Tax credit for the Colony, fantastic! - What is it? published by The Marietta Register April 8, 2008

By R. Hunt Brawley, J.D.
Development Director for the Hippodrome/Colony Historical Theatre Association

    Two weeks ago the Ohio Department of Development announced that the Colony Theatre had been awarded the Ohio State Historic Preservation Tax Credit. It was easily the most significant award to date and will most likely allow for complete construction in a single cycle, but many people have already asked, “What is it?”
    On its face the State tax credit is worth 25% of project cost. For the Colony that will probably mean over $1 million toward construction!
    Unfortunately it is not quite as simple as receiving a $1 million check. In order to qualify for the 25% State credit of $1 million, you have to demonstrate that you will spend $4 million on what is considered “qualifying rehabilitation expenditures” by the Ohio Historic Preservation Office. The design and architectural renderings that were submitted to the OHPO have already been approved for historical compliance so as long as we build what was on paper we are entitled to the credit.
    Since there is an existing Federal historic tax credit of 20% in place, the Colony can combine the two for 45% of total project cost. On a $5 million project the 45% combined credit would be worth $2.25 million. 
    But how does a non-profit like the Hippodrome/Colony Historic Theatre Association that doesn’t pay taxes benefit from tax credit?
    Technically the non-profit won’t benefit from the tax credit, but it will enter into a partnership with a tax payer who could use the credit. Bank of America, US Bank, Sherwin Williams and others have participated in historic theatre restoration projects across the country. Theatres that have already implemented tax credit financing include the Ritz Theatre in Tiffin, Ohio, The Fox in Tucson, Arizona, The Proctor’s Theatre in Schenectady, NY, and the Tennessee Theatre in Knoxville. 
    The HCHTA will serve as General Partner and will still maintain control over the project, but the limited partner funds will flow into construction. After the tax credit recovery period is over (five to seven years) the property would revert back to the non-profit. For the investor/partner, a slightly discounted portion of the funds that would normally flow to the IRS or Ohio Tax Commission would be used for construction of the Colony.
    Although taking advantage of tax credits makes the legal structure much more complicated, the nice feature is that there is built in leverage. Because the credit is a percentage of project scope and not a fixed dollar amount, every dollar we raise publicly or privately essentially leverages 45 cents of tax credit. A seat sponsorship of $1000 would leverage $450, a $100,000 gift would leverage $45,000 and so on. It should make every contributor feel great that their gift results in almost 50% of additional funding.
    With the State credit in place we have identified $4.2 of the $6 million for total hard and soft costs of the project. We believe the addition of the New Markets tax credits which is awardable to qualifying low income districts can add another $800,000. We will still need to raise $1 million dollars, but believe this should be much easier with the other funding sources secured. Putting the tax credit package together will take a little more time and effort (we estimate construction could begin in six months), but we believe it is well worth the extra hardship.