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HomeMy WebLinkAboutIR 7289 ^ INFORMAL REPORT TO CITY COUNCIL MEMBERS No­7289 p.1 To the Mayor and Members of the City Council X C'. Subject: A PROPOSED TAX EVALUATION INCENTIVE PROGRAM FOR DESIGNATED HISTORIC AND CULTURAL SUBDISTRICTS-AN ECONOMIC DEVELOPMENT TOOL FOR RESIDENTIAL AND NON-RESIDENTIAL HISTORIC STRUCTURES IN FORT WORTH, TEXAS BACKGROUND The 1986 Historic Preservation Plan, adopted by City Council recommended a tax freeze on the assessed value of improvements made to locally designated historic properties for 10 years. Lately, many developers, property owners and civic groups have encouraged the implementation of this program, saying that this incentive will provide sufficient incentive to make their projects feasible. OTHER CITIES State enabling legislation for historic preservation tax incentives was passed in 1977. Since the late 70s and early 80s; Austin, Dallas, San Antonio and Houston have implemented tax abatement programs for historic preservation. These programs have generally been successful . In Austin, where the program has been most successful , there are 220 structures participating, yet the taxes lost accounted for less than 01% of the total taxes collected. Hotels and retail establishments -have made up the difference in additional lodging, sales and liquor taxes produced in Dallas's West End Historic District. All cities have recapture clauses to ensure compliance. THE PROPOSAL 1. A ten (10) year city tax freeze for substantially improved properties. 2. The property would require a Historic and Cultural Sub-district zoning 3. Residential and non-residential taxable roperty would be eligible. 4. Improvement value (building permit value� must be equal to at least 30% of the pre-renovation assessed value. 5. Building improvements must be approved by the Historic and Cultural Advisory Board for the appropriateness to the historic building. 6. The pre-renovated asgessed value will remain the same over the ten (10) year tax freeze period. ECONOMIC IMPACT Assuming a 4% increase in the tax rate and property value per year, if one were to raise the value of a currently appraised property by 50%, the loss in taxes during the 10 years would take eight more years at the fully assessed rate for the city to recover that theoretical loss. Taxes generated in the 19th and subsequent years will be the economic benefit to the city. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS NFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7289 n 2 20.tot 0-p"il. To the Mayor and Members of the City Council Jtine 7 , 1988 Subject: A PROPOSED TAX EVALUATION INCENTIVE PROGRAM FOR DESIGNATED HISTORIC AND CULTURAL SUBDIsTRICTS-AN ECONOMIC DEVELOPMENT TOOL FOR RESIDENTIAL AND NON-RESIDENTIAL HISTORIC STRUCTURES IN FORT WORTH, TEXAS IN SUMMARY, IMPROVEMENT OF: 25% of the original assessment would take 9-10 years to recover; 50% of the original assessment would take 8 years to recover; 100% of the original assessment would take 7 years to recover; and 300% of the original assessment would take 7 years to recover. ADDITIONAL BENEFITS 1. Designated historic structures will be preserved in compliance with historic guidelines. 2. Designated historic structures as a group tend to improve in value at a greater percentage upon rehab versus non-significant structures. 3. The trend to improvement of property will spin off to adjacent or nearby areas, not always with the tax incentive. 0", 4. This incentive program will spur- an increase in construction and rehabilitation activity and in turn, create jobs. 5. Improved housing conditions will result as well as increased jobs and retail activity in older areas. 6. Property values will increase, not stagnate or decrease. 7. The tax incentive will serve as an economic development tool . Douglas Haman City Manager OpIk ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS TAX EVALUATION INCENTIVE FOR DESIGNATED HISTORIC AND CULTURAL SUBDISTRICTS AN ECONOMIC DEVELOPMENT TOOL FOR RESIDENTIAL AND NON-RESIDENTIAL HISTORIC STRUCTURES IN FORT WORTH, TEXAS MAY 1988 PLANNING DEPARTMENT TEAM Robin Bodo, Leader Carolyn Bell Alan Cleveland Judi Cole Bea Cura Oramenta Fleming Dan Hardin Emil Moncivais Paul Nedde Denise Prado Brad Taylor EXECUTIVE SUMMARY BACKGROUND The 1986 Historic Preservation Plan, adopted by City Council called for a tax freeze on the assessed value of improvements made to locally designated historic properties for 10 years . Lately, many developers, property owners and civic groups have encouraged the implementation of this program, saying that this incentive will provide sufficient incentive to make their projects feasible. OTHER CITIES State enabling legislation for historic preservation tax incentives was passed in 1977 . Since the late 70s and early 80s ; Austin, Dallas , San Antonio and Houston have implemented tax abatement programs for historic preservation. These programs have generally been successful . In Austin, where the program has been most successful , there are 220 structures participating, yet the taxes lost accounted for less than . 