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 [graphic] National Register Bulletin: Guidelines for Local Surveys: A Basis for Preservation Planning

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U.S. Department of the Interior, National Park Service

Appendix III:

Legal and Financial Tools Used to Preserve and Enhance Historic Resources

As discussed in Chapter IV, a community's preservation efforts will be best served if it adopts a comprehensive historic preservation plan. Such a plan serves to guide both the community's preservation efforts per se-its survey, its program of evaluation and inventory, its programs to restore and rehabilitate historic properties and to provide for their study, archeological salvage, and adaptive use, and its programs to encourage rehabilitation and reuse by the private sector-as well as its efforts to ensure that preservation concerns are addressed in development and land-use planning. The purpose of this appendix is to list and briefly discuss the legal and financial tools that can be incorporated into a preservation plan. It should be recognized that this list is by no means exhaustive, and that new and creative uses of financial and legal tools are being developed constantly.

Legal Tools

A wide variety of legal approaches to preservation can be tailored to meet the needs and goals of a particular community; however, any local ordinance must recognize State constitutional restrictions, common law requirements, and existing legislation dealing with preservation and related areas. The existence of State enabling legislation for historic preservation can provide a legal framework in which local governments can base their preservation programs, commissions, and zoning ordinances. A thorough investigation of State and local laws, with the assistance of legal experts, is essential in determining which legal mechanisms are best suited to fulfilling local preservation needs.

1. Community Historic Preservation Ordinances

Community historic preservation ordinances cover an entire city, county, or other political subdivision. They are often called landmarks commission ordinances because one of their major features is the establishment of a board of review, often called a landmarks commission, to oversee the community's preservation program and make judgements about the significance of resources. This terminology may be a little misleading, however, since it implies a concern only with landmarks rather than with the general historic, architectural, and cultural fabric of the community. Increasingly, more general terms like historic preservation commission are being used to describe the bodies that oversee local preservation programs.

Historic preservation commissions are generally responsible for designating significant individual resources or districts in accordance with criteria established by the ordinances under whose authority they operate. Such ordinances also often give them some measure of authority to control the alteration or demolition of designated properties, and sometimes to review the quality of new design in the vicinity of such properties, or within historic districts. Commissions sometimes are provided with staff which they oversee in carrying out the community's overall preservation program; in other cases, commissions are advisory to planning departments or other agencies of local government whose personnel carry out the day-to-day work of the program. The degree of authority granted to such commissions varies widely; in some cases, properties may not be designated as historic without the permission of their owners; in other cases, designation depends solely on the judgement of the commission. Some ordinances place great power in the hands of the commission to control alteration or demolition of designated resources, while others place none, and still others require that the views of the commission be taken into account in decision making, but not necessarily heeded.

Local governments seeking certification to participate in the national historic preservation program under Section 101(c) of the National Historic Preservation Act must establish historic preservation commissions by ordinance, and give them responsibilities and authorities mirroring and coordinating with those of the State Historic Preservation Officer with respect to survey, nomination of properties to the National Register, preservation planning, grants administration, consultation with Federal, State, and local agencies to help them avoid damaging historic properties, and provision of education and information to the public (36 CFR Part 61.5[c][21).

Guidelines for ordinance development can be found in A Handbook on Historic Preservation Law (see Bibliography), which also contains a model ordinance and sample ordinances, and can be obtained from the National Trust for Historic Preservation.

2. Historic District Ordinances

Historic district ordinances protect specific designated districts-commercial, industrial, rural, or residential areas-within a community. Such ordinances generally define specific boundaries, limit development or otherwise protect the district, and establish a review board or commission to oversee compliance with the protective clauses. As is the case with community historic preservation commissions, the degree of authority granted to historic district commissions varies widely; they may act simply as advisory boards, reviewing and making recommendations on applications for building permits for proposed alterations, or the legislation may enable them to stay, grant, or deny demolition, alteration, and new construction. Generally, the ordinance also establishes procedures for appealing decisions of the historic district commission.

The discussion of ordinance creation in A Handbook on Historic Preservation Law will be useful for those considering creation of historic district ordinances, and sample district ordinances are available from the National Trust for Historic Preservation.

