Florida Brownfields Tax Credit Program

The Voluntary Cleanup Tax Credit (VCTC) Program was enacted in 1998 by the Florida Legislature to encourage participants to conduct voluntary cleanup of certain drycleaning solvent contaminated sites and brownfield sites in designated brownfield areas.  Participants may be private or public entities, but must meet the eligibility criteria set forth in the program rules.  Tax credit certificates are awarded by the Florida Department of Environmental Protection (FDEP) from an annual $10 million authorization recently raised from $5 million in 2017 and are valid against the Florida Corporate Income Tax.

If a participant does not have the tax liability to use these tax credits against their Florida tax liabilities, then they look to Clocktower Tax Credits, LLC to sell them to a corporation which is seeking to buy these tax credits at a discount to par and use them to offset their own tax liability.  Our investors count on us to provide them with amounts ranging from $50,000 to $1,000,000 of tax credits.  We have many clients who earn small credits ($2,000-$25,000) that we are able to package together to offer investors, thus creating an efficient sale of otherwise unsaleable credits.

Clocktower has participated in this program since its inception.  Our founder, Jeff Jacobson, an experienced tax credit broker, was in the working group that was instrumental in helping the FDEP decide how to craft the program to make the transfer of the tax credits efficient for both the FDEP and the buyer of these tax credits.  To date, Clocktower has brokered 62% of all VCTCs since 2001.

The success of the program is all in the numbers.  The program started with a $2 million annual tax credit limit that was increased to $5 million in 2011 and then doubled to $10 million in July 2017.  Year after year, the program’s success has resulted in more applications for credits than are available and more designated brownfield areas that have been cleaned up and subsequently developed.  When there is a backlog of approved applications with an exhausted supply of credits, the credits will usually be issued the following year as long as the application made it into the following year’s credit pool of $10 million.  The backlogs have occasionally been cleared by the Legislature through one-time fundings for that year.  The program operates on a first-come, first-served basis with applications due each January 31^st.  The FDEP advises developers to have their application in good order the first time it’s submitted to secure a spot in the credit queue; then Clocktower can work to sell the tax credit for cash by a date certain.

For more information, please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com.

Clocktower Tax Credits, LLC, is pleased to report that the recently enacted “Tax Cuts and Jobs Act” has kept most of the previous provisions that support affordable housing creation and historic rehabilitation intact.  Unfortunately, as noted below, credit pricing in both historic preservation and affordable housing will be reduced due to the change in the corporate tax rate and other specific changes.

The original House of Representatives bill had eliminated the Historic Tax Credit (HTC) entirely.  There was talk that a federal credit supporting historic rehabilitation was elitist and only benefitted a small slice of well-off Americans.  This would have been unfortunate, not only because there are so many structures worthy of saving and preserving, but also the costs of doing so are high and rising.  If cut by the bill, it would have left only the preservation tax incentives enacted by the states, and many states still don’t have an effective and robust credit available to developers.  In the final bill, the only major change to the program has been to stretch out the 20% tax credit from one year to five (in properties purchased after January 1, 2018).  Several analysts who’ve studied this provision expect it will reduce the prices that investors will pay into federal historic tax credit partnerships by $.07 to $.10 on top of the reduction caused by the rate change.

The Low Income Housing Tax Credit (LIHTC) program provides developers who qualify a credit of up to 90% of the cost of a project spread out over 10 years.  In addition, there is a 40% credit over ten years for projects that use Private Activity Bonds to fill the gap left if the project didn’t qualify for the larger credit. The LIHTC program has more political clout than the HTC, so there wasn’t much talk of eliminating it outright. There was discussion though, of eliminating the Private Activity Bonds, which would have seriously diminished affordable housing production by eliminating an important financing component in the projects that didn’t qualify for the 90% program.  Luckily, that did not come to pass in the final bill signed into law. Both programs are retained, but the reduction in the federal corporate tax rate from 35% to 21% will likely reduce LIHTC pricing approximately 14%, according to Michael Novogradac, a leading accountant and authority on tax credit law. Another issue reducing the value of the LIHTC, according to Novogradac, is the effect of the Base Erosion and Anti-abuse Tax (BEAT). This is a complex provision affecting different LIHTC investors differently. The upshot is it will reduce LIHTC appetite among corporate investors and pricing will be reduced accordingly.

In conclusion, the real estate tax credits developers use to economically house lower-income Americans and restore worthy architectural properties were saved, albeit in reduced form. The next few months will determine what effect, exactly, the bill will have on tax credit pricing as institutional investors analyze the bill’s effect on their tax credit appetite.  The reduced federal tax rate’s negative effects on federal credit pricing will actually increase the demand and pricing for state tax credits. We encourage all developers with existing projects looking for investors, or with new projects ready to break ground, to contact us and discuss strategies to maximize their tax credit yield for both state and federal tax credits.

