If Kentucky’s historic tax credit program wasn’t so meager, the state could have reaped an estimated $164.7 million in tax revenue during a 10-year-period from just seven commercial renovation projects in Louisville and Lexington, according to a study conducted by Chicago-based public accounting and consulting firm Baker Tilly Virchow Krause.
The Louisville Downtown Partnership hired the consulting firm to study the impact of proposed changes to the historic tax credit program in Kentucky.
A bill filed during the most recent session of the Kentucky General Assembly would have awarded developers of “catalytic” commercial projects a 20 percent tax credit on qualifying rehabilitation expenses as long as construction started before July 1, 2023.
The bill also would have eliminated a cap on how much the state can dole out in historic tax credits annually. Currently, Kentucky has a $5 million annual cap. Ohio has an annual $60 million cap on historic tax credits, Missouri has an annual cap of $140 million, and 18 states including Illinois, Virginia and North Carolina have no caps.
“The state of Kentucky really needs to catch up,” said Valle Jones, founder and CEO of Louisville commercial real estate company Mayin LLC.
Jones was the keynote speaker at the Louisville Downtown Partnership‘s 2016 Cornerstone Awards, which recognized any project with $1 million or more in hard construction costs completed in 2015. A cocktail reception was held Monday night.
There was bipartisan support for the bill, according to Jones, but given it was the first year with a new governor and a budget year, the bill, like many others, did not make it up for a vote.
“It’s a loss for historic preservation; it’s a loss for economic revitalization; it’s a loss for the state,” Jones said.
The current tax credit program is underused because there is no clear way to tell how much money a project will receive, especially since the cap is low, Jones said.
“It’s very uncertain,” she said. “A lot of projects get something. They were expecting $400,000, and they get $150,000, and they can’t fill that gap and don’t go forward.”
The consulting firm study looked at seven projects that were recently completed or are still in the works. The projects include: the 21c Museum Hotel in Lexington; 111 Whiskey Row; Bradford Mills Lofts; the Edison Center; Germantown Mill Lofts; Old Fayette County Courthouse; and the Starks Building renovation.
“They are not all finished, but we can estimate what the cost is, how many jobs are going to be created during the construction period, how many jobs after the project is complete, and most importantly, what the state tax revenue is going to be,” Jones said.
The study found that the seven projects together represent an estimated $305.2 million in investment by the developers and 2,734 new jobs.
The state would pay out an estimated $33.8 million in historic tax credits for the projects, the study states, but the credits aren’t paid out until after construction is complete. During the construction phase, the seven projects would generate a total of $16 million in tax revenue.
“The state is never out a dime. …The projects are always paying into the state faster than the state is paying out,” Jones said. “Here’s what I call it — part of the solution to the pension problem. It’s not a risk for the state; it’s a really solid return.”
Louisville Metro Government would receive an additional $2 million in tax revenue each year, while Jefferson County Public Schools would add almost $1.3 million in tax revenue, according to the consulting firm.
Investment in Louisville creates a ripple effect that makes the city a cooler, better place, said Jones, who is hopeful the tax credit bill will pass during the next session of the Kentucky General Assembly.
The Cornerstone Awards
Louisville Downtown Partnership executive director Rebecca Matheny said she’d hoped to celebrate the bill’s passage at the Cornerstone Awards, but that will have to wait for another year.
Following Jones’ speech, the Louisville Downtown Partnership awarded two people — one from the private sector and another from government — the S. Russell Smith Jr. Award of Excellence, which recognizes longtime contribution to the improvement of downtown.
The public sector winner was Cathy Duncan, director of facilities management and fleet operations for Louisville Metro Government, and the private sector winner was Phil Scherer, who founded Cushman & Wakefield/Commercial Kentucky.
He “literally changed the Louisville skyline,” Matheny said.
The Louisville Downtown Partnership also recognized 11 projects, which represent nearly $215 million in investment in the Central Business District.
“Without that commitment, without that investment, without that progress, we quit moving forward,” said Louisville Metro Council President David Yates, D-25.
The investment value of this year’s honored projects was more than quadruple last year’s, and Matheny said she expects next year’s honorees will topple that number as downtown development continues to ramp up.
“Enjoy your time in the spotlight because it will be lost in the crowd next year I hope,” Matheny said.
The following are the projects honored:
Jefferson Street Partners for the $13 million construction of 310 @ NuLu. The project includes three, four-story apartment buildings totaling 145,000 square feet and 173 market rate units.
Location: 310 S. Hancock St.
Lead Architect: CSO Architects
LouMain for the $24 million construction of Aloft Louisville Downtown, an eight-story, 107,520-square-foot boutique hotel with 175 rooms and 3,000 square-feet of meeting space.
Location: 102 W. Main St.
Lead Architect: PFVS Architecture
The Center for Women & Families for $6 million renovation and improvements due to a major roof leak. The project includes improved shelter space and rooms with suites for large families, increased space for men, new meeting space, a large computer lab for clients, group rooms, and expanded number of gender neutral bathrooms.
Location: 927 S. Second St.
Lead Architect: Berry Prindle Architects
Louisville Metro Parks & Recreation for the $3.6 million relocation of The Dave Armstrong Louisville Extreme Park, a rebuild of approximately 1/3 of the extreme park due to the relocation for Interstate 65 Bridges Project.
Location: 531 Franklin St.
Lead Architect: Luckett & Farley Architects
Le Centre on Fourth for the $85 million adaptive reuse of the Embassy Suites Louisville Downtown. The 7-story, 420,000 square-foot former office building includes a 304-suite hotel, 50,000 square-feet of office space, 26,000 square-feet of commercial space, and 81 lower-level parking spaces.
Location: 501 S. Fourth St.
Lead Architect: Potter & Associates Architects PLLC
Louisville Metro Government for the $1.5 million improvement to reopen the 300 block of Guthrie Street at Fourth Street. The project includes new sidewalk paving, granite curbs, tree plantings and street furniture.
Location: 300 block Guthrie St.
Lead Designer: MKSK
Jefferson Community & Technical College for the $1.7 million adaptive reuse of the JCTC Theater Arts Building, a one-story, 6,700-square-foot former retail building for instructional space for the Fine Arts Program, a black box theater, and classrooms.
Location: 100 E. Broadway
Lead Architect: Luckett & Farley Architects and Godsey Associates Architects
Flash Property Investments for the $1 million adaptive reuse of Kentucky Peerless Distilling Co., a two-story, 43,800-square-foot production facility with fermentation room, bottling line, aging warehouse, tasting room, and 3,500-square-foot retail store.
Location: 120 N. 10th St.
Lead Architect: Joseph & Joseph Architects PLLC
Norton Healthcare for the $69.7 million renovation of Kosair Children’s Hospital. Phase I of renovations to the nine-story, 267-bed facility includes upgrades to the neonatal intensive care unit, infrastructure improvements, and the addition of a new extra-large capacity trauma elevator.
Location: 231 E. Chestnut St.
Lead Architect: HKS Inc.
City Development Group for the $2.5 million expansion of the Quad Apartments, a three-story, 36,500-square-foot addition with 51 apartments and lower level parking.
Location: 600 Marshall St.
Lead Architect: CITYWorks
Beam Suntory for the $5.2 million renovation and completion of the Jim Beam Urban Stillhouse. The project includes a bottling line, a tasting experience, and a retail store.
Location: 404 S. 4th St.
Lead Architect: Architectural Group International