That’s because the eight states adjoining Tennessee — as well as most of the Southeast — offer a state historic tax credit in exchange for qualified restoration of historic buildings.
Nationwide, Tennessee is one of just 15 states without a state historic tax credit, although a similar federal program offers up to a 20 percent income tax credit for renovating historic, income-producing buildings.
Johnson City Downtown Development Manager Dianna Cantler said the creation of a state program could be vital to entice more development in downtown Johnson City and the rest of Northeast Tennessee.
“It would give us the ability to leverage this tax credit to bring in developers who are used to developing in neighboring states and used to using these tax credits,” Cantler said.
“We’ve been at a disadvantage because we haven’t had this as a tool in our toolbox. For us regionally, this is a huge opportunity to reach out to people, who are used to developing historic properties (and) who do it well. But, we haven’t been able to recruit them to our region because of not having the tax credits.”
This session, a bill in the Tennessee legislature, called the “Main Street Historic Tourism and Revitalization Act,” would establish such a program, but it has yet to be heard in either a Senate or House committee. Gov. Bill Lee also excluded funding for the program in his budget proposal.
As the bill is currently written, the proposal would offer tiered economic incentives based on the location of the historical structure.
In Williamson and Davidson counties, developers could receive up to 10 percent in tax credits, based on the amount of qualified rehabilitation work completed.
In Knox, Hamilton and Shelby counties, that percentage increases to 20 percent, while in all other counties, including all of Northeast Tennessee, developers could receive 30 percent in tax credits for restoring historical buildings.
If the historical building is located in a state-approved “Main Street,” an additional 5 percent credit would be available.
“I think it’s written to really spur development where it needs to be,” said developer Grant Summers, who’s in the midst of renovating the historic Model Mill in Johnson City.
“The big cities don’t get nearly as much, but their rent is a bit higher. You compare the cost of construction in Nashville versus Johnson City, it might be a little bit higher (in Nashville). They’ve got a little bit more labor pressure, maybe 10 percent higher cost. But their rents are double and triple what we have here. It just drastically changes the economics of a deal.”
For a building to qualify, it must be listed individually on the National Register of Historic Places, or it has to be located in a registered historic district and be certified by the secretary of the Department of the Interior.
In Johnson City, the Montrose Court Apartments, the Johnson City Country Club, the Johnson City Commercial Historic District and the Johnson City Warehouse and Commerce Historic District would all qualify, based on the current version of the bill. The John Sevier Hotel could also be eligible for such a credit should the bill get signed into law.
“I’d be willing to bet any amount of money, if this passes the state level, that the John Sevier is under development within two years,” Summers said.
The project would also have to meet the Department of Interior’s Standards for Rehabilitation, while the Tennessee Historic Commission would provide oversight and approval.
“Because of the standards, the rehab is done at a higher quality,” Cantler said.
“So they can’t make huge changes to the aesthetics of the building so the historic preservation comes into play there. It costs more to do it and do it well, but with the historic tax credits, we know that the project is going to be completed in a quality manner.”
Since Tennessee does not have an income tax, developers could use the tax credits towards any “state tax liability” for insurance premium taxes, retaliatory taxes, business taxes and franchise and excise taxes, among others.
While the bill could cost the state between $21 million and $40 million in its first year, depending on how much lawmakers decide, if any, to allocate, a 2016 analysis of Wisconsin’s historic tax credit found 40 percent of the credit is paid back in state taxes before the building is even finished, and the remainder is recouped by the state within four years.
Another assessment of the Ohio Development Services Agency in 2015 estimates that every dollar in state historic tax credits attracts an average of $6.20 in private investment.
Last month, the Johnson City Development Authority joined Elizabethton and Bristol, Tennessee, in passing a resolution supporting the creation of a state tax credit program. State Sen. Rusty Crowe, R-Johnson City; Rep. David Hawk, R-Greeneville; and Rep. John Crawford, R-Kingsport, are all cosponsors of the bill.