HomeMy WebLinkAbout09/01/1998, 2 - STATUS UPDATE ON THE PILOT HISTORIC PROPERTY TAX INCENTIVE PROGRAM, OR ""MILLS ACT"" PROGRAM"council 9°°. -q%
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CITY OF SAN LUIS O B I S P O
FROM: Arnold Jonas, Comm Vevelopment Direfax r
Prepared By: Jeff Ho'
SUBJECT: Status update on the pilot Historic Property Incentive Program, or
"Mills Act" Program.
CAO RECOMMENDATION: Adopt a resolution continuing the pilot Historic Property Tax
Incentive Program one additional year and authorizing the City to enter into up to 15 additional
Mills Act contracts with owners of historic properties.
DISCUSSION
Background
In October 1996 the City Council adopted Resolution No. 8589, establishing a pilot program to
encourage historic preservation. The program, based on a State law called the °Mills Act ",
allows cities to enter into contracts with property owners to ensure that historic properties are
preserved in good condition and in some cases, improved or restored. In return, property owners
may qualify for a lower property valuation and reduced property taxes. The pilot program
authorized up to 15 historic preservation contracts, with the intent of evaluating the program after
one year of operation. Following Council approval, staff worked with the owners of 15 historic
properties to finalize their lists of planned maintenance and/or improvements and prepare the
Mills Act contracts.
Program participants have recently received notice from the tax assessor of their revised property
assessments and tax savings. Beginning with their Fall 1998 tax bills and continuing for at least
10 years, most of the property owners will pay significantly less property taxes on their historic
buildings. In return, property owners have committed to preserving and in some cases restoring
the architectural and historical character of their buildings through Mills Act Contracts. The
contracts are recorded, legal documents and "run with the land."
Features of Mills Act Program
• The property owner must promise to preserve the building and to use the tax savings to
maintain and/or improve the historic building to enhance its historical value, exterior
appearance, structural condition, or longevity.
• The contract is recorded, and is binding on subsequent owners, heirs, or assigns until the
agreement is canceled. There is a significant financial penalty for breach of the historic
contract.
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Council Agenda Report - Mills Act Status Update
Page 2
• Mills Act Contracts have a minimum 10 -year term. The agreement is self - renewing
annuall y for additional one -year terms, so there is always 10 years remaining on the
contract until the owner or City decides not to renew the contract. Once written notice of
non - renewal is given, the contract will remain in effect for the balance of the term
remaining since the original contract execution or the last renewal date, as the case may be.
The agreement may be amended by mutual consent of the City and property owner.
• Building changes are possible under the contract; however changes must comply with all
City requirements and with the Secretary of the Interior's Standards for Historic Preservation,
with the guiding objective being the preservation of the building's original historical
character, design and materials.
Program Results
In approving the pilot program, Council members asked for a follow -up evaluation of the
program's effectiveness. Evaluating the program's long -range effectiveness (that is, how well
historic properties are kept up over the contract period) will take several years; however, staff has
some preliminary information and observations about the program to date:
• 15 Mills Act contracts were signed, approved by the City Council and recorded for the
1998 /99 assessment year. All of the contracts apply to residential properties.
• Of these, one property's value (and taxes) would have increased under the Mills 'Act
valuation and was therefore enrolled using its Proposition 13 value which results in the
lowest possible property taxes. Due to fire damage, the other property's (Manderscheid
House) valuation was based upon another provision in the tax code, and consequently, will
not realize a tax savings through the Mills Act until the property is repaired and restored.
• Total assessed valuations of the 13 remaining Mills Act properties were reduced by
$2,301,215. The tax rate for this area was 1.1124 %. The resultant tax reduction equals
.011124 X 2,301,215 = $25,599, an average of $1,969 in tax savings per property.
• According to one property owner, their tax bill was reduced by almost one -half as a result of
the Mills Act program. This is consistent with the Assessor's preliminary estimates that
assessments would be reduced by 33 to 50 percent.
• The tax revenue impact on the City due to reassessment is about $4,700, or a reduction in
property taxes received by the City of about $362 per Mills Act property.
• The Assessor's office claims costs of $4,227 to run the program, plus additional one -time
start-up costs of about $4,000.
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Council Agenda Report - Mills Act Status Update
Page 3
Program Evaluation
Historic Preservation is an important goal of the City's General Plan. By providing a financial
incentive, the Mills Act Program is one of the most effective preservation tools available to
achieve that goal and encourage the preservation of heritage properties. The long -term aesthetic
and fiscal benefits of preserving and restoring heritage properties is difficult, if not impossible, to
quantify. Studies of similar preservation programs in other communities, however, show that
individual property improvements have a positive, measurable effect on neighborhoods,
encouraging overall higher maintenance levels, stable property values and improved pride of
ownership throughout the neighborhood where such properties are located.
In terms of achieving the program's initial expectations, the Historic Property Tax Incentive
Program appears to have been a success. Owners of historic properties have realized tax savings
which will allow these properties to be preserved and improved as provided under "enforced
restrictions' in the properties' Mills Act contracts. Overall, working relations between City and
County staff and property owners have been cordial and efficient. With the exception of the two
properties noted above, it appears that property owners' expectations of tax savings have been
met. It's too early to gauge the program's effectiveness in terms of property maintenance or
specific repairs and improvements. Tax savings just began in Fall 1998. Most property owners
have postponed improvements until tax savings were realized. Continued monitoring of the
Mills Act properties on an annual basis will be needed to judge the program's long term benefits.
