A new Subchapter A and Part 425 is added as follows:

1. Statutory authority: The State Legislature recently expanded the State investment tax credit program first adopted in 2006 to provide an incentive to more businesses that expressed an interest in rehabilitating historic properties in distressed areas. (See, c. 239 of the Laws of 2009 and c. 472 of the Laws of 2010).

The Office of Parks, Recreation and Historic Preservation (OPRHP) has a central role in the federal and State historic preservation tax credit programs. It reviews applications from all taxpayers and certifies that the construction work complies with the federal Secretary of the Department of the Interior Standards for Rehabilitation of Historic Properties. Recognizing this role, the State Legislature provided OPRHP with statutory authority to charge fees for "processing and review of applications. . ." Parks, Recreation and Historic Preservation Law (PRHPL) § 13.15(6). Anticipating an increase in the number of taxpayers participating in the program, OPRHP is proposing fee schedules in regulation that will allow the State Historic Preservation Office (SHPO) to continue to expeditiously review, process and issue certifications. PRHPL § 3.09(8). Prompt review of these applications also supports the Legislative policy that requires OPRHP:

To promote and encourage the protection, enhancement and perpetuation of such [historic] properties, including any improvements, landmarks, historic districts, objects and sites which have or represent elements of historical, archaeological, architectural or cultural significance. PRHPL § 14.01(2).

2. Legislative objectives: The Legislature granted OPRHP this fee-setting authority so it can recoup staff costs for processing, reviewing, approving and certifying the rehabilitation work. Under the statute "all revenues from these fees shall be deposited by the comptroller in the miscellaneous special revenue fund to be credited to the agency's patron services account and shall be used to support the office's historic preservation program." PRHPL § 13.15(6).

3. Needs and benefits: The State tax credit program has two distinct facets. First, it provides personal income tax credits to homeowners for 20% of expenditures for residential rehabilitation.

Second, it provides personal income and franchise tax credits to other taxpayers (persons, corporations, partnerships, banks, shareholders) for historic rehabilitation expenditures that qualify for the commercial credit. The State tax credit for commercial, office, industrial or incoming-producing properties (commercial credit) is equal to 100% of the comparable federal tax credit which is currently 20% of qualified expenditures for the rehabilitation project. These taxpayers may enter into business arrangements that take advantage of both the federal and State tax credit programs. The Department of Taxation and Finance (Tax & Finance) administers the New York State tax credit program.

By collecting and allocating the fees back to the program SHPO can issue the certifications more quickly so the federal and State tax agencies may approve the respective credits. Streamlining the review process also implements the tax credit program goal to catalyze economic revitalization at the local level by encouraging investment in distressed areas, providing jobs and keeping historic buildings on the tax rolls.

4. Costs: A. Homeowner Credit. The rule establishes the following fee schedule for homeowners based upon the dollar value of the rehabilitation work performed:

Projected Costs to Homeowners

Outreach efforts have increased public awareness of the benefits of the State program for homeowners resulting in a drastic increase in homeowner applications for certifications. Only fifteen were submitted during the 3-year period from 2007-2009. In contrast, 50 are expected to be submitted in 2010. In future years the number of homeowner applications is projected to increase to from 80 to 100. The average homeowner rehabilitation expenditure to date is about $55,000 so the average final fee would be about $200.

The maximum annual homeowner tax credit is limited to $50,000. If the credit exceeds the tax due in a given year and the homeowner's adjusted gross income does not exceed $60,000, then the excess is treated as overpayment and credited or refunded to the taxpayer. For this reason, the rule exempts a homeowner with a household adjusted gross income of $60,000 or less from paying the fee.

