The Manchester Pie Factory used both Historic Credits and Tax Abatement to reduce both development cost and ongoing ownership expense
The tax abatement program that was put into place in the City of Richmond in the 1990′s has been another lesson in incentivized urban renewal that has, for the most part, worked quite well.
The abatement program effectively says that improvements made to qualified properties are not taxed for a period of time…usually anywhere from 10-15 years…depending on the property type and use as well as when the property renovation was completed and put into the program.
While there are other facets to the program that govern how the abatement is actually computed, it is best understood as a program that reduces the taxable value of a property by the value of the improvements made. In other words, the net effect is that the City continues to tax the property as if it has not been improved. This credit is attached to the property and not the individual who completed the improvement so that if a property is sold prior to the expiration of the abatement, the remaining abatement passes to the new owner.
As an example, if a property was worth $500,000 prior to being improved and worth $800,000 after the renovation or addition, the City would issue an abatement credit of $300,000 making the net taxable real estate amount $500,000. At the city tax rate of 1.2% and figuring a 10-year abatement, the value of the abatement in actual savings would be $60,000.
That is pretty powerful.
The overall goal is to create a situation where someone is not ‘dis-incentivized’ to improve their property. By creating lower costs of ownership for residents from a real estate perspective, additional revenues can be generated in sales and meal taxes and higher values of real estate in the aggregate. This abatement program is especially effective in creating scenarios where vacant buildings were brought to life and are now filled with multiple tenants or owners all eating out, buying groceries and other items and increasing the vibrancy of the revitalized areas.
The Abatement program works hand in hand with the Historic Tax Credit Programs to increase the likelihood that abandoned structures are renovated.
One criticism of the abatement program is that it is only applicable to existing structures and not vacant land. Between HTC’s and Abatement, the overall cost of new construction compared to heavily incentivized renovation of old structures is arguably prohibitive. There has been some talk of an abatement program for new construction, but as of now, only existing structures qualify.
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