Program Extension
The Historic Property Tax Incentive Program was recommended to Council for initiation by the
Cultural Heritage Committee as a preservation incentive for properties on the Master List of
Historic Resources. The City of San Luis Obispo is the only community in the County with such
a program in place, reflecting San Luis Obispo's strong commitment to preserving its heritage
buildings and neighborhoods. After Council's approval of the pilot program, staff received
additional property owner inquiries about the program. Three property owners asked to be
placed on a "waiting list" in case additional contracts were authorized. It is likely that many
more property owners would be interested if the program is extended and publicized.
Staff believes the program's preliminary results merit continuation for another year, and
recommends that the Council authorize an additional 15 Mills Act contracts, for a program total
of 30 contracts. Because of the processing time required by the County Assessor to reassess
properties, new Mills Act contracts would have to be recorded in final form by the end of 1998 to
be reflected in tax savings in the Fall of 1999. It is unlikely that all 15 contracts could be
prepared and recorded by December 31', 1998. It is more likely that a small number of
contracts, perhaps three or four, can be concluded in that time flame. Any remaining unfilled
contract "slots" could be filled during 1999, with tax savings reflected in the year 2000 tax bill.
1013
Council Agenda Report - Mills Act Status Update
Page a
FISCAL BIPACT
The program is expected to have long -term beneficial fiscal impacts due to improved property
values and program - related spending for home improvement goods and services. Direct
program administrative costs result in relatively minor fiscal impacts to the City and County.
First year cost of the program is estimated at $4,500 for City staff time (property inspection
and contract preparation, approximately 10 hours of staff time per property). County staffing
costs have been comparable, plus a one time start-up cost of $4,000. Reduced tax revenues for
the County and other taxing agencies total $25,572. Of this, the City would have received
about $4,700 in property taxes.
State law allows cities to recoup actual costs to administer the Mills Act program. Staff
recommends that if the Council supports continuation of the program, that it direct staff to
evaluate program costs and return with a recommended program application fee to recover a
portion of City and County administrative costs.
Attachment:
-Draft Council Resolution
- Council Resolution No. 8589 (1996 Series)
- California Heritage article on Mills Act Program
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RESOLUTION NO. (1998 SERIES)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
CONTINUING A PILOT HISTORIC PROPERTY TAX INCENTIVE PROGRAM AND
AUTHORIZING THE MAYOR TO EXECUTE 15 ADDITIONAL MILLS ACT
CONTRACTS WITH OWNERS OF HLSTORIC PROPERTIES.
WHEREAS, Article 1.9 of the California Revenue and Taxation Code provides for the
differential property tax assessment of certain enforceably restricted properties to encourage
historic restoration and preservation; and
WHEREAS, the City's General Plan policies encourage the use of tax incentives and
other means to encourage property owners to protect, restore and preserve historic buildings;
and
WHEREAS, tax incentives for qualifying historic properties benefit the entire
community and improve the City's appearance by encouraging the preservation and restoration
of heritage buildings, fostering pride and reinvestment in neighborhoods, and by defraying a
portion of the costs of restoring and maintaining historic structures; and
WHEREAS, the City's Cultural Heritage Committee has considered the potential costs
and benefits of a property tax incentive program, and has recommended the establishment of
such a program pursuant to State law; and
WHEREAS, the City Council has considered the Committee's recommendation and
established a one -year pilot program to evaluate the program; and
WHEREAS, the City Council has evaluated the pilot program after approximately one
year of start-up and operation and determined that the program's initial results are favorable
and merit continuation of the pilot program for one additional year.
NOW THEREFORE BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Findings. The Council finds the following:
1. The Historic Property Tax Incentive Program is consistent with the General
Plan, and will implement policies therein calling for the protection, restoration,
preservation and maintenance of historically significant structures; and
2. The program's continuation will benefit the Public by enhancing the
Community's appearance and preserving historically significant buildings which
help describe and document the Community's heritage; and
3. Continuation of the program is exempt from environmental review under the
.z's
Council Resolution No. (1998 Series)
Page 2
City's Environmental Guidelines and under Section 15308 of the California
Environmental Quality Act.
SECTION 2. Pilot Historic Property Tax Incentive Program Extended. The Council
hereby extends the pilot tax incentive program known as the "Historic Property Tax Incentive
Program ", to be administered by the Community Development Director, for a period of one
additional year. During this time, the Mayor is authorized to enter into up to 15 additional
Mills Act Contracts, for a program total of 30 contracts. The contracts shall be subject to all
previous requirements listed under Council Resolution No. 8589 (1996 Series) which
established the pilot program.
On motion of , seconded by
following roll call vote:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this 1st day of September, 1998.
Mayor Allen Settle
ATTEST:
City Clerk
APPROVED:
and on the
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RESOLUTION NO. 8589 (1996 SERIES)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING A HISTORIC PROPERTY TAX INCENTIVE PROGRAM AND
AUTHORIZING THE MAYOR TO INITIATE THE PROGRAM WITH THE COUNTY
OF SAN LUIS OBISPO.