01% of the total taxes collected. Hotels and retail establishments have made up the difference in additional lodging, sales and liquor taxes produced in Dallas ' s West End Historic District . All cities have recapture clauses to ensure compliance . THE PROPOSAL I. ID year tax freeze for substantially improved properties . 2 . Requires Historic and Cultural Sub-district designation . 3 . For residential and non-residential taxable property . 4 . Improvement value (permit value) must be equal at least 30% of the pre-renovation assessed value. 5 . Improvements must be approved by the Historic and Cultural Advisory Board for the appropriateness to the historic building. 6. Taxes on land values are included in the freeze period. ECONOMIC IMPACT Assuming a 4% increase in the tax rate and property value per year, if one was to raise the value of a currently appraised property by 50%, the loss in taxes during the 10 years would take eight more years at the fully assessed rate for the city to recover that theoretical loss. Taxes generated in the 19th and subsequent years will be the economic benefit to the city. The same property with no improvements may decrease or at least no appreciate the assumed 4% per year. Improvement of 255 of the original assessment would take 9- 10 years to recover ; 100%, 7 years and 300% , 6 years. ADDITIONAL BENEFITS 1 - Designated historic structures will be preserved in compliance with historic guidelines . 2 . Designated historic structures as a group tend to improve in value at a greater percentage upon rehab versus non-significant structures . 3. The trend to improvement of property will spin off to adjacent or nearby areas , not always with the tax incentive. 4 . This incentive program will spur an increase in construction and rehabilitation activity and in turn, create jobs . 5. Improved housing conditions will result as well as increased jobs and retail activity in older areas. 6. Property values will increase, not stagnate or decrease. 7 . The tax incentive will serve as an economic development tool . A TAX EVALUATION INCENTIVE PROGRAM FOR DESIGNATED HISTORIC AND CULTURAL SUBDISTRICTS AN ECONOMIC DEVELOPMENT TOOL FOR RESIDENTIAL AND NOW-RESIDENTIAL HISTORIC STRUCTURES IN FORT WORTH, TEXAS INTRODUCTION According to the City of Fort Worth Historic Preservation Plan, it was recommended that the City: " . . .adopt a Tax Freeze policy which would allow owners of qualifying Historic and Cultural Subdistrict zoned properties to apply for and receive tax increase exemptions on their properties restoration or rehabilitation value for a time period of ten years . This provision unquestionably would act as an incentive to owners of appropriate properties to obtain Historic and Cultural Subdistrict designation and rehabilitate properties . Properties should be treated in the same manner regardless of whether they are commercial or residential . op", "The restoration or rehabilitation project must meet a set of strict guidelines established by the Historic and Cultural Advisory Board before the taxes can be frozen for ten ( 10 ) years at the pre-restoration ad valorem rate. The freeze occurs on the date of completion of the restoration. The policy would not be retroactive. It would contain a retroactive recapture clause of 200% of the tax abated if, during the ten year abatement period the Historic and Cultural Subdistrict zoning is repealed, or if the owner of the structure demolishes or changes the building out of context with the Historic and Cultural Subdistrict zoning. "The applications should be limited to one time per owner and one time per property in a ten year period. The freeze would abate 100% of the incremental increase resulting from new construction or rehabilitation. There should be some minimum improvement (e.g. 10% of the value of the structure prior to rehab) with a plan pre-approved by the Historic and Cultural Advisory Board" In February 1988, the Planning Department put together a team to propose a system to implement this program and analyze its potential impact on the revenues of the City of Fort Worth and as an incentive for economic development of the historic 1 resources