project costs could consist of land and building acquisition, demolition and toxic site clean up; and

* The cost of the program would be set at a total of $1.5 billion worth of credits arranged as follows: $100 million for calendar year 1996, $200 million for CY 1997 and $400 million each year from CY 1998 through CY 2000.

The legislation would allocate these funds to the states for awards to specific projects that localities believe qualify for the incentive. A strong aspect of this credit is its flexibility. It will work for a wide range of retail, industrial, healthcare and other facilities that are crucial to making their communities good places to live and work.

It will also require a minimum of federal bureaucracy, with most of the work done by the states, which would allocate the credits and monitor projects to ensure that the proposed benefits are realized.

For more information, contact the American Institute of Architects, Public Affairs Department, 1735 New York Ave., NW, Washington, DC 20006, (202) 626-7460.