Grants and Contracts Details
Description
Introduction
Physical infrastructures such as buildings are an important part of the productivity
of a local economy along with other inputs to production such as the quality of the local
workforce. A high quality of housing can contribute to productivity in this way. In
particular, the presence of older or historic neighborhoods which have been up kept can
be a benefit to a community relative to the alternative in terms of ensuring that a larger
share of the areas housing stock is well-conditioned, improving the amenity value of an
area, and perhaps, reducing the need for development at the periphery of a community.
Given potential benefits of this type, public policies have been proposed to
encourage investment in older, historic properties in communities. These programs have
typically worked by subsidizing improvement projects through providing tax credits for
state and/or local tax obligations. Thus, these are essentially subsidies for capital
construction projects. The hoped for result, as with all capital gains tax reductions or
subsidies, is to encourage capital investment.
With this background, the Kentucky League of Cities contacted the University of
Kentucky Center for Business and Economic Research (CBER) about preparing a study
regarding the potential usage of such an historic preservation tax credit in Kentucky. This
proposal outlines how CBER would conduct such a study, and provides a cost estimate
for the study.
Please note that the study would address only an historic rehabilitation incentive
program for single-family residential households. The study would not address the effects
of a tax credit on commercial buildings or other income generating properties.
Approach
The outcome of the study will be to estimate the number of Kentucky households
that would be expected to participate in the program over time, and their anticipated
spending on renovations. CBER will estimate a participation rate based on the
experiences of other states that have adopted historic rehabilitation tax credit programs
over the last decade (or in many cases, in recent years). Participation rates for programs
naturally would vary based on the types of tax incentives offered so CBER will identify
take-up rates for the most common types of program designs.
CBER will combine take-up rate information with data we will gather on the
inventory of eligible historic properties that exist in Kentucky (and the likely expansion
that would occur in eligible properties should an incentive be adopted in the state). This
data will be gathered from the state historic preservation program and other sources.
Once the number of likely participants is estimated for any given year, CBER will
combine that information with data on the typical project eligible costs (which might be
capped or otherwise affected by the program type). This project cost information also will
be available from existing programs in other states. Data on the number of participants
and average eligible project costs will be combined to estimate the total tax credit granted
from the project in any given year.
For comparison purposes, CBER also will consider the impacts caused by the
project including the additional property taxes resulting from increased property values,
sales taxes collected on project building materials and income taxes collected from
construction workers. CBER also will note the employment and spending directly
supported by the project based on program participation estimates.
CBER also will mention the existence of other, indirect impacts from the program
such as the multiplier effect from the project, and the likely increase in the property
values of nearby properties due to the improvement of the historic property. However,
CBER will not calculate the magnitude of these additional impacts, given constraints on
project cost and project time frame.
Summary and Project Time Frame and Cost
As described above, the UK Center for Business and Economic Research will
conduct a study on the likely level of participation by Kentucky households in an historic
rehabilitation tax credit program. The cost of the project, as described in the attached
budget, would be $5,000 and the project would run from November 1, 2003 through
March 30, 2004. CBER would deliver a completed version ofthe report electronically
and would be available for two presentations of project results as proposed by the
Kentucky League of Cities.
Status | Finished |
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Effective start/end date | 11/1/03 → 3/31/04 |
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