in the city. The object of this report is to provide a forum for raising issues relating to the initiation and implementation of this program. FORT WORTH TAX EVALUATION FREEZE ORDINANCE PROVISIONS THE PROGRAM The proposed Tax Evaluation Freeze will provide a ten year freeze on the tax assessment of locally designated historic properties for substantially renovated buildings . At the end of ten years, the building with the property will be reassessed and go back on the tax roles at full evaluation. During the freeze period taxes will increase as the tax rate increases but the assessment will remain at the pre-renovated level . ELIGIBILITY Properties eligible for the tax incentive program include properties designated as 1 ) a Historic and Cultural Subdistrict or 2 ) designated by the City Council as an historically significant site in need of preservation . The primary component of this program is the designation of qualifying historic properties as Historic and Cultural Subdistricts, Fort Worth ' s OP"` historic overlay zone. WHAT IS HISTORIC AND CULTURAL SUBDISTRICT ZONING? Historic Zoning as administered by the Historic and Cultural Advisory Board is called "Historic and Cultural Subdistrict" (H&C) designation in Fort Worth. This program which has been in existence since 1980 provides for areas of demonstrated historic and architectural significance to Fort Worth to be designated as local H&C districts . This designation can apply to individual properties such as Thistle Hill or the North Side Coliseum, or to multiple buildings connected historically and/or architecturally such as the Elizabeth Boulevard Historic District. This designation provides for the review of exterior work completed on listed buildings to be reviewed by the Historic and Cultural Advisory Board for its appropriateness to the building and/or district. Design guidelines for each property or district are formulated with the input of the owners of effected buildings and are included in the designation legislation passed by the Zoning Commission and City Council . These guidelines are similar to the .Se-retary of the Interior ' s Standards and Guidelines for Rehabilitation as required by the federal tax incentive program for income producing properties which are listed in the National Register of Historic Places. Applications for building permits effecting designated properties are routinely routed to the Permit Committee of the Historic and Cultural Advisory Board which can be called to meet within two weeks of receipt of a 2 completed permit application. Decisions concerning the appropriateness of the work and its conformance with the Design Guidelines are made by the Permit Committee. Appeals of those decisions are made to the full Board. The number of buildings currently designated as H&C is small (48 ) . Four individual buildings (Thistle Hill , the Eddleman- McFarland House, the North Side Coliseum and the Laneri House ) and one historic district (the Elizabeth Boulevard Historic District) are currently designated. This is due in part to the current policy of the Zoning Commission which requires every property owner ( 100% ) to agree with any zoning change. The H&C ordinance does not specify any other ownership consent requirement. Therefore the Zoning Commission policy takes precedent. This has been an undoubted hindrance to the designation of large historic areas as Historic and Cultural Subdistricts and will continue to be so. In light of this problem, the tax incentive will most likely encourage owners of individually significant buildings, both residential and non-residential , to apply for the tax freeze. However, this program could foster increased communication and cooperation between the property owners and the city in the historic districts , such as the Stockyards National Register Historic District, in order to promote H&C designation and the use of this program as an economic development tool . EFFECTS OF HISTORIC ZONING- ELIZABETH BOULEVARD HISTORIC DISTRICT The benefits of historic zoning (designation of an area of historic and architectural significance and regulating the development in that area according to design guidelines ) have been analyzed across the country as including the stabilization and increase of property values, increased desirability of the designated area, increased confidence and investment, increased exposure and shopper interest , and increased pride in the area. The benefits are a result of the property owners allowing the historic zoning commissions to regulate what is done to the outside of their buildings and the appurtenances . Historic district designation is a