WHEREAS, Article 1.9 of the California Revenue and Taxation Code provides for the
differential property tax assessment of certain enforceably restricted properties to encourage
historic restoration and preservation; and
WHEREAS, the City's General Plan policies encourage the use of tax incentives and
other means to encourage property owners to protect, restore and preserve historic buildings;
and
WHEREAS, tax incentives for qualifying historic properties benefit the entire
community and improve the City's appearance by encouraging the preservation and restoration
of heritage buildings, fostering pride and reinvestment in neighborhoods, and by defraying a
portion of the costs of restoring and maintaining historic structures; and
WHEREAS, the City's Cultural Heritage Committee has considered the potential costs
and benefits of a property tax incentive program, and has recommended the establishment of
such a program pursuant to State law; and
WHEREAS, this City Council has considered the Committee's recommendation and
desires to establish a tax incentive program in the City of San Luis Obispo, based on the
findings herein described;
NOW THEREFORE BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Findings. The Council finds the following:
1. The proposed Historic Property Tax Incentive Program is consistent with the
General Plan, and will implement policies therein calling for the protection,
restoration, preservation and maintenance of historically significant structures;
and
2. The proposed program will benefit the Public by enhancing the Community's
appearance and preserving historically significant buildings which help describe
and document the Community's heritage; and
3. Adoption of the proposed Program is exempt from environmental review under
the City's Environmental Guidelines and under Section 15308 of the California
Environmental Quality Act.
2 -7
Council Resolution No. 8589 (1996 Series)
Page 2
SECTION 2. Historic Property Tax Incentive Program Established. The Council hereby
establishes a pilot tax incentive program known as the "Historic Property Tax Incentive
Program ", to be administered by the Community Development Director, on advice. and
recommendation of the Cultural Heritage Committee, subject to State Law and the
following local requirements.
1. The purpose of the pilot program is to encourage the restoration, preservation
and upkeep of historic structures in the City of San Luis Obispo, including both
residential and commercial properties, and to allow the City to evaluate the
program prior to establishing an on -going program.
2. Participating properties may be located anywhere in the City. Only those
properties listed in the "Master List of Historic Resources ", or those added to
the Master List by City Council action, shall be eligible to participate in the tax
incentive program.
3. To qualify for the program, owners of eligible properties must enter into a
"Mills Act" contract with the City of San Luis Obispo. The City Council shall
review, and where appropriate, authorize the Mayor to execute such contracts,
subject to the City's Historic Preservation Program goals, policies and
preservation guidelines, and subject to the requirements of State law.
4. Mills Act contracts shall include performance standards and/or descriptions of
the maintenance, restoration or repairs to be done by the property owner using
the expected property tax savings. Restoration and preservation activities shall
promote the City's Historic Preservation Program goals and principles.
5. The pilot program shall commence upon the date of execution of the first "Mills
Act" contract, and shall continue for one year. During the pilot program, up to
15 contracts may be executed the City Council. After one year of program
operation, the Council shall hold a public .hearing to review the program to
determine its effectiveness and to decide whether to continue the program. A
program status report shall be presented to Council on or about their first
regular meeting in October, 1997.
6. Upon program review, the Council may amend or terminate the program by
resolution, after holding a public hearing and providing appropriate public and
property owner notice as required by law. Executed Mills Act contracts shall
remain in effect for the minimum term of 10 years, as provided by state law.
7. The Community Development Director shall establish application and review procedures to
administer the program. Participation in the program is optional, and shall be at no cost to
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Council Resolution No. 8589 (1996 Series)
Page 3
SECTION 3. Authorization to Initiate the Program. The Mayor is hereby authorized to send
a letter to the County of San Luis Obispo to initiate the program.
On motion of Vice Mayor Williams , seconded by Council Member Roalmanand on the
following roll call vote:
AYES: Council Members Williams, Roalman, Romero and Mayor Settle
NOES: None
ABSENT: Council Member Smith (not participating)
the foregoing Resolution was passed and adopted this 1st day of October, 1996.
L7
Mayor Allen Settle
ATTEST:
F-_ MOW 19
Clerk ... _
QUARTERLY NEWSLETTER OF THE CALIFORNIA STATE PARKS OFFICE OF HISTORIC PRESERVATION - WINTERISPRING 1998
In This Issue
Financial Incentives
for Historic
Preservation
P. I
Myths About the
Tax Credits
p. 2
Tax Incentives -
3 -Way Partnership
p. 3
Historic Gaslamp
Quarter's
Renaiccance
p. 4
Filing the
Application
p. 5
Mills Act
A California
Preservation
Incentive Program
p. 7
Preservation
Calendar
P. 8
Financial Incentives for Historic Preservation
The Federal Historic Preservation Tax Incentives program is one of the
nation's most successful and cost - effective community revitalization programs.
The program fosters private sector rehabilitation of historic buildings and
promotes economic revitalization. It also provides a strong alternative to
government ownership and management of such historic properties. The Federal
Historic Preservation Tax Incentives are available for buildings that are National
Historic Landmarks, that are listed in the National Register, and that contribute
to National Register Historic Districts and certain local historic districts. Proper-
ties must be income- producing and must be rehabilitated according to stand
set by the Secretary of the Interior.
Since 1976, the Historic Preservation Tax Incentives have produced the
following benefits for the nation:
• More than 27,000 historic properties have been rehabilitated and saved
• The tax incentives have stimulated private rehabilitation of over $18 billion
• More than 149,000 housing units rehabilitated and 75,000 housing units
created, of which over 30,000 are low and moderate - income units.