3. Zoning

It is particularly important that a community's historic preservation plan is coordinated with its zoning ordinance. If permissible under local and State law, it is advantageous to create an historic preservation classification within the local zoning ordinance. Alternatively, an ordinance could provide for the overlay of preservation review, with reference to architectural design or modification of existing structures, on the existing zoning of historic districts. The important thing to strive for is to minimize conflict between preservation and existing zoning. However urgently a community's historic preservation plan seeks to promote retention and rehabilitation of historic structures, if the underlying zoning permits conflicting uses that have the potential for higher economic return, in the long run preservation will lose out. Conversely, if preservation planning and zoning are coordinated, they can work together to promote the beneficial use of historic resources.

4. Easements

Easements are acquired interests in property owned by another. Since an easement is less than a total or fee interest in property, it may be a cheaper means of controlling use than outright purchase. Acquisition of an easement which precludes a property owner from making nonconforming alterations to the facade of his or her historic house, for example, is a common and often effective preservation tool. Preservation or conservation easements are of three general types.

a. Open Space, Conservation, or Scenic Easements - Open space, conservation, or scenic easements are a well recognized general form of land use control which has been used for many years in the United States to conserve undeveloped land areas. An example of the use of this type of easement is the National Park Service program to acquire scenic easements to restrict development and maintain the picturesque qualities of lands along the Blue Ridge and Natchez Trace Parkways. This type of easement has also been used to control the development of lands surrounding historic properties and to keep archeological sites safe from development of the lands in which they exist.

b. Exterior or Facade Easements - Exterior or facade easements restrict the development, use, or alteration of the exterior portions of a building or structure. Such easements are particularly useful where the architectural or visual quality of the exteriors of buildings is a major concern, for example, in historic districts where the ambiance of streetscapes is important.

c. Interior Easements - Interior easements can be written to prevent alteration of interiors of buildings or structures. They can apply to an entire building interior or to particular elements, for example, providing that the detailing in a particular room not be altered without permission, or prohibiting the removal of a staircase.

Potentially, easements have several advantages over other types of less-than-fee controls:

  • They may be assignable to other parties - transferred from the original purchaser to another.

  • They may run with the land - be binding on subsequent purchasers of the property affected.

  • They may be acquired through gift or purchase. Donors of easements, and those who sell them for less than their appraised value, may be able to deduct the value of their donations from Federal and State income and estate taxes. In addition, the sale or donation of an easement may substantially reduce the fair market value of a property, thus allowing possible decreases in local property taxes and other Federal, State, and local taxes.

  • Implementing an easement program is not a simple operation. The legal instruments that convey easements must be carefully drawn up, and easements require conscientious policing by their holders to insure that the property owners are complying with them. The following preliminary steps are important:

  • Investigation of relevant Federal and State laws and passage of enabling legislation, where necessary.

  • Meticulous drafting of the legal instrument creating the easement, accompanied by adequate documentation describing the exact qualities or conditions of the property to be preserved.

  • Careful identification of appropriate organizations to receive, hold, and police easements. Such organizations may be agencies of local government-for example, local preservation commissions or parks departments-or private organizations such as historical or archeological societies. Decisions about easement recipients should be explored with legal counsel, because in many jurisdictions, the protection afforded a property will depend on who holds the easement.

    Legal counsel is vital in the development and administration of an easement program, because of the need for the documents conveying each easement to be sound and appropriate under Federal, State, and local law. The validity of the entire easement program will depend on its relationship to the existing framework of State property laws.

    Despite its advantages, an easement program may not necessarily be the most effective tool for preservation nor the most financially expedient in the long run. Although purchase of an easement is often cheaper than acquiring the entire fee, in some cases, the value of the development rights of a property, for example, may constitute the major portion of a property's fair market value, so that the acquisition of an easement restricting these rights would be almost as expensive as purchasing the property itself and would require policing

5. Covenants and Reverter Clauses

Covenants are contractual agreements between private parties that run with the land, thereby restricting uses that may be made of the property. Reverter clauses in deeds stipulate that unless certain conditions are followed, ownership of the property involved will return to the conveyor or to a designated third party. Both may be used to maintain the historic integrity of a property. When properly drafted, they may also bind subsequent owners to abide by the conditions contained in them.

