Bill will bolster historic preservation

Photo of Old City courtesy of Brad Maule, check out his complete portfolio at

Sept. 7

By Alan Jaffe
For PlanPhilly

A bill that would broaden the use of federal tax credits for rehabilitation of historic properties to smaller projects will be introduced in the House of Representatives this month.

U.S. Congresswoman Allyson Y. Schwartz, representing the 13th district of Pennsylvania, which encompasses Montgomery County and a portion of Northeast Philadelphia, is spearheading the effort. The city and suburbs, she said, are “rich with historic assets and strong preservation interests.” The legislation would have a great impact in Center City, “across the region and across the country,” she said. “I have seen first-hand the use of tax credits as a successful economic development tool.”

In addition to extending the tax credits to smaller-scale projects, the bill would allow more conversion of older to buildings for housing, and would link historic preservation to energy efficiency, “which is a keen interest of mine,” Schwartz said.

The first section of the Restoration and Revitalization Act would increase the current historic tax credit from 20 to 30 percent for projects of $5 million or less. The deeper credit would increase net equity for such projects and, hopefully, make them more attractive to private investors.

Another section would permit a 10 percent credit for rehabilitating older buildings that would be used for rental housing, such as “above-the-store” units often found along downtown commercial corridors.

The definition of an “older” building in the bill would be one that is at least 50 years old.

The bill’s “green” amendments would encourage building owners who are in the process of rehabilitating historic buildings to strive for energy savings. That portion of the legislation allows for graduated increases in the historic tax credit based on achievement of energy efficiency.

“One of the great things about this bill is a great provision to make historic buildings more energy efficient,” said John Sherry, the legislative director in Schwartz’s office. “We’ve worked with developers across the country” in crafting the measure, “and this will encourage them to reuse existing buildings and reconstruct them in a more energy-efficient manner.”

The legislation also would allow the transfer of rehabilitation tax credits to those outside the development partnership for projects under $5 million, which could lure more investment in such projects.

Support Across the Board

Sherry said the bill already has the support of dozens of preservation organizations, banks and developers, including the National Trust for Historic Preservation, American Institute of Architects, Affordable Housing Tax Credit Association, Historic Preservation Development Council, Local Initiatives Support Corporation, Citibank, PNC, Main Street Mortgage Corporation, and Smart Growth America.

The Preservation Alliance for Greater Philadelphia has worked with Schwartz’s office in crafting the legislation.

John Gallery, executive director of the Preservation Alliance, explained that federal tax credits on historic properties have mainly been used in recent years by the big banks because “on the one hand, they needed to satisfy the community investment requirements of the federal government. The banks could invest back into local communities, but they also could use the tax credits to offset their profits.” Other big buyers of the tax credits have been corporations such as Chevron and Sherwin Williams. But many of the big players have pulled back during the economic downturn.

For smaller deals, up till now it has been “very hard to take advantage of those tax credits, because no one wants to buy them – they’re too small. And they can only be used by those who are investors in the project, the developers themselves, and often they don’t need them,” Gallery said.

Many of the projects the Preservation Alliance supports fall into that small-deal category: conversions of groups of rowhouses, or properties on commercial corridors with second-story housing. The bill would make those deals more feasible by increasing the tax credit and making it possible to sell the credits. “Those are the changes that I think will be very helpful to us in Philadelphia, because there are lots of these smaller buildings in districts on the National Register of Historic Places,” Gallery said.

But Philadelphia hasn’t had a new district listed on the National Register since the early 1980s. “We as an organization haven’t paid a lot of attention to the National Register,” Gallery said. “We pay a lot of attention to getting districts in the Philadelphia Register because we have been interested in local protection.

 “But the federal investment tax credit is the biggest economic incentive in historic preservation in Philadelphia,” he said. Over the past 10 years, $1.5 billion of real estate investment projects in the city have utilized the tax credit, or $100 million to $150 million a year.

There are currently 22,000 buildings in Philadelphia on the National Register. In Baltimore, 45,000 buildings are listed on the register. “And the reason there are so many in recent years in Baltimore is that they undertook a deliberate strategy to try to add as many National Register districts as they could get qualified in order to increase the number of properties that could get these tax credits,” Gallery explained.

“I think that is an economic development strategy for historic preservation that we have not paid enough attention to.”

Success in the Past

Northern Liberties has a small district on the National Register, “but if there was a larger district, a lot of the rehab up there would qualify for these tax credits. Real estate development is going to be more feasible if you’ve got someone coming in with 30 percent of the equity. Even in the current market, it means whatever loans you’re gong to have to find are going to be less than if you were doing the deal without the tax credits.”

The revitalization of Old City in the 1970s and 80s, Gallery said, was “really the result of designating that district as a National Register district and getting access to the tax credits. When Landmarks for Living did all those projects, every single one was done with these tax credits. The reason Main Street in Manayunk was designated a National Register district was the same thing – to get the tax credits to encourage investment and renovation of the buildings,” Gallery said.

“It’s a strategy that worked very successfully in the past. I don’t think Philadelphia in general, and the Alliance as an organization, has put enough emphasis on it. It’s something I want to change,” he said. “That’s why broadening this bill is a very important strategy. It will make preservation a much more effective development tool in Philadelphia.”

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