The Historic Preservation Tax Incentives have proven an invaluable tool in
revitalizing communities and preserving the historic places that give cities,
towns, and rural areas their special character. The Historic Preservation Tax
Incentives generate jobs, both during the construction phase and in the spin -off
effects of increased earning and consumption. Rehabilitation of historic build-
ings attracts new private investment to the historic core of cities and towns and
is crucial to the long -term economic health of many communities. Enhanced
property values generated by the Historic Preservation Tax Incentives program
result in augmented revenues for local and state government through increased
property, business, and income taxes. Historic Preservation Tax Incentives also
create moderate and low- income housing in historic buildings. The various
financial incentives may be used together to minimize on rehabilitation costs.
In California, the Mills Act can be linked with federal tax incentives provided
by the Tax Reform Act of 1986. Federal affordable housing tax credits may
also be utilized with these incentives.
One part of the 'Pax Reform Act of 1986 is the 20% investment tax credit for
the certified rehabilitation of a certified historic building. The Federal historic
Preservation tax incentives program (the 20% credit) is jointly administered
the U.S. Department of the Interior and the Department of the Treasury. The
National Park Service (NPS) acts on behalf of the Secretary of the Interior, in
partnership with the State Historic Preservation Officer (SHPO) in each State.
The Internal Revenue Service (IRS) acts on behalf of the Secretary of the
Coned on p. 2
,2-10
2
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Myths About the Tax Credit
by
Cherilyn Widell, State Historic Preservation Officer
"Regardless of whatever other attributes it might have, a historic building is ultimately real estate. Its economic capacity,
measures of return, value as an asset; and attractiveness as an investment are all going to be calculated by investors, bankers,
and developers in the same fashion as any other parcel of real estate."
— Donovan Rypkema, Real Estate Services Group, Washington, D.C.
How much do you know about the economics of
historic preservation in California? How do you
answer the popular misconception that it always
costs more to rehabilitate an old building than build
a new one? Can you explain how the 20% Rehabili-
tation Federal Tax Credit for historic properties
works and what a developer needs to qualify?
The answers to these questions are not hard. But,
rarely are economic development and historic
preservation linked in the minds of key.decisions
makers. There must be a deliberate effort in a
community to present the facts that show — historic
preservation is good business! This issue of Califor-
nia Heritage is designed to give you the basic
information on an underutilized tool in California -
the 20% Rehabilitation Federal Tax Credit for
historic buildings.
Myth #1 "The tax credit for rehabilitating old
buildings was eliminated in the 1980's:'
In 1986 the tax law changed the percentage and
applicability of the tax credit, but it remains one of
the very few real estate tax credits available.
Myth #2 "Only big developers and large
projects can use the tax credit."
This program works well for both large and small
rehabilitation projects. According to the National
Park Service 80% of all historic rehabilitation tax
credit projects cost less than $500,000, and nearly
half cost less than $100,000.
Myth #3 "The design standards required by the
National Park Service are unreasonable and
guidelines do not permit wholesale gutting of
historic buildings and it is best to consult them
during the earliest stages of project design.
Myth #4 64It costs more to rehabilitate an old
building than to build a new one."
According to The Economics of Historic Preser-
vation, "... if no demolition is required, a major
commercial rehabilitation will cost from 12 per cent
less to 9 per cent more than the cost of comparable
new construction with the typical rehabilitation
cost being about 4 per cent below new construc-
tion. If new construction would incur the cost of
razing an existing building, cost savings from
rehabilitation should range from 3 to 16 per
cent."
Myth #5 "If the credit is such a good thing, why
doesn't my local redevelopment agency or Cham-
ber of Commerce know about it ?"
Please see the answers to Myths #1, 2, 3, and 4
and ask yourself when was the last time the land-
marks commission or local preservation organiza-
tion in your community presented this information
to them.
Myth #6 "The tax credit isn't worth all the
trouble to apply to the SHPO for the Federal
Rehabilitation Tax Credit Program."
The tax credit is a real credit, not a deduction. The
program offers the applicant up to 90% of federal
income tax liability and is worth 20% of the total
cost of rehabilitating the interior and exterior of an
historic building. Architectural and engineering
expensive," design are also eligible as "soft" costs. If the tax
The Secretary of Interior Standards and Guide- credit is not used in one year it can be carried back
lines for Rehabilitation are flexible. A wide range of three years or forward ten years and applied to past
profitable projects, from turning factories into and future federal income tax liability. Please note:
housing and train sheds into hotels and malls, have If you hear this myth, you can be sure that the
successfully used the guidelines. However, the speaker has never spoken with his or her accountant.
Cont'd from p. 1
Treasury. Certification requests (requests for ap-
proval for a taxpayer to receive these benefits) are
made to the National Park Service through the
appropriate State Historic Preservation Officer
(SHPO). Comments by the SHPO on certification
requests are fully considered by the NPS. However,
approval of projects undertaken for the 20% tax
credit is conveyed only in writing by duly autho-
rized officials of the National Park Service.
The 20% rehabilitation tax credit applies to any
project that the Secretary of the Interior designates a
certified rehabilitation of a certified historic struc-
ture. The 20% credit is available for properties
rehabilitated for commercial, industrial, agricultural,
or rental residential purposes, but it is not available
for properties used exclusively as the owner's
private residence.