These legal tools may be useful in purchase and resale or leaseback arrangements where properties have been acquired and will be later disposed of subject to the conditions of covenants. They may be useful in situations where property has been acquired through eminent domain and will be later disposed of subject to the condition of a covenant.

An advantage in using covenants is that specific provisions for penalties or other remedies may be included in them to come into effect if the terms of the agreement are broken.

Reverter clauses lack this flexibility, providing only for reversion of title to the conveyor or the conveyor's designee in event of a breach of the conditions agreed to. Their use could be an inappropriate means of attempting to enforce compliance with preservation goals where reversion of ownership would be a financial burden to the original seller, for example.

It should be noted that unless covenants or reverter clauses are very carefully drafted and contain the precise legal elements appropriate in the jurisdiction in which they are to apply, they may not run with the land, i.e., be binding on subsequent purchasers. In addition, they may be difficult to enforce over a long period of time, particularly if conditions present at the time of the agreement have changed.

6. Transfer of Development Rights

By permitting a property owner to sell the air rights over his or her property to another, a community can create the basis for compensating an owner who is not permitted to develop a parcel to what would ordinarily be its maximum potential. A local ordinance permitting transfer of development rights can make it possible, for example, for the local government or a preservation organization to exchange the right to develop a non-historic parcel for the air rights over an historic building, where otherwise a high-rise building could be constructed if the historic structure is demolished. Appraising the value of air rights when a sale or exchange is proposed may be complicated, but providing the opportunity for such transfers in the design of local ordinances can make a useful tool available for preservation in many circumstances.

7. Tax Advantages

Federal tax law at present encourages preservation and rehabilitation of historic properties by allowing corporate and individual taxpayers to deduct the value of the donation of conservation easements from their income taxes and by providing investment tax credits (ITCS) to taxpayers who carry out certified rehabilitation projects on income-producing certified historic buildings. Many communities have found that the Federal tax laws provide a powerful tool for local preservation, both to encourage rehabilitation in particular parts of the community and to help build partnerships with developers and property owners who might otherwise be hostile to, or at least unresponsive to, preservation concerns.

Because of the fluid nature of Federal tax law, communities should be sure to have the most up-to-date available information on Federal tax incentives before relying heavily on them to help build a local program. The State Historic Preservation Officer and the regional offices of the National Park Service can provide current information.

It should also be recognized that over-reliance on Federal tax incentives can lead to some distortion in a local preservation program's priorities. The fact that Federal ITCs are available only for the rehabilitation of income-producing property has caused some communities to concentrate their attention on commercial areas and on historic contexts relevant to commercial buildings at the expense of other aspects of the community and its heritage. Care should be taken to avoid ignoring other important preservation problems and opportunities in the face of enthusiasm over the tax advantages of rehabilitating income-producing properties.

State and local tax laws have traditionally worked to discourage the preservation and rehabilitation of historic and cultural properties. This is rapidly changing in many parts of the Nation, but in formulating preservation plans, communities should carefully study the local and State tax codes to identify potentially useful amendments. Listed below are tax incentives which can work to encourage preservation:

  • Tax credits or deductions on State income or property taxes for rehabilitation and maintenance of historic properties or for donations of easements for preservation purposes.

  • Tax credits or deductions on local property taxes.

  • Abatement or partial abatement of property taxes, i.e., partial or complete exemptions on qualified properties.

  • Alternate methods of valuation, i.e., assessment of property value on the basis of existing use or other than fair market value.

    Alternate valuation of historic and cultural properties can help to alleviate the development pressures on historic properties and other undeveloped areas caused by their assessment at fair market value. Where a property has substantial development potential, its fair market value is often much greater than the value of the property at its existing use. If a basis other than fair market value can be established for evaluation, the pressure created by taxation to convert the property to its highest and best use can be alleviated.

    Effective use of alternate methods of valuation requires a curate means of assessing the value of historic resources. These means must be developed carefully to insure fairness and objectivity.