For months, the renewable energy industry speculated how the new tax bill would alter the fate of the Federal Investment Tax Credit and Production Tax Credit.  Thankfully, the Tax Cuts and Jobs Act that President Trump signed into law did not devastate the financing of most solar and wind developments.

Under the original bill, there was the threat of the Production Tax Credit (PTC) and Investment Tax Credit (ITC) being completely removed from the tax code, but fortunately the PTC and ITC were kept intact and remain unchanged.  These tax credits serve as the mechanism for a large proportion of financing the renewable energy capital stack.  Corporations create a partnership with developers of tax credit eligible renewable energy projects by investing in the project company in return for the credits and other financial benefits of the project.  Clocktower Tax Credits plays an important role in such transactions by representing developers in presenting their renewable energy project to a network of Fortune 500 Investors in order to source tax equity.  While the elimination of the PTC and ITC was always a concern, an unexpected outcome was a new provision in the tax bill known as the Base Erosion Anti-Abuse Tax (BEAT) that would be detrimental to the financing of renewable energy projects.

The consequence of the original BEAT provision mandated that there be a minimum tax for international corporations, which would have resulted in the PTC and ITC becoming worthless for certain tax credit equity investors.  By having a mandatory minimum tax, corporations that normally would have invested in renewable projects would lose the incentive to offset their tax base, and renewable energy projects would lack a major source of the capital stack.   A late exception was added to this provision which allows tax credits for wind and solar developments to offset 80% of the BEAT levy.  We are still waiting to ascertain the impact of the BEAT provision on tax equity supply.

While there was more legislation that would have slowed instead of fostering the growth of renewable energy, the impact of the changes was not as drastic as expected.  Going into 2018, the industry can now focus on creating better technologies, growing the workforce, and retaining confidence in financing renewable energy projects.

For more information, please contact Nathan Howe at (978) 460-4244 or NHowe@ClocktowerTC.com.

The Federal Historic Rehabilitation Tax Credit (HRTC) was created in 1978 to tilt the preservation/demolition decision in favor of preservation and slow down “urban renewal” demolition, popular in the 1950’s and 60’s.  It recognized that restoration and rehabilitation of existing architectural details costs more per square foot than typical commercial construction.  Since that time, numerous states have piggy-backed on the Federal incentive with state subsidies, beginning with New Mexico in 1984.  Texas lagged greatly behind other Midwestern and Western states in the number of Federal Historic Rehabilitation projects per capita because it lacked a matching state credit.  From 2001 to 2012 Texas produced only 111 projects that earned HRTC’s.  Ohio, by contrast, with half the population but having a robust 25 percent State Historic Rehabilitation Tax Credit, saw 697 projects completed in the same period.  To create more historic rehabilitation projects and utilize more Federal HRTC dollars, Texas joined the thirty-three other states when it passed enabling legislation in 2013 for a state tax credit.  Combined with the 20% HRTC, Texas added a 25% credit so developers can recoup 45% of “qualified rehabilitation expenses”.  That’s a strong financial incentive to preserve existing architecture rather than tear down and replace a building. With modern technology in construction materials and building techniques, older properties are proving surprisingly adaptable to new uses.

Due to IRS passive income rules, most developers can’t effectively use the federal tax credits themselves. Therefore, a market has developed to bring in corporate investors to use the credits, effectively monetizing the awards and reducing the dollar amount of a developer’s own funds needed to complete a project.  To broaden the market for investors in its State Tax Credit, Texas recently added the Insurance Premium Tax to the Business Franchise Tax for those taxes which can be offset by the credit. This change is important because it greatly increases the size of the investor pool, and consequent demand, for Texas state credits.  Developers have noticed the increased demand for their credits, and have responded by aggressively pursuing older properties in established markets to use them.  The increased credit pricing and resulting profitability will likely bring more projects to cities like San Antonio with many historic properties but lower real estate values than Dallas and Houston.

While late to the party, Texas is off to a great start. Waco developer Jerry Dyer says, “Over the years I have had several interactions with the Texas Historical Commission (THC) ranging from multiple phone conversations…to a couple of on-site meetings to discuss the eligibility of a project.  Without exception, they have all bent over backwards to be accommodating to help get the project eligible and completed.  I can say the THC truly puts their money where their mouth is when it comes to getting historic tax credit projects funded in Texas.”

Clocktower Tax Credits is pleased to be connecting developers restoring Texas real estate with our deep pool of institutional tax credit investors. From the massive cleanup effort from Hurricane Harvey on the Gulf Coast, to the beautiful buildings all over the state in need of a freshening, many projects await.

For more information, please contact David Weinstein at (978) 793-9157 or DWeinstein@clocktowertc.com.