Over a half a billion dollars of private investment
"2!//
6d4m4" ]H[]ERIT 13E
in California's historic buildings is due in a large
part to this program. Preservation tax incentives
used on under - utilized or abandoned hotels, offices,
stores, schools, warehouses, and factories give new
uses that maintain their historic character and
revitalize the property. The Pump House in Walnut
Grove is an example of such a project. Listed on the
National Register on March 22, 1990, as a contribu-
tor to the Japanese /American Historic District in
Walnut Grove, Sacramento County, the project used
investment tax credits to aid in rehabilitating the
building into a commercial enterprise . The
Harrison Hotel in Oakland and the St. Andrews
Court in Los Angeles are examples of tax incen-
tive projects that rehabilitated buildings into low -
income and moderate affordable housing. Non-
profits, such as affordable housing organizations,
have also taken advantage of the tax incentives. The
Thoreau Center for Sustainability in the San
Francisco Presidio, a former U.S. Army base, is
good model of how a for -profit limited partnership
can be established to provide new facilities for non-
profits.
The National Park Service is co- sponsoring a
national conference on using Historic Preserva-
tion Tax Incentives to rehabilitate historic proper-
ties. The conference will be April 27-28, 1998, at
the Fairmount Hotel in San Francisco, CA.
Registration fees are $425 ($285 non-profit) post-
marked by April 1, 1998. See Preservation Calen-
dar for more detaiLs.
Above: The Pump House Project, Walnut Grove,
before rehabilitation.
Right: The Pump House Project, after
rehabilitation as a commercial rental.
Tax Incentives -
3 -Way Partnership
The Federal historic preservation tax incentives
program is a partnership among the National Park
Service (NPS), the State Historic Preservation
Officer (SHPO), and the Internal Revenue Service
(IRS). Each plays an important role.
SHPO
-Serves as first point of contact for property
3
owners.
-Provides application forms, regulations, and other
program information.
- Maintains complete records of the State's build-
ings and districts listed in the National Register of
Historic Places, as well as State and local districts
that may qualify as registered historic districts.
- Assists anyone wishing to list a building or a
district in the National Register of Historic Places.
- Provides technical assistance and literature on
appropriate rehabilitation treatments.
- Advises owners on their applications and makes
site visits on occasion to assist owners.
-Makes certification recommendations to the NPS.
NPS
- Reviews all applications for conformance tc
Secretary of the Interior's Standards for Rehabt,
lion.
- Issues all certification decisions (approvals or
denials) in writing.
- Transmits copies of all decisions to the IRS.
- Develops and publishes program regulations,
the Secretary of the Interior's Standards for
Rehabilitation, the Historic Preservation Certifica-
tion Application, and information on rehabilita-
tion treatments.
Coru'd on p. 4
14
4
bra HERITAGE
IRS
-Publishes regulations governing which rehabilita-
tion expenses qualify, the time periods for incurring
expenses, the tax consequences of certification
decisions by NPS, and all other procedural and legal
matters concerning both the 20% and the 10%
rehabilitation tax credits.
-Answers public inquiries concerning legal and
financial aspects of the Rehabilitation Tax Credit
program, and publishes the audit guide, Market
Segment Specialization Program: Rehabilitation Tax
Credit, to assist owners.
-Insures that only parties eligible for the rehabili-
tation tax credits utilize them.
The Tax Certification Program for the Office of
Historic Preservation is administered by Senior
Restoration Architect, Steade R. Craigo, AIA. If you
have questions regarding the tax program please call
(916) 653 -6624 and ask for the Preservation Tax
Incentives for Historic Buildings booklet.
The National Park Service provided much of the
above information. For further information on the
Tax Credit see their website at http11www2.crnps.
gov 1tps /tax1brochure2.htm or www.crnps.gov.
Historic Gaslamp Quarter's Renaissance
Use of Historic Preservation Tax Incentives
by
Wayne Donaldson FAIR, Architect
Marie Burke Lia, Attorney at Law
The San Diego Gaslamp Quarter was placed on
the National Register of Historic Places on May 23,
1980 and there is no doubt that its success as an
economically viable historic district can be partially
attributed to the availability of historic preservation
tax incentives. The 162 block, 125 building historic
district is the largest user of the investment tax
credits in the country. These incentives consist of
investment tax credits for rehabilitation expenditures
and charitable contribution deductions for the
granting of architectural facade easements. The tax
credits were created by 1976 federal tax legislation
but were substantially improved in 1981. The
facade easement deduction was created by 1980
legislation. Gaslamp couldn't have been bom at a
more propitious time and the story only gets better.
From 1981 to 1985, the Economic Recovery Tax
Act had directly and indirectly contributed to
approximately $153 million in completed and
pending private investment in the general downtown
area of San Diego including the Gaslamp Historic
District through the rehabilitation of historic proper-
ties. Much of this investment would not have
occurred without the inducement of the Federal tax
incentive program. In addition, it is estimated that
only about $5 million in rehabilitation of historic
properties took place in the years after the passage
of 1976 Tax Act and before the adoption of the 1981
Economic Recovery Tax Act. Also at this time, it
was estimated that his private investment in historic
rehabilitation had generated well in excess of 2,000
construction jobs and probably an equal number of
permanent jobs.
In 1985, when the Treasury Department recorn-
mended the appeal of the 15, 20, and 25 percent
investment tax credits established by the 1981
Economic Recovery Tax Act, hundreds of local San
Diego citizens appealed to the President.
