CINCINNATI — Housing advocates slammed a new Ohio law that limits property developer’s ability to use certain state tax credits on the conversion of historic properties into low-income dwellings. Opponents of the House BIll 45 claim those funds coupled together play a vital role in making those projects possible.

Signed into law on Friday, HB 45 appropriates nearly $6 billion in federal funds for a mix of state programs and operations. But it was the late inclusion of language in late December that now prevents developers from using both federal low-income housing tax credits (LIHTC) and state historic tax credits on the same project.

Historically, though, this combination of tax credits is often what made many development projects possible, said Cincinnati City Council member Seth Walsh.

“It’s a terrible decision,” he said. “It’s going to have a negative impact on a lot of groups trying to do redevelopment specifically in urban historic areas and develop critically needed affordable and low-income housing.”

Following late changes to House Bill 45, Mike DeWine signed it into law in early January. (AP)

Walsh has unique insight into the potential effects of the statehouse decision. Prior to coming to City Hall in December, he spent his professional career working in community development, serving most recently as executive director of the College Hill Community Urban Redevelopment Corporation.

Financing a development deal often requires multiple financial resources, ranging from bank loans and private funding to grants and tax incentives. 

But finding funding to construct affordable housing is more complicated, Walsh said, because banks won’t loan as much for those types of projects.

It becomes even more of a challenge when working with historic properties, which are more expensive to renovate and maintain.

In those situations, private developers or nonprofit Community Development Corporations turn to “gap funding,” such as government grants or tax credits, to assemble their financial package to make the deal work.

Until now, coupling the tax credits was a significant tool of the trade for developers, Walsh said.

Without them, they’ll have to go another route, Walsh said. The most plausible options are to find more money elsewhere, change the scope or quality of the project or cancel it altogether. 

“Someone has to pay for these projects or they won’t happen,” Walsh explained. “This has the potential to, and I’m sure it already has gutted some projects.”

Council member Reggie Harris fears the current situation is going to put more of a financial burden on cities to cover these types of projects.

Given Cincinnati’s current fiscal situation, that could be a challenge as the city predicts a $36 million operating deficit expected within the next two years.

“We’re going to have to factor in how a bill like this impacts our city’s ability to finance development and affordable housing development, and allows us to continue to grow,” said Harris, chair of the Budget and Finance Committee.

“This is going to require us to become really creative.”

What’s ahead for cities and developers?

The passage of HB 45 is “disappointing” but “not necessarily a devastating blow” to affordable housing efforts or other kinds of projects needed in greater Cincinnati, said Kristen Baker, with LISC Greater Cincinnati.

“But it’s a setback,” she added.

Baker feels there was a lack of understanding at the statehouse about the impact the additions to HB 45 would have on cities.

She mentioned that there were concerns just after the law passed that the state would try to rescind awards given to projects that received both forms of tax credits. But as of Wednesday, she doesn’t believe that’s the case.

“There might be some challenges for projects figuring out their funding during the next round of development and projects getting underway now,” Baker added. “But we’re hopeful this will not be retroactive to existing projects.”

Some leaders voiced a concern that HB 45 will have a greater impact on older cities, like Cincinnati. (Casey Weldon/Spectrum News 1)

Luke Blocher, chief strategy officer for the Cincinnati Development Fund, believes existing houses, apartments and other structures are some of the best development opportunities in Cincinnati. Many of those are historic.

There are 250 individually listed historic buildings, structures and sites in Cincinnati listed on the National Register, according to the city’s website. The overwhelming majority of those are buildings.

Trying to redevelop old buildings isn’t cheap or easy, Blocher said. It’s often more expensive than new construction because of factors such as stabilizing the property, needing to get things up to code and technical requirements for renovating a historic property.

For that reason, Blocher added, makes this law change a bigger issue in Cincinnati.

“These things were hard enough as they were before, so taking away one of the normal sources just makes it that much more difficult,” he said.

Another change allows county auditors to assess affordable projects, which must offer below-market rent, as if they were operating as a market rate development.

Blocher doesn’t believe that’s as much of a threat to happen in Hamilton County under Auditor Brigid Kelly.

The Cincinnati Development Fund (CDF) manages the Affordable Housing Leverage Fund, a collection of money from a variety of entities meant solely for use on affordable housing projects. The fund includes dedicated dollars from the city of Cincinnati and Hamilton County.

Because of the new law, gaps for a number of projects will grow, Blocher said.

“That puts more pressure on the resources we’re coordinating to fill those gaps, and as a result, the resources might not go as far as they would have otherwise,” he added.

‘Maybe we should (develop there) next’

Liz Blume, with Blume Community Partners, called combining LIHTC and historic credits together an “invaluable community development tool,” especially in disinvested areas. 

Mixed-use developments – a combination of housing and commercial space – are a great use of old or even blighted buildings, many of which have unique architecture and century-old connections to the neighborhoods, Blume said. She described them as “potential anchors of our business districts.”

Making those types of investments can also send a message to prospective investors that they can build in an area and have success there as well, Blume said.

Some developers view the creating affordable housing in historic buildings as a way to inspire additional investment in neighborhoods. (Spectrum News Ohio)

One example she gave where that approach is working is the Walnut Hills neighborhood. Blume highlighted a focus on using tax credits on project areas along Gilbert Avenue, William Howard Taft Road and McMillan Avenue. But if you go a little farther up Taft, she said, there are large-scale projects that got off the ground using private dollars and other resources.

“You want the private market to look at your project and say, ‘Maybe we should be next,’” Blume said.

Beth Johnson, executive director of the Cincinnati Preservation Association (CPA), said developers used the tax credits together over the years to preserve the city’s stock of historic buildings while also creating attractive housing options for low-income residents.

“HB 45 prevents this from happening, and is an assault on Cincinnati and other communities that leverage their historic buildings for holistic community development,” she added.

CPA plans to work with partners locally and statewide, as well as the city to advocate for a state policy change, Johnson said. She called having that happen “vital for Cincinnati to continue to do fair historic preservation development reusing our historic buildings.”

Baker’s hopeful that negative backlash received from housing advocates and developers will cause politicians in Columbus making long-term changes, such as the creation of new financial tools and resources.

In response to initial concerns, DeWine promised to include what he terms “a comprehensive approach to our housing issues,” per a report from the Ohio Capital Journal. Among those proposals is a state version of the low-income housing tax credit.

The nonprofit news organization noted DeWine also proposed to expand the historic preservation tax credit.

“It’s something that several states have. We do not have,” DeWine continued. “I believe that it will be a game changer, if the legislature does in fact approve that. So that will be a very top priority.” 

The proposals would “soften some of the blow,” Baker said. But until state lawmakers agree to the plan, she added that they’re still just political promises.

“There are still a lot of unknowns,” she said.