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Creating financial policy to support the initiatives in your legacy business program.
Each legacy business program is designed to meet the community's specific needs, and the financial policies you implement will reflect this. The following sections provide examples of the types of financial tools that could be immplemented with your program.
Funding Grants & Financial Incentives
As mentioned in the Economic Support section, municipal grants are the most used form of financial assistance in existing legacy business programs. These can include rent stabilization grants, capital or façade improvement grants, or lease assistance incentives. For example, San Antonio’s Legacy Business Programprovides a matching grant for façade or energy-efficiency improvements tailored to legacy businesses.However, financial aid provided through municipal programs often requires changes to municipal ordinances or codes governing the use of public funds. This may require additional work beyond the Implementing Ordinance to obtain.
San Francisco's Legacy Business Historic Preservation Fund
After the Legacy Business Program became an official program with the City and County of San Francisco, a proposition was required to establish grants for the program. In 2015, voters approved Proposition J, which created the Legacy Business Historic Preservation Fund that provides program grants to qualifying legacy business owners and landlords.
Case in point.
Creating Municipal Revolving Loan Funds (RLFs)
A municipal revolving loan fund is a financial tool widely used by city governments for specific directives, such as a legacy business program (see Revolving Loan Funds section for more information). While these funds are generally instituted more broadly for use by all local small businesses, they can be valuable tools for legacy businesses, offering low-interest or bridge loans to business owners with limited access to capital. As an example, they are currently available to qualifying legacy businesses in cities like Denver, Long Beach, Los Angeles, and San Antonio. Unlike grant programs, revolving funds are intended to be an enduring funding source replenished as loans drawn from the fund are repaid. Once established, the fund provides a long-term financial resource for a legacy business program, independent of annual budgets or external fundraising.
These revolving funds are often established through a municipal ordinance authorized by a city council or board of supervisors that outlines their purpose, use, and administration. This is usually done in conjunction with the department responsible for administering the fund, such as Economic Development, Historic Preservation, or Community Development. Creating the fund will also require identifying a funding source, such as the municipal general fund, or state or federal grants, like Community Development Block Grants (CDBGs). These types of funds can help to sustain your program over the long term while reinforcing the municipal government’s commitment to preserving its legacy business partners.
Resource: The National Trust for Historic Preservation offers an introduction to preservation-based revolving funds in Preservation Basics: Preservation Revolving Funds.
Resource.
NNIP
For a reliable resource on neighborhood-level data regarding public spending, infrastructure, and services, visit the National Neighborhood Indicators Partnership (NNIP).
Enabling Tax-based Funding Resources
Creating tax-based funding resources provides dedicated funding for legacy business programs without using the municipal general fund. The tax revenue collected from these programs can support legacy businesses in specific areas by funding façade improvements, grant or loan programs, and rent stabilization. These funding resources provide an alternative funding path for legacy business programs in targeted commercial districts, with little impact on the municipal budget.
Tax Increment Finance (TIF)
Tax Increment Finance (TIF)—sometimes known as Tax Increment Areas (TIAs) or Tax Allocation Districts (TADs)—is a municipal financing tool that allows local governments to raise capital for specific “districts” without increasing overall local taxes. It works by freezing property tax revenue in the district at its existing levels. The area is revitalized, leading to higher property values and, in turn, increased taxes. The increased tax revenue, or “increment,” above the frozen amount is then used to repay the funds used for revitalization. Using TIF as an economic tool can be a resourceful way to finance the revitalization of the often under-resourced or marginalized commercial corridors where legacy businesses reside.
The municipal process for creating this type of financing starts with identifying a district that qualifies for economic revitalization. Your state government generally defines and establishes the legal requirements for TIF. With public and state government input, the municipal government then creates and institutes a municipal ordinance that delineates the district and outlines how taxes are collected and used. This process can be very complex and sometimes controversial within municipal governments. Establishing TIF districts or zones can also take considerable time, sometimes years. That said, once the TIF is established, it can provide a regular, ongoing funding source for district programs, such as a legacy business program. Be sure to examine if any of the commercial districts in your municipality qualify to use this financing tool as a long-term funding solution.
Resource.
CDFA Tax Increment Finance Resource Center
Though the individual state heavily influences the process for using TIF at the municipal level, the Council for Development Finance Agencies (CDFA) has created the Tax Increment Finance Resource Center to help understand the process.