protection from inappropriate develop- ment and mechanism for guiding change in these areas . The only multiple building historic district designated Historic and Cultural Subdistrict in Fort Worth is the Elizabeth Boulevard Historic District which was designated in 1982 . Within this area, property values have increased an average of 562% from 1976 to 1987 with 1306 Elizabeth Boulevard having increased 1291% and 1200 Elizabeth Boulevard having increased 124% in value. The historic housing stock located along Elizabeth Boulevard consists of large early-twentieth century Bungalow style, Prairie style, Colonial Revival and Mediterranean Revival style buildings . These houses increased on an average of 596% . Houses from the post-historic period are also regulated under this designation, although not to the same degree as the historic houses . These 3 newer properties share the benefits of the historic designation . The average newer house (constructed between 1950 and 1965 ) increased 337% in value. REHABILITATION REQUIREMENTS The purpose of this tax freeze program is to provide a sufficient incentive which will stimulate work on designated historic structures . Only work for which a building permit had been issued is considered in determining whether the renovation exceeds the minimum cost as required. Figures quoted in the table below were solicited from three developers representing three important downtown historic structures concerning the actual incentive this program would provide for their projects . POTENTIAL INCENTIVE FOR THREE DOWNTOWN HISTORIC BUILDINGS Current Rehab Cost Assessed Estimated Tax Assessed Plus Assessed Increase Incentive Recovery Value W/ Value Due To Value" Period Land Rehab* The Blackstone $2 , 513, 429 $8 , 513 , 429 204% $768 , 483 6 Years Hotel 601 Main St 00' Flatiron Bldg $365, 876 $2 , 165, 876 500% $222 , 332 6 Years 1000 Houston St T&P Warehouse $6, 789, 864 $ 14 , 789, 864 120% $1, 097 , 409 7 Years 221 W Lancaster Percentage figures are rounded. Sum of tax savings over the 10 year freeze period. A model was formulated to analyze the impact of this program on city revenues (incentive value) and the tax recovery period of the abated amount. The attached table indicated the results of this exercise. The assumptions for this exercise were as follows: 1) The tax assessment will rise 4% per year 2) The tax rate will increase 4% per year 3 ) The assessment increase percentage figures reflect the amount of improvement required to raise the assessment the specified amount 4 ) The tax freeze will last 10 years (no other time periods were tested) REHAB VALUE INCREASE TAX RECAPTURE PERIOD 10% 12- 17 YEARS 20% 10- 12 YEARS 30% 8- 9 YEARS 50% 8 YEARS 100% 7 YEARS As you can see, the higher the percentage of investment in the historic property, the quicker the recapture period for the city will be. The recommended investment percentage is based on a permit value of 25-30% of the pre-renovated assessed value . This amount would provide an substantial incentive for the owner, while providing a reasonably rapid payback period for the city . In actuality, these figures would apply to residential property because most renovated non-residential property will require an investment in the property of over 100% of the assessed value. TAX ABATEMENT PROGRAMS IN OTHER TEXAS CITIES Tax abatement programs have been used in other Texas cities since the late 1970s as an economic development tool . The value of the historic resources and their development potential provided an impetus for such programs which were developed in Austin, Houston , Dallas and San Antonio after the passage of' a Texas Constitutional Amendment in 1977 which provided for special taxing procedures for historic preservation. Initiated in the late 1970s and early 1980s , these programs have been in existence long enough to be able to utilize their experience and analyze their success and failure. Extensive analysis of the effect of these programs has not been completed so more specific data was not available for this study. AUSTIN The City of Austin was the first municipality to pass an ordinance following the 1977 Texas Constitutional Amendment. Austin' s ordinance was passed in 1978 and provides direct relief to the owner of any structure that is identified as a Historic Landmark by the Austin City Council . The structure must conform to minimum city building codes. Properties are separated into owner-occupied residential , property owned by a non-profit entity, and all other structures (including commercial ) . Tax relief is provided as follows: Residential : 50% reduction on assessed value of the land 