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The $200 Million Glitch

This fix to the federal historic preservation tax credit program could be working by Valentine's Day. What better present to those we hold dearest, our children, who now attend the oldest school facilities in the entire state of Virginia?

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With one telephone call — OK, it might take two if he needs to leave a message — newly elected Mayor Dwight Jones can save Richmond taxpayers $200 million. 

This huge amount is roughly equal to the 2009 property tax bill of every resident in River City. The mayor can either call Sens. Jim Webb or Mark Warner, Reps. Bobby Scott or Eric Cantor. Right now, a simple one-sentence change is needed to fix a glitch in the Internal Revenue Service code that prevents localities from using the federal historic preservation tax credit program to modernize aging educational facilities.

This legislative correction can be spelled out in a cell phone text message. A report from Gov. Tim Kaine's administration already concludes it would allow a better and faster solution to fixing old infrastructure than what Washington is considering — and it doesn't require trillions of dollars in new federal bailout IOUs. 

A study by former Gov. Warner's administration found the average Richmond school was initially constructed around the time baby Dwight Jones came into this world. The cost to Richmond taxpayers for fixing many of these schools can be reduced by 45 percent — nearly half — if this glitch is fixed. This translates into potential savings on principal and interest of upwards of $200 million.

This fix to the federal historic preservation tax credit program could be working by Valentine's Day. What better present to those we hold dearest, our children, who now attend the oldest school facilities in the entire state of Virginia?

Because of the law of unintended consequences, the 1986 bipartisan effort by Republican President Ronald Reagan and a Democratic Congress to help cities such as Richmond greatly reduce the cost of modernizing old schools has been thwarted. The culprit: a line within in a clause inside a paragraph of IRS Code Section 168[h]. Or 168(h)(1)(B)(ii) — if the bureaucrats force me to get technical. 

The tax credit had been enacted to encourage investors to use private sector capital to modernize old buildings. Schools, like the downtown performing arts center project or those condo renovations for Shockoe's old tobacco warehouses, were all presumed to be eligible to receive tax credits equal to 20 percent of qualified construction costs. But the drafters failed to anticipate Murphy's Law. 

The Kafkaesque result: If investors put up money to turn an old school building into luxury condos, they get the credits. But should these same investors want to help turn the same building into a modern school, 168[h] bars them from getting the federal tax credits. 

By now, you're no doubt thinking, “Come on, Paul, if it's this obvious, and with no bailout money required, then why aren't Obama, Warner, Webb, Cantor and Scott on it like red on a rose?”

The adage that the “squeaky wheel gets the grease” provides the answer. Four years ago I explained this easy solution to former Mayor Doug Wilder, who praised it. But he never made the necessary effort to set up that face-to-face meeting, making it clear this was vital to Richmond and an issue he would publicly push until it got done. 

What's required in the real world of politics is what President Obama calls the audacity of hope: the willingness to challenge the comfortable status quo of going along to get along. Ironically, our leaders already know this change will dramatically cut school modernization costs.

Years ago when Kaine was mayor, he used the math of the 20 percent federal credit, combined with a 25 percent Virginia historic preservation credit, to slash the cost of modernizing the old Maggie Walker High School building on Lombardy Street that now houses the Maggie L. Walker Governor's School.

If Mayor Kaine did it, why can't Mayor Jones do the same thing? 

Because of the glitch. The Kaine plan got the savings because the old Maggie Walker Building originally housed a local Richmond high school: The modernized structure is now home to a regional high school. The federal tax code prohibits issuing tax credits when the prior use of the existing building is the same as the post-redevelopment usage.

Technically, a regional school is not the same as a local school. This prior use rule, not part of the 1986 compromise, has thus created a bureaucratic legalese George Orwell would admire, making some schools more equal than others when it comes to tax credits.

This causes local taxpayers to pay 100 percent of all modernization costs, while the government covers nearly half of such costs for private developers rehabilitating the same building. 

Moreover, the inability to get the federal tax credits often makes rehab projects uneconomical, forcing taxpayers to cough up millions more to build new schools instead.

To be sure, the strategy required to use federal and state tax credits is more complicated than simply floating government bonds. But it works, and even shifts the risk of cost overruns to the private developer instead of local taxpayers.

We need to level the playing field, and stop what amounts to a bias against public school modernization projects. Students with better fundamental education do better in college, earn higher salaries and thus eventually give back more in taxes and charitable contributions to their communities.

Given all the extra financial burdens on Richmonders in 2008, let's start 2009 with a simple fix and an extra $200 million in our pockets.  S

Paul Goldman, former mayoral candidate and senior adviser to outgoing Mayor Doug Wilder, served as a member of the State Council on Higher Education from 1993-94.

Opinions expressed on the Back Page are those of the writer and not necessarily those of Style Weekly.

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