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Credit Worthy



What kind of macaroon would turn down a few million dollars in free money?

Some would say the city of Richmond's elected officials did just that. Nearly a decade ago, two experts in the use of historic tax credits -- then a new concept — briefed city officials and members of the Richmond School Board on the availability of millions of dollars for the rehabilitation of Richmond's public school buildings.

By taking advantage of available state historic tax credits, he told them, they could undertake major projects at a 15 to 18 percent discount.

"There are lots of people using tax credits in Richmond, and people are talking about them and there's lots of information available on them," says Kim Chen, architectural historian and partner at Johannas Design Group. Chen and historical architect Mimi Sadler delivered the presentation years ago.

Chen calls it "ridiculous" that more consideration hasn't been given to using historic credits in school rehabilitation.

By applying for and acquiring state historic tax credits, a developer or public entity such as Richmond Public Schools can potentially turn around and sell those tax credits to investors or large corporations in need of tax write-offs for as much as a quarter of the cost of the project.

In other words, for every $1 million in renovations that qualifies for the credit, the school system could earn $250,000 in tax credits, which could then be sold to offset the cost of construction.

In Virginia, only four schools have used tax credits to offset rehabilitation costs, including Richmond's Maggie Walker and Petersburg's Appomattox Regional governor's schools. Chen says Maggie Walker was the first school project in the country to use the credits.

"It's not an easy process; it has its complications and it has its limits," Chen says. "But to not explore it further, to me, is what's wasteful. That's being said as a taxpayer in the city … not as a tax-credit consultant."

Chen's colleague Sadler, a principal at Sadler & Whitehead Architects, is less critical of the city for not using the tax credits.

"I'm not going to be a part of saying the city screwed this up and threw a bunch of money away," she says, giving Schools administrators a pass because they've been busy dodging grenades hurtled by other city officials. "I don't think [Schools administration] is behind the eight ball here. And further, I think the [School Board] is pursuing this."

Indeed, both Chen and Sadler have been asked back, with a planned appearance before members of the School Board April 10. Sadler recently submitted a report at the request of Schools officials on the feasibility of using historic tax credits to rehabilitate old schools.

"It's a great opportunity for breathing life back into old buildings," Sadler says. "As we've already seen in downtown Richmond … our tired urban core is really undergoing a huge change, not only because of VCU and the state, but because of tax credits."

She references major projects such as the Carpenter Center, one of many downtown buildings that, without tax credits, "would have been abandoned or torn down."

But the highest-profile tax-credit proponent in town, 2008 Richmond mayoral candidate Paul Goldman, gives no free passes to Schools officials or their city administration counterparts for failing to seize the historic tax credit opportunity sooner.

The delays and inaction, Goldman says, "cost us hundreds of millions of dollars.

"What the Crupi report, what everybody is saying," Goldman says, "is that we're just always treading water here because everybody just wants to blame someone else." Goldman drafted the original City of the Future plan in 2005 that would have employed historic tax credits to build schools.

Goldman is no longer part of the Wilder administration, and the mayor has since altered the City of the Future plan to rely on a $300 million line of credit — and to exclude construction of schools.

"You need somebody who wants to do it," Goldman says of using tax credits — and more specifically of wanting to actually rebuild schools rather than talk about it. "Politicians are trained to say, 'Oh hey, here's an idea,' and then to say, 'I wanted to help, but somebody else kept me from doing it.' Everybody wants to make this stuff complicated."

But it is complicated, says Robin Miller, a local developer who has used historic tax credits in rehab projects, including his multimillion-dollar renovation of the old Robert E. Lee Elementary School.

Miller purchased the building for $833,000, rehabbed it at a cost of $7.08 million and then paid for a portion of it with $1.63 million in historic state and federal tax credits he was able to sell.

"The illusion that the city could come in here and take a building and it's free money … is a bit overstated," Miller says, noting his own ability to take advantage of the federal credits currently unavailable to city schools. "It's very difficult for the public sector to do one of these deals."

Applications must be submitted; specific guidelines aimed at maintaining the historical integrity of the building must be followed; and when it's all done, the government doesn't just write you a check, Miller says. And it's a false hope to believe you might get $250,000 back on your $1 million investment.

"You find an investor who essentially — for the state credits — will buy them at some figure in the 72- to 74-cents-on-the-dollar range," he says. "If you had $1 million of qualified rehabilitation expense, a developer would typically sell those for less than $250,000 — the last ones I sold was 72 cents on the dollar."

There are other complicating factors. In the case of a public entity, such as Richmond Public Schools, there's no going it alone. In order to qualify for tax credits, the district would have to create a private foundation to hold ownership of the buildings being rehabilitated. That foundation would enter a partnership with the private entity.

"The only reason that I can see that it hasn't been done is that the formation of that public-private partnership," Chen says. "I don't know if it's the fear over that material involvement by an outside entity."

Sadler agrees: "That kind of risk and complexity is difficult for a bureaucracy to undertake."

But for Goldman, bureaucratic fear is no excuse for allowing time to tick away while construction costs go up.

"It would be a revolutionary way to build schools," Goldman says. "The need is so great around the country. Meanwhile, private schools have used these tax credits, colleges have used these tax credits. The other ways to get [public school construction] done requires massive federal spending. Here you use tax credits to attract private capital." S

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