100% reduction on assessed value of the improvement 5 Other Than Residential : 25% reduction on assessed value of the land 50% reduction on assessed value of the improvement To date, there have been 220 properties designated for tax relief . Each of these properties must be reviewed by city staff for approval and reviewed annually for any changes or modific- ations . If a property is re-zoned to other than historic landmark, the previous three years of abated taxes are payable. The city, county , school and college district all participate in this tax relief program. According to the City of Austin Planning Department staff , the foregone taxes under this program account for less than 1/ 10th of 1% of the ad valorem taxes collected. DALLAS Dallas has been involved in a Tax Abatement Program since 1982 . The basic program is an eight ( 8 ) year tax freeze on commercial properties located in the Central Business District . The estimated recovery period for the taxes is three years after the end of the abatement period. In order to qualify for the tax freeze, the property must : 1) be recognized by the Dallas Historic Landmark Committee, and 2 ) need substantial rehabilitation for an amount that exceeds 50% of the pre-restored assessed value of the structure . The recapture component is in the form of a deed restriction and legally obligates the owner to pay all revenues if the property is totally or partially destroyed by negligence or a willful act. The West End Historic District has been significantly redeveloped due to this tax freeze. According to the City of Dallas Planning Department staff, 28 new restaurants have opened in the West End Historic District resulting in $ 1. 8 million in sales and liquor taxes per year. This income has offset the ad valorem taxes that would have been collected if the freeze were not in existence . The West End Historic District is a good example of how a combination of available incentives for the renovation of historic property (including the Investment Tax Credit Program) can be combined to successfully revitalize an area. HOUSTON The City of Houston passed its Tax Relief Ordinance in the early 1980s . Owners of historically significant properties designated as a Registered Texas Historic Landmark or listed on the National Register of Historic Places are eligible for the program. Houston ' s ordinance permits an owner either of these options : 1) a 50% reduction in the tax amount ; or 2 ) 50% of the 6 cost of actual rehabilitation. Both commercial and residential properties are eligible for the program. There Is no time limit on the abatement. If the structure is destroyed by a willful or negligent act of the owner, five years of the abated taxes are payable to the city. To date only three commercial structures and one residential unit have qualified for tax relief. The Planning Department staff is currently analyzing the program in order to find out how to make it more effective and more widely used. SAN ANTONIO The City of San Antonio has a tax abatement program that provides relief for structures that undergo substantial rehabilitation. Both residential and commercial structures are included, but different types of relief are available for each one. Taxes on commercial structures are frozen at the pre- rehabilitation level for 10 years. Taxes on residential structures are frozen at the pre-rehabilitation level for 5 years and for an additional five years at 50% of the full assessed value of the property. Currently, there are 75 commercial buildings taking advantage of this incentive program. CONCLUSION In time, the Fort Worth Tax Evaluation Freeze program will prove to be an important incentive tool for the revitalization of the historic resources in Fort Worth. By offering this incentive, properties which would not have been renovated for various reasons will now have an opportunity to be developed and become valuable assets to the community. The projected benefits of this program will be an increase In the number of historic properties becoming designated as Historic and Cultural Subdistricts , the increase in restoration and rehabilitation activity in the designated property, and an increase in the tax base for the city. More protection and guidance will be available for historic properties and with this a larger role will be played by the Historic and Cultural Advisory Board in the development of the city. The careful administration of this program is important to demonstrate the effectiveness of incentives in the generation of new development and revitalization in our historic areas. 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