State Renewal Community Rules Adopted, City Accepting Applications

SAN DIEGO - Yesterday, November 25, the California Tax Credit Allocation Committee posted rules for the allocation of accelerated federal income tax deductions that developers and business owners may claim on new commercial construction and rehabilitation investments in the recently designated Renewal Communities (RCs). Today, the City of San Diego announced that it will have application packets available and will begin accepting applications for the tax savings next Monday, December 2.

San Diego has been designated one of 40 Renewal Communities in the U.S., encompassing parts of Downtown, the East Village, and other neighborhoods to the southeast of Downtown. The RC designation provides for various federal income tax savings targeted at small businesses and investors. The new rules apply to commercial revitalization deductions that allow investors to depreciate capital expenditures on an accelerated schedule, greatly reducing federal taxes.

For example, a developer building a new project for $2 million in the East Village could elect to either: (1) deduct half the investment in the project's first tax year and depreciate the other half over the remaining 38 years of the project's depreciable life, or to (2) depreciate the entire investment over just ten years.

"Unfortunately, we have a very short window for accepting applications," according to Ples Felix, the City's Renewal Community Project Manager. "San Diego will have a minimum of $12 million in accelerated deductions to contribute to revitalizing some of our oldest neighborhoods, but we have only one week to accept applications and get them to the State Tax Credit Allocation Committee." The City must review the applications and send its recommendations to the State by December 11.

The short window for accepting and reviewing applications arose from a quirk in the federal law. The law states that while the Renewal Community deductions apply against federal taxes, and local government is charged with administering the Renewal Communities, states must make the allocation decision.

The Tax Credit Allocation Committee's meeting on December 18 is the last meeting in the year. By federal law, allocations not made by the state by the end of the year will expire. It remains possible, however, that San Diego's businesses could receive even more than the $12 million in deductions if California's other Renewal Communities do not use their entire allocations. The State can also allocate a reservation for commercial revitalization deductions for projects to be placed into service in the next two years.

"We don't want San Diego to lose one dollar of our $12 million allocation, so I'm encouraging developers, business owners, and others who have made investments in the RC to pick up the application packets, fill them out, and get them back to us ASAP," said Felix. "Now that the process is in place, we will be able to accept applications for next year's $12 million allocation on a first-come, first-served basis."

"There was no California agency set up to conduct the allocation process," said Michael Jenkins, assistant to the director of the City's Community and Economic Development Department. "We were very concerned that San Diego would lose this valuable tax savings this year and maybe even in subsequent years. Fortunately, Senator Dede Alpert authored emergency legislation and the Treasurer's Office was able to get the rules adopted as fast as was legally possible."

Fore more information about Renewal Community incentives, or to have an application packet mailed, contact Ples Felix at (619) 533-5442. Application packets may also be picked up on Monday, December 2, from the Community and Economic Development office at 600 "B" Street, 4th floor, downloaded from www.treasurer.ca.gov/ctcac/crdp/application.doc, or acquired at any one of the three participating Business Improvement Districts (BIDs), including Downtown Partnership, Diamond BID, and Little Italy Association. All applications must be received at the City by 5:00 p.m. on Friday, December 6, at the same address.

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With an emphasis on the City's urban core neighborhoods and low and moderate income residents, the Community and Economic Development Department strives to improve the quality of life and ensure a healthy economy in San Diego through job development, business development, neighborhood revitalization, public improvements, redevelopment, social services, and revenue enhancement.