    Tax incentives for preservation need not always be applied on a community-wide basis, or in perpetuity. For example, it may be appropriate to target a particular area containing a concentration of historic buildings in need of rehabilitation, and reduce the assessed valuation of or provide tax credits to rehabilitated buildings in the area for a specific period of time. The time period established and the amount of the reduction or credit should be sufficient to stimulate significant investment in the area; at the same time, care must be taken to ensure that the incentive program is fair and does not work to the detriment of other parts of the community.

    Development of State and local programs for tax credits deductions, or abatement should include consideration of the following factors:

  • Criteria for the recognition of properties eligible for tax credits, deductions, or abatement, such as National Register listing or inclusion in the community inventory.

  • Definitions of activities for which credit or deductions would be allowed (kinds of rehabilitation, maintenance, etc.).

  • Amount of credit or deduction allowed per property, per activity, or per period of time.

  • Length of time for amortization of allowable expenses.

  • Relationship between State and local tax benefit programs, and between these programs and the Federal program.

    8. State and Local Environmental Laws

    Many States have adopted laws designed to ensure that both the natural and cultural environments are considered in government decision making; these can provide an important basis for the integration of historic preservation into local planning. Such laws are usually modeled on the National Environmental Policy Act (NEPA) and are referred to as State Environmental Policy Acts or SEPAs in the legal literature. SEPAs typically require the preparation of an environmental impact report or statement whenever a State or local government agency proposes an action that might affect the environment-for example, approval of a subdivision, issuance of a major grading permit, provision of financial assistance to a development, or undertaking capital construction. The environmental impact document involves identifying those aspects of the environment that may be affected, projecting the effects, and analyzing alternatives. It is then up to the government decision maker-the State agency, the city council, the planning board-to use the environmental document in deciding whether to proceed with the action and if so, whether to adopt conditions on the action to mitigate its effects on the environment.

    Virtually every SEPA includes historic properties in its definition of the environment that it seeks to protect, so SEPAs can provide a powerful too] for use by local governments and preservation organizations to ensure that preservation is considered in planning. What is often a problem in making SEPAs work for preservation is ensuring that historic properties and preservation issues are actually identified in the environmental impact document. Here, of course, the availability of survey data can be very important. On the other hand, if a preservation agency or organization has a good working relationship with the local decision makers who require and review environmental documents under a SEPA, it can work to ensure that studies undertaken to prepare the environmental documents do identify historic properties and do so in a manner that contributes to the survey data base. Once accurate information on historic properties and preservation issues has been presented in an environmental document, the next problem is to encourage the relevant decision makers to consider preservation alternatives in a positive light. Such consideration will be most likely if the community has a comprehensive historic preservation plan in place, providing access to some or all of the preservation tools discussed in this appendix.

    Where a SEPA exists, community preservation agencies and organizations will find it useful to become familiar with its terms and how they are interpreted by local and State decision makers. It should then be possible to incorporate the use of the review process prescribed by the SEPA into the community's historic preservation plan. Local ordinances can also be developed to build on the provisions of the SEPA. If no SEPA exists, the community might consider adopting a similar law itself. The Handbook on Historic Preservation Law (see Bibliography) provides a useful discussion of SEPAs and their uses, with references to the rapidly growing literature on the topic that will be helpful to those designing or using such laws.

    9. Social Impact Ordinances

    In order to minimize conflict between development and other community interests, and to maximize citizen participation in decision making, some communities have adopted ordinances providing for analysis of the social impacts of proposed actions, and for organized participation by affected social groups in decisions about development and land use. Often these ordinances provide for negotiation between affected groups and development interests or government agencies, or for mediation of disputes. The City of Honolulu, for example, adopted an ordinance in 1981 that required the preparation of social impact analyses in advance of development projects, in consultation with affected neighborhood groups and other interests, and the conduct of meetings with all concerned parties to resolve conflicts (see Bibliography). Social impact analysis and negotiation to resolve environmental disputes are being used increasingly at State and Federal government levels as well, both in the United States and in other nations (see Baldwin, Kent, Social Impact Assessment, Susskind and Weinstein, and Talbot in Bibliography).

