Gus Paras received $160,000 in state and federal tax credits to help renovate the Orpheum Theater sign.
It’s hard to miss: 2,000 light bulbs fixed to a towering 4,500-pound, 55-foot-tall sign suspended above the Orpheum’s marquee.
The State Street landmark, installed in July 2016, replicates the venue’s original sign to restore a cornerstone of Madison’s history. The new fixture, part of a larger renovation that began in 2013, relied in part on federal and state historic preservation tax credits. Without them, the sign’s rusted and unlit predecessor would likely have remained in place.
“Nowhere near as much would have been done,” says Amy Hasselman, the project’s architect. “I’m pretty sure they would not have done the whole sign. Forty percent of that is covered by tax credits.”
But if the state Legislature this summer approves Gov. Scott Walker’s budget recommendation to limit the state’s historic tax credit program to $10 million annually, neglect could soon become the norm for a larger chunk of Wisconsin’s historic properties. The program currently does not have a limit.
It would be a drastic reduction to a wildly popular program that provides a 20 percent transferable credit for rehabilitation expenses on certified historic properties. Developers who apply for the state credit usually also apply for a 20 percent federal historic tax credit, which would not be affected by proposed cuts.
Orpheum co-owner Gus Paras says the $160,000 in state and federal credits he received in 2015 for Orpheum renovations were a drop in the bucket in light of what he had already spent. However, he would have been forced to make cuts without it.
“If you only have so many dollars to spend, you’ll cut corners,” Paras says. “Having this boost helps us feel more secure; the Orpheum [sign] has been built to the original style; we didn’t cut any corners.”
Madison-based Alexander Company specializes in revitalizing historic properties around the country. Yet until recently, the company did very little work in its home state.
The increase of Wisconsin’s historic tax credit from 5 to 20 percent of the rehabilitation expenses in 2013 changed all of that.
“Historic buildings are our business; we do it all over the country,” says Joe Alexander, the company’s president. “The increase in the credit...is what made it possible [to develop in Wisconsin].”
Alexander developed Longfellow apartments in Madison with a $1.5 million state historic tax credit, a project he says supported more than 200 jobs. Without the credit, he says, “It absolutely would not have happened.”
The tax credit program has spurred development across the state. In 2014, the state distributed $28 million among 32 projects; in 2015, this figure more than doubled, with almost $78 million in credits distributed among 44 projects; and in 2016, $58 million was distributed among 39 projects. As of mid-February, the Wisconsin Economic Development Corporation had already certified more than $7 million in credits for six projects.
In Madison, slightly more than $7 million in state historic tax credits have been awarded to 10 projects since 2014. In addition to the Longfellow development, two other projects made up more than $6 million of these awards: Nichols Station apartments, with $1 million in 2015; and Holy Name Heights apartments, with $3.7 million in 2015.
Without the help of the tax credit, other local developments of historic properties would be crippled. The $19.8 million Garver Feed Mill redevelopment (WEDC has not yet accounted for the project in its data) will transform the building into an artisan food production facility and micro-lodging units. It relies on a complicated financing blend of bank loans, equity, grants and historic and new market tax credits.
David Baum, CEO of Baum Realty Group, the project’s developer, says the historic tax credits are part of the delicate balance of making the deal work. He fears reducing the tax credit program will throw that balance off, leading to a direct decline in economic development and investment in Wisconsin.
“This project would not work without them,” Baum says. “If it wasn’t for those credits, no one could afford to renovate that building.”
Rep. John Nygren (R-Marinette) agrees that there have been benefits from the credit, but worries about it draining state resources.
“This program has potential to become costly,” he writes in an email to Isthmus. “I look forward to making improvements to the governor’s budget proposal and working to fund our state’s priorities accordingly.”
But Sam Breidenbach, president of the Madison Trust for Historic Preservation and owner of TDS Custom Construction, believes the tax credit is a job creator that eventually pays for itself. “The economic numbers speak for themselves, so I really don’t get why the governor wants to take a tax break, one of the few that actually works, and slash it,” Breidenbach says.
Breidenbach points to a 2015 report by Baker Tilly that found 25 projects that received a combined $34 million in credits before Jan. 1, 2014, were expected to create 2,800 jobs. Baker Tilly found that the credits generate a complete payback in tax revenue within seven years. After 10 years, the evaluated projects are expected to generate more than $46 million in tax revenue.
Although many of the projects are in urban areas, state Sen. Fred Risser (D-Madison) fears it will disproportionately affect smaller projects in rural areas, like Bob’s Bitchin’ BBQ in Dodgeville, which received a $100,772 credit in 2015.
“A couple of large developers could eat up the whole amount,” says Risser. “If you’ve got a $10 million cap, and somebody comes and grabs the last $3 million, many projects that would bring jobs to the area are precluded.”
Hasselman agrees that the program has a more significant impact in rural communities, where one vacant building can have a detrimental effect on a small town’s vitality. According to the State Historic Preservation Office, 60 percent of properties using the tax credit had been vacant for more than 10 years before being restored; some languished for as long as 30 years.
Hasselman is currently working on a project in Darlington using state historic tax credits to transform a former theater built in the early 20th century into mixed retail space with additional room for community theater practice. The last time the building was used was in the 1950s, when it was a VFW hall. She says revamps like these are sure to improve downtown aesthetics.
To fight the proposed cuts, the Wisconsin Realtors Association, usually a strong supporter of Walker, is assembling a coalition of historical societies, labor groups, contractors, developers and local government representatives. Its best weapon is data. The group funded the Baker Tilly report during the last budget cycle, and plans to use it again as ammunition as budget talks ramp up this year.
“We had some high-quality data about the benefits of the program and the impact on jobs and tax base,” says spokesperson Tom Larson. “[It was] instrumental last go around. We are using the same formula this time.”
Alexander believes developers will need to be vocal to convince the Legislature to keep the program in full.
“The governor and Legislature really led in expanding the percentage of the credit,” says Alexander. “The results have been astounding. The governor has to face a balanced budget, and we understand he’s looking for savings. It’s our job — contractors, carpenters, local government leaders — to be in touch with the Legislature and governor to make our case.”