Lawmakers hope to support affordable housing construction without adding to budget
Members of the Legislature's Appropriations and Financial Affairs Committee on May 7, 2024. From left to right, Sen. Jill Duson (D-Cumberland) and co-chairs Sen. Peggy Rotundo (D-Androscoggin) and Rep. Melanie Sachs (D-Freeport). (Photo by Emma Davis/ Maine Morning Star)
With an eye toward the need to rein in state spending, a plan that the budget committee's Senate chair says will help build more affordable housing without adding to the budget is headed to the floor.
On Wednesday, the Legislature's Taxation Committee voted 5-4 in favor of LD 146, an adjustment to the stipulations of a tax credit that housing developers and financiers testified in support of last month. The vote was party line, with Democrats in favor, and four members were absent.
When introducing the legislation, Sen. Peggy Rotundo (D-Lewiston), who co-chairs the Appropriations and Financial Affairs Committee, said the deficit the state is facing over the next biennium limits what is possible when it comes to funding more affordable housing development, even though Maine still has a significant shortage despite recent investments.
Rotundo sees a solution in changing the timeframe for accessing credits through the Historic Property Rehabilitation Tax Credit, which encourages private sector investment in the rehabilitation and re-use of historic buildings.
In 2008, the Legislature instituted a cap of $5 million on the credit a developer can take in one year. In 2013, through a bill Rotundo co-sponsored, lawmakers clarified that if a developer is doing a project in a large complex, the $5 million annual cap pertains to each building, rather than the entire complex.
'As construction costs have increased dramatically since 2013 and even more since 2008, the $5 million credit no longer carries the same substantial incentive it used to,' Rotundo said.
Rotundo's bill would double the tax credit to $10 million over a period of two years. It makes no changes to the $5 million maximum allowed in subsequent years.
Rotundo attempted to institute this change with a last-minute amendment last session, however that bill died in nonconcurrence.
Those who testified during the public hearing for the bill in February said the current model incentivizes developers to delay or space out projects across multiple tax years in order to not exceed the $5 million annual cap. Moving to a higher credit over a longer time period will help change that, said John Kaminski, an attorney at Drummond Woodson who has been involved in these projects since the credit was enacted in 2008.
A recent example of such complications occurred when Redfern Properties and New Height Group transformed the old Mercy Hospital campus in Portland into the apartment complex now known as the Nightingale, said John Egan, senior program officer at the Genesis Community Loan Fund.
'Had this law been in effect at the time, the project could have been completed more efficiently with reduced delays and lower costs,' Egan said.
While not all historic tax credit projects are developed into housing, Laura Mitchell, executive director of the Maine Affordable Housing Coalition, said more than two-thirds do.
Mitchell pointed to a January report by the New York-based consultancy HR&A Advisors that cited the historic tax credit as a recommended tool for Maine to increase housing production and strengthen the construction workforce.
Tara Kelly, executive director of the statewide nonprofit Maine Preservation, pointed to a study her organization did of the period from 2009 to 2019 that found renovations aided by this tax credit added more than $166 million to local property tax rolls and another $19 million in new income and sales tax revenues.
'During this period, the program generated $3 million more to the state's coffers than it cost,' Kelly said.
Others cited a 2021 report from the Office of Program Evaluation and Government Accountability that found that the program's structure and administration was sound and that its benefits exceed historic preservation goals.
Andrew LeBlanc, a commercial real estate developer, provided a first-hand example of how the tax credit helped him in 2019 transform vacant buildings in Augusta into three retail spaces and 23 apartments, which he said are now fully occupied — one by him, his wife and child. The project cost $7 million and he got $1.2 million from the tax credit, which he said enabled him to get institutional equity investment.
Now, LeBlanc is working to redevelop the old Federal Building in downtown Augusta into a boutique hotel, which he said is the same size as his former project but has an expected cost of $30 million.
'We're up against the cap that you've heard a lot about today,' LeBlanc said.
Of note, the contents of this bill are also included as a section of LD 435, so lawmakers may ultimately pursue this change through another vehicle.
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