In 1985 a four block, destination retail complex,
Horton Plaza, opened just west of the Gaslamp and
a few years later, San Diego's award winning
Convention Center opened on the south. The City's
central business core had always been located just
north of Quarter. The Horton Plaza garage provided
a safe parking location for the first brave suburban
souls to venture into the Quarter at night once the
first trendy restaurants and night clubs opened.
Each successfal restaurant or night club begot more
and soon there was the critical mass necessary to
establish a vibrant evening entertainment district.
In the meantime, Gaslamp dodged a bullet in
terms of the tax incentives. The Tax Reform Act of
1986 reduced the percentage of expenditures
eligible for rehabilitation credits and extended the
depreciation period. But not for Gaslamp, its
benefits were grand fathered in by special legisla-
tion. Its rehabilitation projects still qualify for 25%
tax credits and its properties still enjoy a 19 year
depreciation period.
These tax incentives are extremely important to
local and state governments in that they provide a
needed economic incentive for reinvestment in
existing older central downtown areas. This tar-
geted reinvestment reinforces other important local,
state and federal policies. Recycling older buildings
saves energy, socially and economically revitalizes
existing urban neighborhoods, and reduces urban
sprawl. This reinvestment constitutes significant
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savings in infrastructure and operation costs which
would otherwise have to be provided for or assumed
by local governments.
These tax act projects provide needed employment
opportunities for skilled and unskilled labor and
provide badly needed, increased tax revenues for
local and state governments. The best part of this is
that all of this is accomplished through private
sector investments. These factors make Gaslamp
one of the most tax - advantaged investments around.
To date, over 42 buildings within the greater San
Diego downtown have used the investment tax
credits. Seventeen buildings in Gaslamp have
completed certified historic rehabilitations and nine
have granted architectural facade easements. It is
estimated that over $300 million in private invest-
ment utilizing the investment tax credits have
occurred downtown through the rehabilitation of
historic properties. But these numbers don't tell the
whole story. Other buildings, both contributors and
non - contributors to the Gaslamp District,. have been
improved and rehabilitated because of the economic
success of downtown. While these latter rehabilita-
tions would not have qualified for tax credits
because of the minimal amount of rehabilitation
expenditures required, their rehabilitation was
governed by the District's Planned District Ordi-
nance, which was approved as part of the District's
certification process. Therefore, the turn of the
century architectural ambiance of the district has
been preserved under the Secretary of the Interior's
Standards for Rehabilitation.
It is clear that the historic preservation tax incen-
tives brought about the first significant private
investment in the District since before World War 11
and that these incentives continue to draw new
private investment. With the combination of tax
advantage investment opportunities and a booming
retail and entertainment center, the Historic
Gaslamp District is hard to beat.
P
Milford Wayne Donaldson, FAIR, of San Diego, is
a restoration architect and contractor. He is a
member of the State Historical Building Safety
Board, a past member of the State Historical
Resources Commission, and past- president of the
California Preservation Foundation.
Marie Burke LIA, is a land use attorney specializ-
ing in historic properties. She has assisted more
than one hundred historic property owners, public
and private, in achieving their objectives under the
regulatory supervision of local, state and federal
agencies.
Historic Gaslamp District, San Diego
Photo by Milford Wayne Donaldson
Filing the Application
by
Maryln Lortie
Filing the Part One — Some Common Problems
Getting your tax certification application smoothly
through the process will help get your project into
service, and profitability, as quickly as possible.
The application consists of three parts — Part 1 is
an Evaluation of Significance; Part 2 is a Descrip-
tion of the Rehabilitation; and Part 3 is a Request for
Certification of Completed Work. The mechanics of
the process involve sending two sets of fully com-
pleted applications with two sets of color photos
showing the interior and the exterior of the building.
Two sets of photos are needed for each Part 1, Pan 2
and Part 3. Although it seems unnecessarily burden-
some, there really is a reason why two sets of
application materials are required. Tax credit
applications are reviewed twice — once by the SHPO
and again by the National Park Service. One set of
materials is sent on to the NPS and the other re-
tained by the SHPO.
Don't overlook the guidance in the blue form
itself. The Certification Application has very helpful
0Z"
6
&a40rusta 'H[;GRITAt,
and thorough instructions, and examples of how to
complete the various sections.
The usual purpose of the Part 1 is to establish that
a building is either a contributor to a listed National
Register district or is individually eligible for listing.
No Part 1 is required for a property that is already
individually listed.
Buildings that are named as contributors in a
National Register district application are relatively
easy to document. In most
cases no additional research
is necessary although the
applicant should consult the
district nomination, available
at a regional information
center. The Part 1 should
fully describe the building,
both exterior and interior,
and show that it basically
retains its historic appearance
during the district's period of
.significance. The applicant
should also point out how the
building relates to the signifi-
cance of the district as a
whole. For example, if the
district were listed because of
its historic importance as the
commercial center of a
community, a building's
longtime use as a commercial
building during the period of
significance would establish
that connection.
Similarly, if the district
were listed because of its
architectural qualities, the
applicant should call out the
important architectural
aspects of the building that
are consistent with the
cance as that required in a National Register nomi-
nation.
