Update Tax Policy, Rebuild Schools
Rep. Eric Cantor, Sen. Jim Webb, Sen. Mark Warner, George Allen and Tim Kaine
November 29, 2011 9:27 PM
America’s economic recovery continues to pose tough challenges. Our citizens need good jobs, and our students need the skills to compete for those jobs in the years ahead. During a time of economic uncertainty, we need to work together on creative ideas that confront these challenges in an innovative manner. With divided government in Washington, we need solutions that both parties can support. Here’s one:
Republicans and Democrats agreed in 1986 on a private capital approach to modernize America’s oldest buildings. Congress authorized a federal rehabilitation tax credit, worth up to 20 percent of construction costs, for rehabilitating historic buildings. This policy has proved successful, except in one crucial category — older school buildings.
Because of a limitation on using the tax credits for tax-exempt property, public schools cannot generally benefit from this. In addition, an Internal Revenue Service rule, known as “prior use,” generally prohibits private investors from earning this credit if they renovate an older school into a more modern public educational facility.
This means that if a local school building is turned into a luxury condo, developers are eligible for federal tax credits. But if private interests invest to modernize an old school, the IRS says these tax credits are not available.
Indeed, the limitations in current law effectively force localities to use the “borrow to build” approach — based on federally subsidized local government bonds. We have an important tradition of local control of education, but by denying local schools access to private capital to rejuvenate older buildings, we are increasing local costs. Those increased costs mean fewer local education dollars are available to improve classroom instruction and ensure our children have the educational resources they need.
These restrictions are preventing major — and much needed — renovations at a time when the average K-12 facility is considered obsolete, built for a 20th-century curriculum when our children need a 21st-century education. It is time we improve those schools by fixing this policy. In Virginia, we’ve seen firsthand what this change can do.
A few years ago, Richmond couldn’t afford to borrow the money to turn a deteriorated, Depression-era high school into a modern K-12 facility. But local leaders and the Richmond City Council devised a novel solution. If the private sector rehabilitated this city high school into a regionally operated, high-tech high school for the top students in central Virginia, this could technically be seen as a “new” use. The IRS agreed. Using the 1986 law, this formerly run-down school is now home to one of the highest-ranked U.S. public high schools.
With that in mind, we all support the Rehabilitation of Historic Schools Act, legislation that would eliminate this roadblock to school renovation and allow local governments to use the historic building rehabilitation tax credit. The legislation isn’t a silver bullet. But it is the only proposal before Congress to leverage private capital to help modernize our public schools.
The national interest — not to mention the best interests of parents, children and teachers — is not served by allowing obscure provisions of current law to cost jobs and opportunities for students and private investors. This is a bipartisan jobs bill that could help make America more competitive while also expanding our economy. We hope our colleagues and the White House agree.
Sen. Jim Webb (D-Va.) serves on the Joint Economic Committee. Sen. Mark Warner (D-Va.), a former governor, sits on the Senate Budget Committee. Rep. Eric Cantor (R-Va.) is the House majority leader. Bob McDonnell is the governor of Virginia. Former Virginia Govs. George Allen and Tim Kaine are now running for the Senate.