[UPDATE June 25, 2008 - The final rule changes did not include the initially proposed five year holding period requirement. Thank you to everyone who helped highlight the negative impact of the proposed rule change.]

CLICK HERE TO VIEW THE PROPOSED RULE CHANGES - Note: the final rule changes did not include the following passage. However, this is an indication of how we must all be conscious of legislation and administrative rules concerning historic rehabilitation.

One change in particular concerned me greatly:

New Rule: 48.10A(303,404A) Repayment of tax credit certificates.
48.10A(1) The owner must retain ownership of the project building for five full years after completion of the rehabilitation or pay back the credit. If the building owner disposes of the project building within one year after certification of the project and award of the tax credit, the owner shall repay 100% of the tax credit. For properties held between one and five years, the tax credit repayment amount is reduced by 20% per year.

In practical terms, this rule would prohibit developers from utilizing the Historic Tax Credits to renovate otherwise qualifying historic single family homes - no developer could afford to hold a building for five years.

In designated historic districts throughout Iowa, the condition of many buildings is such that they require major renovation prior to occupancy. Unfortunately, many are also located in economically distressed areas where the full cost of a historic renovation is difficult to absorb into the cost of the house without subsidy of some sort. Hence the perfect opportunity for developers to utilize historic tax credits to rehabilitate and sell to owner occupants.

One of the most effective ways of encouraging maintenance and restoration of historic structures is to provide financial incentives for developers to perform rehabilitation work on structures for resale to owner-occupants. Developers (both non-profit and for-profit) are well suited to utilize this program because they can:

• build a foundation of expertise in tax credit requirements,

• keep a pool of quality subcontractors busy, and
• rehabilitate properties that are beyond the scope most individual homeowners could possibly undertake.

State historic tax credit investment is returned exponentially in direct materials, labor, and professional services expenditures as well as indirectly by increased property valuation, tourism, and jobs creation. The proposed holding period rule change will drastically decrease the value of the tax credits as a rehabilitation incentive and economic development engine.

Performing a substantial renovation on an occupied house is like changing the oil in a car while it's moving! Anyone who has lived a house undergoing substantial renovation knows how difficult a process it is. Aside from the obvious code and occupancy difficulties (living in a house without a kitchen and bathroom for example), we are now recognizing the extreme hazards of living in and around lead paint during construction. In fact, Polk County requires that occupants in their lead hazard reduction program be relocated during construction.

Additionally, since there is a two-year limit on renovation expenditures, even owner-occupants who want to renovate their own homes utilizing historic tax credits cannot do so over a length of time, but must accomplish the entire qualifying project within the two year window.

If the proposed rule change is implemented, a strong incentive for developers to renovate in an historically appropriate manner will be removed. My fear is that this will cause many beautiful historic homes that would qualify for tax credits to sit idle and decaying or worse, suffer irreversible non-historic renovation or demolition because there isn't incentive to do it "right"!

If too many buildings are irreversibly altered or demolished, National Register districts run the risk of being DELISTED.

I have seen firsthand the huge positive impact historic tax credits can have when individuals, and small to mid-sized developers concentrate on historic renovation in an eligible area - property values rise, tourism dollars increase, businesses open, and irreplaceable buildings are restored I lived in two such neighborhoods in St. Louis. It is vitally important that the State encourage developers to renovate historic structures, not prevent them from doing so!

This rule would also affect developers of larger projects such as loft condo conversions.