    Because neighborhood concerns about development and land use changes often focus on perceived injury to neighborhood character, cultural values, and property value, they often are closely related to, or incorporate, historic preservation interests. A community's preservation agency or organization can benefit from exploring ways to ensure that preservation interests and alternatives are fully considered in social impact analysis and the negotiation of solutions to conflicts between development and neighborhood concerns.

    10. Regulating Consultant Quality

    Environmental documents prepared under SEPAS, under the National Historic Preservation Act, and with reference to the National Historic Preservation Act are usually done by or with the aid of professional consultants. A community can help ensure that preservation issues will be properly considered in its own planning and in that carried out by State and local agencies if it finds ways to regulate the quality of the consultants who prepare such documents.

    At a minimum, consultants who prepare the historic preservation elements of environmental documents should be required to meet the professional qualification standards in the Secretary of the Interior's Standards and Guidelines.5 for Archeology and Historic Preservation, and should have a demonstrated record of doing good historic preservation work of the type for which a consultant is needed. For archeologists, a community may wish to consider requiring certification by the Society of Professional Archeologists (SOPA). SOPA reviews the qualifications of archeologists and certifies them in various specialities, also requiring them to abide by a code of ethics and professional standards equivalent to, but more detailed than, the relevant parts of the Secretary of the Interior's Standard and Guidelines.

    Agencies and organizations interested in regulating the quality of consultants should discuss options carefully with legal counsel. There are strong legal strictures on requiring consultants to be members of particular organizations, but in most jurisdictions it is legal to require that an individual's professional qualifications be certified by an organization of peers. Alternatively, formal licensing by the local government might be considered.

    Financial Tools

    1. Revolving Funds

    Revolving funds are designed to provide a preservation organization with the financial capacity to buy, sell, and maintain property without large sources of long-term financing. They have proven to be effective preservation techniques in a wide range of situations. As the name implies, funds in a revolving fund revolve; they are invested in a property, recovered-ideally at a profit, and invested in another. Organizations with preservation revolving funds can respond quickly to emergencies by purchasing endangered sites or buildings directly rather than looking for a sympathetic buyer or trying to raise funds for special purchase. By buying endangered properties, the organization buys time. Buildings and structures may be rehabilitated, easements may be placed on them, and they may be resold or leased to parties who will maintain them. Alternatively, properties can be transferred and rehabilitated by the new owner according to agreements accompanying the sale. Archeological sites may be sold with covenants restricting excavation or permitting only certain kinds of land use, or might be subjected to a program of research excavation and then sold without restrictions once their important data have been extracted. When the properties are sold, the money returns to the revolving fund and can be used again to save other properties.

    Use of revolving fund techniques places the community or preservation organization in the real estate market. As the organization begins to buy and sell property, local business people begin to take note, and if the program is successful they can develop respect for preservation as a new economic force in the community. Properties bought and sold gain in value as they are rehabilitated, and the rehabilitation itself generates other economic activity. When several properties in an area have been bought and rehabilitated, the area is likely to become more attractive to private investors. Bank loans may be more easily obtained, and other property owners in the area may begin to rehabilitate their property. The net value is increased property values and an increased tax base for the community-proof that historic preservation can be good business.

    The problems involved in establishing and operating a revolving fund are to obtain the money to make the initial purchases, to turn these around quickly enough to generate momentum rather than allowing the fund to stall with its first few projects, and to operate the fund in a businesslike manner. Some communities use Community Development Block Grants to establish

    Legal and Financial Tools

    revolving funds, while others have obtained initial funding through community-based fund raising efforts, local appropriations, grants from private foundations, and bequests. Revolving funds may also be established on a statewide basis. The advantage of State revolving funds is that they have a broader base of support.

    For additional information on revolving funds see Revolving Funds for Historic Preservation, by Arthur Ziegler, Leopold Adler, and Walter Kidney (see Bibliography).

    2. Grants

    Community Development Block Grants and certain Federal categorical grants available through the U.S. Department of Housing and Urban Development are popular sources of funding for preservation activities. Block grants have few limitations that apply to their use, and can be applied to survey, operation of a general historic preservation program, establishment of revolving funds, direct rehabilitation projects, and a wide variety of other preservation functions. Categorical grants are typically more limited in their application.