Promptly completing the Tax Certification appli-
cation can be critical. Recent rulings by the Internal
Revenue Service require that an owner must have
submitted the Part 1 before a rehabilitated building
is placed into service. Owners who wait to file Pan
1 until after all work is complete and the building is
placed in service will not qualify for the 20% credit
unless the building is already
individually listed in the
Register.
And in general, it is much
better to apply for the tax
certification before the
Berkeley City Club, 2315 Durant Ave,
Berkeley, CA Julia Morgan, Architect, 1927
California Preservation Foundation
district's character. The Secretary of the Interior,
with standards for virtually everything, has created
Standards for Evaluating Significance within
Registered Historic Districts: "A building contribut-
ing to the historic significance of a district is one
which by location, design, setting, materials, work-
manship, feeling and association adds to the
district's sense of time and place and historical
development."
When a building is not within a listed district the
task is more complex and may require hiring a
professional historian or architectural historian. For
a preliminary determination for individual listing,
the Part 1 must contain essentially the same docu-
mentation of the property's integrity and signifi-
rehabilitation. The OHP can
provide guidance, and help
to insure that the project
meets the Secretary of the
Interior's Standards. Since
extensive pre -rehab photos
are required of both the
building's interior and
exterior, owners may not
have the necessary documen-
tation after the project is
complete.
The tax credit needs to be
claimed for the tax year that
the building is placed into
service. An owner can go
back and make a claim
retroactively for a qualified
rehab that took place in the
past, but the tax year must be
an "open" one. "Open" years
are usually the three years
following the date a tax
return is due. For the tax year
1996, tax returns are due on
April 15, 1997. 1996 tax
returns may be amended until April 15, 2000.
While OHP staff can provide information regard-
ing National Register eligibility and the Secretary of
the Interior's Standards, specific tax questions
should be addressed to a qualified tax professional
or the Internal Revenue Service. Thomas Gavin. the
IRS National Coordinator for the Historic Rehabili-
tation Tax Credit and Low Income Housing Credit.
can be reached at (215) 597 -2145, Ext. 136.
Maryln Lortie is an historian with the registration
programs section of the Office of Historic Presen a-
tion. Maryln may be reached at (916) 653 -8911 or
by e-mail at calshpo.maryln@quiknet.com.
d'
.P
eall0 azz lHH]ERITAGi-
Mills Act
A California Preservation Incentive Program
by
Eugene Itogawa
Economic incentives contribute to the preservation
of residential neighborhoods and the revitalization of
downtown commercial districts. The Mills Act is the
single most important economic incentive program
available in California for use by private property
owners of qualified historic buildings. Owner-
occupied single family residences and income
producing commercial properties may qualify for the
Mills Act program.
Property owners of historic buildings may qualify
for property tax relief if they pledge to rehabilitate
and maintain the historical and architectural charac-
ter of their properties for at least a ten year period.
Mills Act participants may realize a property tax
saving of approximately 50% each year for newly
improved or purchased older historic properties.
County Assessors are required to calculate the
assessed value of the property tax savings for Mill
Act properties on the capitalization of income
method rather than on market value.
The Mills Act is a permissive program subject to
approval and adoption by city and county govern-
ments. California's four largest cities (Los Angeles,
San Diego, San Francisco, and San Jose) have
instituted Mills Act programs. The Mills Act pro-
vides local governments the flexibility to design
preservation programs to accommodate specific
community needs and priorities for rehabilitating
entire neighborhoods, encouraging seismic safety
programs, contributing to affordable housing,
promoting heritage tourism, or fostering pride of
ownership.
7
A formal agreement, generally known as a Mills
Act contract, is executed between the local govern-
ment and the property owner for a minimum ten
year term. Contracts are automatically renewed each
year and are transferred to new owners when the
property is sold. Property owners agree to protect,
preserve, and maintain the property in accordance
with specific historic preservation standards and
conditions identified in the contracts. Periodic
inspections of the property by city or county offi-
cials ensure proper maintenance of the property.
Local authorities may impose penalties for breach of
contract or failure to protect the historic property.
The contract is binding to all owners during the
contract period.
A qualified historic property is a property listed on
any official federal, state, county, or city register,
including the National Register of Historic Places,
the California Register of Historical Resources, the
California Historical Landmarks, the State Points of
Historical Interest, local landmarks, and local
surveys listings.
The Office of Historic Preservation maintains a
current list of cities and counties which have
adopted the Mills Act and copies of successful Mills
Act ordinances, resolutions, and contract agree-
ments. For further information, contact Eugene
Itogawa, Office of Historic Preservation, at (916)
653 -8936 or email calshpo @quiknet.com.
-The Society for California Archaeology (SCA) sponsors Archaeology Week to attract atten-
tion to our archaeological and historical heritage. The theme for Archaeology Week 1998 is
"Piecing Together California's Past' Archaeology Week will be held from May 10 to May 17.
• The Office of Historic Preservation is developing an implementation plan for the California
Register. For more information contact staff Historian I, Jenan Saunders (916) 653 -9432 or
email calshpo.jenan@quiknet.com.
• The State Historic Preservation Plan, Forging a Future With a Past, The Comprehensive
Statewide Historic Preservation Plan for California, are available from OHP at (916) 653 -6624.
