Virginia for the Win is a series examining Virginia’s crucial role in the 2016 presidential race and national politics.
Leadership requires finding common ground for the public good. You don’t need to love Republican presidential candidate Donald Trump, much less plan on voting for him, to reach out on an issue that’s bigger than the March 1 primary.
Let us explain.
The chattering class has obsessed over Trump’s proposal to build a giant wall along our border with Mexico. Among other criticisms, they say it would be a financial boondoggle.
But there has been little reporting on how the real estate mogul is financing his company’s new hotel under construction in the District. Trump chose a unique financing approach praised by Sens. Mark Warner and Tim Kaine (both Virginia Democrats) and Virginia Gov. Terry McAuliffe (D) — and one that they say is being unfairly denied to local governments saddled with crumbling public school facilities.
A K-12 Virginia Facility study conducted during the waning days of the administration of Robert F. McDonnell (R) discovered that the average student, whether in a rural, suburban or urban community, attended classes in an obsolete, often decrepit, school building.
For decades, politicians have promised to provide government funds to help fix this worsening situation.
However, it’s never been a realistic promise, seen as financially unsound no matter which party controlled Congress. Yet there is a proven private/public solution. Virginia’s leaders know this.
But you say: What the heck does this have to do with a new Trump hotel in the District?
Our answer: With the Virginia primary days away, everything.
As in most states, shocking numbers of Virginia’s obsolete K-12 facilities qualify as “historic” structures under federal law. Do you know what else qualified as an historic building? The Old Post Office Mr. Trump is transforming into his new hotel.
A 1986 bipartisan legislative compromise between President Ronald Reagan and House Speaker Tip O’Neill created an incentive to encourage the private sector to put up the risk capital required to modernize our aged building stock.
The “federal rehabilitation tax credit” — commonly called the historic tax credit — allows investors to earn tax credits of up to 20 percent of the qualifying construction costs expended in modernizing a structure deemed historic under federal law.
These projects create jobs, generate future tax revenue, are more efficient and are more environmentally friendly than new construction.
A study by Virginia Commonwealth University in Richmond and Rutgers University in New Jersey found that such projects — all required to adhere to strictly enforced IRS standards — are wildly popular in business and governmental circles because they produce rewards for the private sector and the public good. Virginia leads the nation in these projects.
But, unfortunately, this successful law had an unknown glitch that went undiscovered for 23 years, until exposed in 2009.
This glitch is known as the “prior use” rule. Let’s assume Trump has to choose between putting his money into turning a historic building into a new hotel or refurbishing an obsolete local school building into a modern educational facility.
Converting an old post office into a hotel is a new use. This earns Trump all these tax credits. Refurbishing an old local school building is considered keeping it the same, or “prior use,” and that project gets no tax credits.
Since tax credits are valuable, this keeps billions of dollars from being available for school modernization projects. What does this mean for Virginia localities? Applying the federal and state tax credits available for historic financing of hotel projects to schools in the commonwealth would cut the cost of modernization up to 40 percent.
This isn’t speculation.
When he was mayor of Richmond, Kaine found a one-time way around the “prior use” rule to turn a local, rundown school building into the high tech home of a regional governor’s school and saved roughly 40 percent on the costs because of a unique tax credit financing math for a sale/lease back school project. These huge construction savings in turn free up money for efforts to improve instruction.
There are potentially 30,000 such projects around the country, with 800 to 1,000 here in Virginia.
Trump is campaigning against jobs going overseas. Historic school modernization projects would create hundreds of jobs right here and hundreds of thousands nationwide, all funded by private capital with huge benefits flowing to localities. In a matter of years, the United States would get the modern school infrastructure long promised.
Warner and Kaine want to fix this bias against historic school modernization. Before the Virginia primary is over, shouldn’t the media find out whether the leading GOP presidential contender agrees?