Tourist Occupancy Tax (TOT)
Many tourists visit cities for their rich cultural landscapes and unique neighborhoods. Legacy businesses can help embody this culture and define these neighborhoods, making them, along with their commercial corridors, worthy recipients of funds generated by Tourist Occupancy Taxes (TOTs). TOTs are local taxes charged on short-term lodging or tourist-related activities that municipalities can use for community revitalization and cultural development. These types of taxes are created through local ordinance or voter approval to generate funds from visitors rather than by increasing local taxes. While a TOT can serve as a reliable and sustainable funding source, the allocation of these funds is at the discretion of the local government, requiring your campaigning to secure dedicated funding for legacy business programs. This may prove to be a difficult task given that existing TOTs are not likely to be increased to accommodate additional legacy business program funding, so you will need to argue for a redistribution of funding that is already allocated to other programs, or collaborate with an existing program that currently receives funding. You should also be prepared for opposition and pushback from local tourism or hotel lobbies, as well as the local chamber of commerce, if TOTs used for legacy business programs do not directly benefit those groups.
Luckily, there are other examples you can share with your municipal partners to help make the case for using TOTs for a legacy business program. Cities like Charleston and New Orleans use portions of their TOT revenue to provide direct or nonprofit funding for projects focused on cultural heritage and the cultural economy, as well as to maintain historic and cultural facilities throughout the cities. Additionally, in San Antonio, 15% of the local TOT is directly earmarked for historic preservation projects. Utilizing TOTs for legacy business programs aligns with many municipal tourism goals and directly links visitor spending to the cultural elements they are often attracted to, such as legacy businesses.
Implementing Tax Abatement Policies
Tax abatement provides financial support methods for businesses and property owners by temporarily freezing or reducing taxes from current levels. Municipal governments commonly use tax abatement programs to stabilize local communities or districts and promote investment in revitalization (see the Tax Abatement section in Economic Support for more information). There are primarily three types of tax abatement tools that benefit legacy business programs.
Commercial Property Tax Abatement
Commercial property tax abatement provides a financial benefit to building owners by freezing or reducing their property taxes in return for their compliance with a municipal initiative. This can include rehabilitation, preservation, or revitalization efforts in commercial districts, where tax abatement is tied to the physical structure, such as façade improvements, code compliance, or building modernization. Commercial tax abatement can also be tied to lease guarantees, rent stabilization, or anti-displacement initiatives, providing powerful incentives for property owners to keep legacy businesses that rent from them in place.
Commercial Rent Tax Abatement
Commercial rent tax abatement programs (see the Rent Tax Abatement section of Economic Support for more information) offer tax incentives to local property owners in exchange for keeping rents affordable. Some provide direct support to landlords, while others—like New York City’s program—offer tax abatements that must be passed directly to the tenant, ensuring the business receives the benefit.
Municipal Business Tax, License, or Fee Abatement or Waivers
While not commonly used, business tax, license, or fee waiver programs for legacy businesses can provide direct financial support to legacy business owners by reducing or eliminating annual or recurring municipal small-business taxes or fees. In this case, legacy business owners could pay reduced fees or be exempted from municipal fees that might otherwise be a burden.
Creating a tax abatement program will likely require partnering and collaborating with the municipal finance or budget department, the legal department, the city council, the mayor’s office, and the municipal or county tax assessor’s office. Be sure you understand who the relevant parties are before you begin. Also, be sure to understand if existing tax abatement programs are in place. Your municipality may already have commercial revitalization or preservation abatements that can be amended to apply to legacy businesses.
If you are starting from scratch, creating a tax abatement program involves multiple steps and involves multiple municipal departments. Once you have determined how the abatement program will work with a legacy business program and what goals it will achieve, municipal staff will need to complete a financial analysis and legal analysis of the program. If the program is feasible, a municipal ordinance defining costs, benefits, and program details will be created. This should include input from the relevant municipal departments, the community, and property owners. The ordinance will need to be approved by elected officials, such as a city council, and, given the nature of tax programs, may also need approval from county or state entities.
Resource.
Tax Abatement Guide
While not specific to commercial revitalization, the National Housing Conference offers a policy guide on tax abatements that provides an overview, definitions of the types of tax abatement programs, and case studies from around the US on their use.
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Implementing Vacancy Taxes
Vacancy tax is a small but increasingly used municipal policy aimed at encouraging occupancy, fighting displacement, incentivizing lease continuity, and discouraging speculative development. Cities like Berkeley, California, Oakland, California, San Francisco, and Washington, DC have enacted ordinances approved by voters or city councils that impose an additional property tax on commercial buildings that remain vacant after a specified period. While not specific to a legacy business program, this type of tax can benefit legacy businesses by addressing their most significant threats, including displacement, speculative property development, and rapidly rising rents.
Like the tax abatement process, creating a vacancy tax ordinance would require the collaboration of multiple municipal departments in a multi-step process. If you are interested in including this type of tax policy, consider combining it with a comprehensive legacy business policy package.