.2-116
August 21, 1998
Mayor Allen Settle
RE: Mills Act Program
Dear Mr. Settle:
Gail Ann Johnson
Victoria Wood
547 Marsh Street MEETING l 9S AGENDA
San Luis Obispo, CA 93401 DATE �� ITEM #
541.6600
RECEIVED
AUG 2 5 1998
CITY OF SAN LUIS OBISPO
COMMUNITY DEVELOPMENT
Recently our home at 547 Marsh Street (The Kaetzel House) was included in
the Mills Act Program. We feel that the preservation of historic buildings is vital to
the character of our community, and we were pleased to be one of the first fifteen
properties included in the program in San Luis Obispo.
As you know, the restoration and maintenance of old buildings is much
more expensive than razing them and starting "new". The Mills Act is an
important element in an overall plan to protect and preserve our historic buildings.
We appreciate the property tax savings we will realize, and in turn, understand our
responsibility as caretakers of the home for future generations.
Please support the staff recommendation to continue and expand the Mills
Act Program. It is a successful tool in helping to keep San Luis Obispo a "model'
community in so many ways.
Sincerely,
Gail Ann Johns
Victoria Wood
Al1S 9 .4 1998
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08/20/1998 10:38 8055459075 IMPACT LEARNING SYST PAGE 02
I„I:.ETING I AGENDA
DATE ITEM #
Malcolm and Peggy Carlaiv
461 Islay Street
San Luis O6 05-781-3283
To: The Honorable Mayor Allen Settle and members of the City Council
Re: Mills Act
We understand that the Council will be reviewing the Mills Act on September 1 and
wanted to let you know that we fully support its continuation and expansion.
We received our property statement and found that our taxes will be reduced signifi-
cantly, beginning next year. This will allow us to continue the work of restoring and
maintaining our historic home.
Although we haven't realized any financial benefits yet, being part of the Mills Act
has already changed how we view the restoration of our home. For example, rather
than continuing to replace our original copper hardware with brass (which is all we
can find today), we are keeping the original hardware as we restore each room.
When we've finished with our restoration, we'll take all the hardware off and have it
replated with copper plating, thereby maintaining the hardware that was originally
in the house.
Since we view the historic buildings in San Luis Obispo as important to the feeling of
the community as well as a potential draw for tourism, we support staff's recommen-
dation regarding the Mills Act
Sincerely,
Peggy Carlaw
/moi RECEIVED
AUG 2 4 1998
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KENNETH C. BORNHOLDT
WILLIAM S. WALTER'
A PROFESSIONAL CORPORATION
MtETING AGENDA a
LAW OFFICES DATE 1-1-fiITEM#
WALTER & BORNHOLDT
A PARTNERSHIP INCWOING A PROFESSIONAL CORPORATION
679 MONTEREY STREET
SAN LUIS OBISPO, CALIFORNIA 93401
TELEPHONE (BOB) 541 -6601
FACSIMILE (605) 541 -6640
August 20, 1998
VIA FACSIMILE AND U.S. MAIL
330 E. CANON PERDIDO ST.
SUITE F
SANTA 9C.R6ARA, CA 93101
x,11 � c' tQ98
SLO CITY COUNCIL
Hon. Allen Settle, Mayor City Council Members
City Hall City Hall
990 Palm Street 990 Palm Street
San Luis Obispo, CA 93408 San Luis Obispo, CA 93408
Re: Mills Act
Dear Mayor Settle and Council Members:
As you may recall, my wife Michelle and I own the Vetterline
House at 1504 Broad Street, which was a part of the Council's pilot
program under the Mills Act. We have now completed the appraisal
process through the Assessor's Office, and found that office to be
entirely cooperative and supportive in achieving the goals of the
Mills Act.
For recent purchasers of historic properties (like us), it is
clear that the Mills Act offers substantial financial advantages
which can be used to maintain properties. There is no question in
our minds that we will be able to better maintain and preserve our
home because of the Mills Act Contract.
I would continue to urge flexibility in allowing owners to
respond to unanticipated problems which will inevitably emerge.
For instance, one of our original wood gutters recently fell from
the second story, which will necessitate reinstallation through the
use of special equipment, and at considerable expense. Both the
anticipated tax savings and the Contract itself will assure that we
can respond to this unanticipated problem.
We would strongly encourage the Council to continue this
program, and can testify to its success in achieving the goal of
both the Council and owners of historic properties.
Very 1 your ,
L 6�
i i Walter
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PAGE 02
AGENDA
i,._ciINITEM #
DATE
Malcolm and Peggy Carlaw
461 Islay Street
San Luis Obispo. CA 93401
805 - 781 -3283
To: The Honorable Mayor Allen Settle and members of the City Council
Re: Mills Act
We understand that the Council will be reviewing the Mills Act on September 1 and
wanted to let you know that we fully support its continuation and expansion.
We received our property statement and found that our taxes will be reduced signifi-
cantly beginning next year. This will allow us to continue the work of restoring and
maintaining our historic home.
Although we haven't realized any financial benefits yet, being part of the Mills Act
has already changed how we view the restoration of our home. For example, rather
than continuing to replace our original copper hardware with brass (which is all we
can find today), we are keeping the original hardware as we restore each room.
When we've finished with our restoration, we'll take all the hardware off and have it
replated with copper plating, thereby maintaining the hardware that was originally
in the house.
Since we view the historic buildings in San Luis Obispo as important to the feeling of
the community as well as a potential draw for tourism, we support staffs recommen-
dation regarding the Mills Act
Sincerely,
Peggy Carlaw
/moi RECEIVED
AUG 2 4 1998
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