    The State Historic Preservation Officer may be a source of grant funds from the Historic Preservation Fund managed by the National Park Service. The National Historic Preservation Act provides for the pass-through of Historic Preservation Fund money to local governments whose preservation programs have been certified by the State Historic Preservation Officer and the Secretary of the Interior; these funds can then be used at the local government's discretion for historic preservation purposes, within guidelines established by the National Park Service. The basic procedures to be followed by certified local governments are published in the Code of Federal Regulations at 36 CFR Part 61. The State Historic Preservation Officer can also provide matching grants from the Historic Preservation Fund for particular preservation activities, including those carried out by local governments that have not been certified in accordance with 36 CFR Part 61, and often administers grant programs established by the State as well.

    State Arts and Humanities Councils and folklike programs are possible sources of funding for particular preservation-related projects, and may be able to offer advice about other sources. Other State funding opportunities are likely to be available from time to time, often in connection with economic development programs; it is wise to maintain contact with State legislators to keep track of potentially useful legislation.

    Grants may also be available from such Federal agencies as the National Endowment for the Arts, the National Endowment for the Humanities, and various agencies of the Departments of Housing and Urban Development, Agriculture, Commerce, and Transportation, for particular project and program activities. The availability of grants for particular purposes changes from year to year as Congress approves new programs and allows others to expire or remain in existence without appropriations. The State Historic Preservation Officer should be consulted for current information.

    Private sources of grant funds can also be important. The National Trust for Historic Preservation maintains a variety of grant programs, and should be contacted directly to determine what is currently available. A wide range of private foundations offer support for activities related to preservation, ranging from research to restoration, and some local philanthropic organizations specialize in supporting worthwhile projects in particular communities. The local library or university grants office is a good place to consult directories of foundations and other potential private sources of grant support.

    3. Contracts

    Some local preservation programs contract with Federal, State, and local agencies, private developers, and regulated industries to carry out the surveys, of evaluations, and other studies that may be required them under the National Historic Preservation Act, the National Environmental Policy Act, or relevant SEPAS. This has several advantages; it ensures that the work done on such studies is consistent with the standards and policies of the local preservation program, builds up the survey data base, can usually be done efficiently, and helps support the local program by covering overhead costs. The practice can lead to real or perceived conflicts of interest if the local program is also involved in review of the undertakings on which it does studies. Care should be taken, and the advice of legal counsel sought, in establishing any such contracting operation.

    4. Syndication

    Syndication is an increasingly popular way of financing rehabilitation projects; it involves bringing together investors and preservation interests into legally constituted syndicates for the purpose of carrying out a project or projects from which all will theoretically benefit. Several large private firms now specialize in syndication; the State Historic Preservation Office may have information on such specialists, and may be able to advise about the applicability of syndication to a particular project.

    5. Development Bonuses

    A community can encourage rehabilitation of historic buildings or preservation of historic open space by providing development bonuses. For example, a corporation that agrees to rehabilitate certain historic buildings as part of a development in an historic district might be given an increase density allowance for another part of the development. Such arrangements typically involve zoning variances and are one good reason for close coordination between historic preservation planning and zoning.

    6. Land Cost Subsidies

    A community can provide a strong incentive to rehabilitation by purchasing historic properties and then selling them to developers at a reduced price. Particularly in large cities with a high level of economic activity, land prices are often among the biggest expense items faced by a developer, and may be a major factor in making rehabilitation less cost-effective than demolition and construction of a larger, taller building with greater marketable floor space. By reducing the cost of the land through a partial subsidy, the community can reduce, or even reverse, the differential between rehabilitation and new construction.

    7. Reduction in Interest Rates

    Another way to encourage the private rehabilitation of historic buildings is to reduce the interest rates on construction loans or mortgages. Some local governments use Community Development Block Grants or other grant funds to provide developers with low interest loans, while others use their revenue bond powers to raise the necessary capital.

    The use of such techniques as syndication, reduction in interest rates, and land cost subsidies requires a high level of cooperation among preservationists, local government, funding sources, and the development community. An effective community historic preservation plan should be developed in consultation with such interests so that these and other innovative approaches to financing historic preservation activities can be fully explored.

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