Given his status in the news these days, why not talk about Donald Trump?
I’m not a political expert … but I certainly know my way around the subject of Federal tax credits: including those which can be awarded to companies and organizations that preserve our nation’s historic structures. And among the more interesting stories that I have been following involves the businessman-turned-reality-TV-star-turned-politician: yes, one Donald Trump.
The Trump Organization, LLC, which is the corporate entity over which Mr. Trump presides, was selected by the Federal General Services Administration (GSA) in 2012 to develop Washington D.C.’s Old Post Office Pavilion. Built in 1899, this majestic structure in the heart of the city features a 200-foot-high glass-covered atrium; moldings, railings, and wainscoting made of marble; and elevator cages of intricately wrought iron. Many upper rooms have corner turrets, ornately carved wooden moldings and rich red oak paneling. The building is certainly deserving of its position in the National Register of Historic Places.
In 1978 the GSA recommended the then-mostly vacant, aging building be converted to a hotel. You can guess what happened next: while failed negotiations and in-fighting by government agencies, lawmakers and potential hotel developers continued for decades the lower levels of the building were turned into a food court, a shopping mall, a mini-golf course and (almost) a megaplex movie theater. According to one GSA survey, the failure rate for the small businesses — mostly shops and restaurants — that inhabited the lower levels of the building during that time surpassed 80%.
After years of wrangling, eventually came a firm announcement in June 2013: the GSA had finalized an agreement with The Trump Organization to redevelop the building into a 260-room hotel, conference center and spa. The company pledged at least $200 million to be spent on the redevelopment and $3 million per year in rent payments to the government.
A significant attraction for a company like Mr. Trump’s to become involved in what can become a “messy” project — with the accompanying media and public scrutiny and the uncertain costs that are often part of any building restoration — are the Federal tax credits awarded to organizations willing to take on such endeavors. These tax credits are given to many worthy historic restoration projects throughout the nation, and the approval standards are quite stringent. But the benefits to the public are significant: by the government’s own estimates the historic tax credit program has saved 40,000 venerable buildings across the country, created 2.5 million jobs, leveraged $177 billion in private investment in our communities, and generated more in new Federal taxes than it has given away.
As would be expected, for this project Trump applied for the standard historic credit equaling 20% of qualified construction costs. (Most of the planning costs — generally 10-120% of the total project costs, are not eligible for tax credits.) In the end, my rough calculation projects the eventual total of credits for The Trump Organization might be in the range of $34 million. Most of that would not be pre-funded; rather they will be cleared for the company’s benefit in future tax years.
So what came next? An allegation by Oklahoma Senator James Lankford that Trump struck a sweetheart deal with the government for $40 million in tax credits — announced in such a way as to give the appearance of back-room maneuvering by The Trump Organization to win taxpayer dollars to be used for a luxury expenditure. This inaccurate misstatement by the Republican senator shows either a lack of knowledge about the historic tax credit program — or, perhaps, a willingness to slant the facts for political purposes. (During this campaign season Lankford has gone on record as saying he can’t imagine Donald Trump as the Republican presidential nominee.)
I understand the dynamics of the ongoing national debate as to who will be the best next leader for the country (and I will avoid that topic in this column), but as a tax credit consultant I am disappointed to see what is a textbook, shining example of efficient public/private collaboration be turned into an allegation of wasteful government spending at the taxpayers’ expense.
The Trump Organization is saving a building — arguably a national treasure and part of the historic fabric of our country — from demolition. Both the construction project and the finished hotel will create jobs, foster a major capital infusion into a Washington neighborhood, and provide the government with a projected 19% return on its investment. The Trump company is doing this using substantial financial resources of its own as well as corporate and personal guarantees to the government. While the tax credit is useful and will result in a lower net equity contribution, Trump’s bid won out in a competition with other developers who were also intending to acquire tax credits. There is a financial risk…and perhaps a reward years into the future.
Whomever travels in the presidential limousine from the Capitol to the White House on January 20, 2017 — Inauguration Day — he or she will pass directly in front of the Old Post Office Pavilion on Pennsylvania Avenue — most likely decorated that afternoon in construction scaffolding. No matter who that person may be, I certainly will be riveted to my TV screen at that very moment.
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Photograph by Mike Peel (www.mikepeel.net)
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