OverviewPressLinks Back to Press page Budget Cuts Threaten Housing Boom Publish Date: 05/01/2004 Los Angeles Downtown News Historic Loft Conversions Could Slow Without Funding by Kathryn Maese Developer Mark Weinstein, the largest holder of Mills Act contracts in the city, said the program allowed him to develop 578 lofts, 33 of them affordable. A critical tax incentive that has helped spur Downtown's loft boom could be jeopardized if cuts to a city preservation program are approved in Mayor James Hahn's proposed budget. Under the plan, the historic preservation division of the Cultural Affairs Department would be folded into the city's burdened Planning Department, and would rely on one staff member and assistant to oversee the rapidly growing Mills Act program. About two months ago, the program's director resigned over a lack of support and heavy workload. "They were under the gun before," said Michael Cornwell, the recent president of the Cultural Heritage Commission, which reviews the Mills Act applications. "Now with the cutbacks, it makes it even worse." The Mills Act is a powerful property tax incentive that makes converting many of the Central City's abandoned buildings attractive - and possible - for residential developers. The 10-year contracts can reduce property taxes by as much as 75% a year, as long as an owner agrees to preserve and restore the historic structure. Despite the cuts, Yusef Robb, a spokesman for the Mayor's Office, said the Mills Act is still a high priority. "Considering that planning is closely linked with development and considering that we are going from three to two people, with some as-needed funding also in place, we think that we will still be able to fulfill the mission of what they are doing in the department," said Robb. Still, local business leaders and preservationists fear that a backlog of applications would result from the cuts, and hinder Downtown's renaissance. "Several developers have used this incentive as a key component to making their projects pencil out economically," said Ken Bernstein, head of preservation issues at the Los Angeles Conservancy. "Without staffing, the city won't have the ability to take in new applications. They will be choking off an economic engine and a key component for providing new housing at the very moment that demand for this program has been increasing exponentially." In the last fiscal year, 185 applications out of 300 were approved, most of them for Downtown properties, making it the program's busiest year, said Will Caperton y Montoya, a spokesperson for the Cultural Affairs Department. The staff currently sorts through 25 requests a month. Downtown's current residential building spree, which includes more than 6,000 units planned or under construction, has largely centered on the conversion of historic structures. Long-abandoned banks and offices are being turned into loft-style apartments, many with ground-floor restaurants and cafes that are creating street activity. Developer Mark Weinstein, who heads MJW Investments, says the incentive has saved him hundreds of thousands of dollars a year. Weinstein, the largest holder of Mills Act contracts in the city, has one for each of his 10 historic garment buildings in the Fashion District. He said the program was crucial to his ability to develop Santee Court, a $130 million mixed-use project that will include 578 loft-style rental and condo units. "I'm concerned about anything that stops people from developing," he said. "There's already a shortage of affordable and market-rate housing, and with less and less incentives, developers are asking why they should build in L.A. This incentive is one of our selling points." Weinstein said a property owner whose building is worth $20 million would pay $225,000 a year in taxes. Mills Act relief would reduce the bill to $140,000. He added that the tax break also allows lenders to appraise property at a higher value. "Cutting the budget is hard, but you have to think about what makes the city the most money," he said. "If even one developer doesn't build because of the lack of incentives, the lost fees would be astronomical. You need at least three full-time people to support the program." Developer Tom Gilmore, who received Mills Act tax breaks on nearly half a dozen buildings in the Historic Core, said the incentive is essential to any historic development. "When you pro forma a project, one thing that can kill you is carrying costs year to year," he said. "You're buying a building at a discounted rate because it's abandoned, then you pump millions of dollars into it to fix it up and it's reappraised at a higher value. Without the Mills Act you get murdered because you are paying exponentially higher taxes." According to the Los Angeles Conservancy, the New York Landmarks Commission has a staff of more than 50, Pasadena has six staffers, and the city of Los Angeles, with 4 million residents, may soon match the preservation staffing of Vernon, an industrial city of 91 residents. This year's spending plan, which would take effect July 1, sets aside $160,000 from the Planning Department's budget and $69,000 for support services in the Information Technology Agency's budget. There are currently three full-time staff members in the division. Most observers agree that the move to the Planning Department will benefit the program in the long run, despite scarce resources. "My impression is that senior management at the Cultural Affairs Department pays short shrift to cultural heritage issues," Cornwell said. "The commission is looking forward to working with Planning." The L.A. Conservancy said the cuts would also weaken historic preservation efforts. In addition to administering the Mills Act, the program's staff oversees the city's collection of 750 Historic-Cultural monuments, and designates new buildings for the status. "It will have lax oversight at best," said Bernstein, whose group has collected more than 200 letters and signatures opposing the cuts. "We recognize that every department needs to do its share with the budget cuts, but there's a hit and then there's a hit. To cut six staff positions to one staff member with a few miscellaneous expenses is a larger cut than the Cultural Affairs Department, which is facing a 30% reduction." The City Council will vote on a final plan in late May.