B. Commercial Credit. The rule establishes the following fee schedule for taxpayers based upon the dollar value of the rehabilitation work performed:

Projected Costs to Taxpayers

The National Park Service (NPS) has provided a list of estimated rehabilitation expenditures for applications pending before SHPO for the federal commercial credit. Based on these expenditures, OPRHP projects the median fee under the rule to be $2,500 and the range to be as follows:

$100 (2%)

$500 (8%)

$1,000 (20%)

$1,500 (6%)

$2,500 (22%)

$3,000 (11%)

$4,000 (4%)

$5,000 (17%)

C. Cost Variables. The actual rehabilitation expenditures, however, may vary by as much as 50% higher or lower than the estimated costs given at the beginning of a project. This rule, therefore, requires submission of a nominal fee with Part 2 of the application and submission of the final fee with Part 3 when receipts for actual expenditures will be available. This provision was included in response to comments OPRHP received from the public when it posted a preliminary draft of the rule on its website for review.

Other variables affecting the projected fees for applicants are the total amount of money that is available in the annual State Budget for the State tax credit, the cost of rehabilitation expenditures (whether they become more or less expensive to undertake) and the health of the economy. If there is a large amount of money available for the credit then the number of applications submitted to SHPO could increase. Given the recession, however, more applications may be submitted for lower cost projects. Under the latter scenario, the estimated rehabilitation costs and the estimated fees could decrease since more taxpayers would be undertaking smaller projects.

Also, the State commercial credit is slated to expire in 2015. After that the credit reverts back to 30% instead of the current 100% of the federal tax credit. This could encourage more taxpayers to take advantage of the more generous credit during the next five years before the expanded benefits expire. Public comments on the preliminary draft rule that was posted on OPRHP's website found the fee schedule to be reasonable.

D. Costs to the Office. If the fee rule is not adopted, the Agency will lack funds to handle the projected increase in workload – a total of at least $150,000 annually for staff costs.

5. Local government mandates: The proposed amendment would not impose any program service, duty or other responsibility upon any county, city, town, village, school district or other special district.

6. Paperwork: OPRHP has been continually reviewing applications submitted for the existing federal tax credit program, for the State homeowner tax credit program and for the previously limited State commercial credit program. This rule, therefore, would create additional paperwork related to the new fee. Applicants would continue to submit paper or electronic applications on forms supplied by OPRHP and would continue to submit required supplemental documents.

7. Duplication: The rule does not duplicate, overlap or conflict with State and federal requirements. The National Park Service assesses a separate fee for reviewing projects under the federal tax credit. OPRHP's fee authority derives from the State tax credit bill. The SHPO certification, however, is required for both the federal and State tax credits. The National Park Service (NPS) accepts SHPO's certification as a recommendation in determining whether to issue its certification to the Internal Revenue Service for the federal credit.

8. Alternatives: A fee structure based on a percentage of the credit or a percentage of the rehabilitation expenditure was considered and rejected because the percentage calculations would have to decrease as the size of the tax credit or rehabilitation increases. Otherwise, the fees would be exorbitant and more difficult to calculate for the more expensive projects. Also, those alternatives would be more difficult to administer and more complicated for applicants to understand.

9. Federal standards: The rule does not exceed any minimum standards of the federal government for the same or similar subject areas.

10. Compliance schedule: The rule would take effect upon publication of the notice of adoption in the State Register and would apply to new and pending applications that OPRHP had not yet certified.

A Regulatory Flexibility Analysis is not submitted with this notice because the rule will not impose any adverse economic impact or reporting, recordkeeping or other compliance requirements on small businesses or local governments. The proposed rule assesses a fee for an application that may be submitted to OPRHP for certification of rehabilitation work done on historic properties. The certification allows a taxpayer to seek available State tax credits for the work. This voluntary program is open to small and large businesses that pay taxes.

A Rural Area Flexibility Analysis is not submitted with this notice because the rule will not impose any adverse impact or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas. The proposed rule assesses a fee for an application that may be submitted to OPRHP for certification of rehabilitation work done on historic properties. The certification allows a taxpayer to seek available State tax credits for the work. This voluntary tax credit program is open to small and large businesses that pay taxes.

A Job Impact Statement is not submitted with this notice because the rule assesses a fee for processing an application voluntarily submitted to OPRHP for certification of work performed on a historic property. The certification enables the taxpayer to seek State tax credits for the work performed. The rule, therefore, will not have an impact on jobs and employment opportunities.