An item appeared recently in the Arizona
Republic newspaper concerning the prospective
listing of a church building on the National
Register of Historic Places. The slant of
the newspaper article, and the comments of
the non-church officials and historic preservation
advocates quoted in the article, were to the
effect of: "Why would anyone not want
their property designated as 'historic'?"
I think that is a question worth answering,
since the answer sheds light on the incentives,
and disincentives, created by historic preservation
laws.
There are two basic benefits to a "historic"
designation for real property: (1) enhanced
market value, and (2) lower property taxes.
Enhanced market value is of course subjective.
It is based on the idea that a "historic"
building has some value, i.e. cultural or
aesthetic value, beyond its utility. A secondary
factor in enhanced value may also arise from
the property being located in a "historic
district," based on the same perception
of cultural or aesthetic value.
Lower property taxes for "historic"
properties are, on the other hand, the result
of specific legislative benefits applied to
qualifying properties. Arizona law applies
a lower assessed valuation to "historic"
properties than to similarly classified, but
non-historic, properties, resulting in a lower
tax liability.
A property is classified as "historic"
for purposes of Arizona property tax law if
it is listed on the National Register of Historic
Places and has been approved for "historic"
classification by the Arizona Historic Preservation
Officer. Assessed valuation, meaning the valuation
on which property taxes are based, is set
by Arizona law at five percent of full cash
value for a residential property classified
as "historic," as opposed to ten
percent for non-"historic" residential
property. This means that the tax savings
from the "historic" designation
can be substantial.
The incentives of enhanced market value and
lower property taxes will obviously be attractive
to property owners who (1) are concerned with
the market value of their property for possible
future sale or borrowing, and (2) pay property
taxes. But think for a moment about a church.
A church is ordinarily not concerned about
any possible future sale of property used
for religious purposes. Some churches attach
spiritual significance to church properties
and would never consider a sale under any
circumstances. Even without that factor, churches
own property to use it, and rarely sell or
borrow against their property unless circumstances
compel such action.
As for the property tax aspect of "historic"
designation, church properties are typically
exempt from property taxes, so churches don't
care about the assessed valuation of their
property. The economic incentive of lower
property taxes is therefore irrelevant to
churches.
It should now be obvious that the government
officials and historic preservation advocates
quoted in the newspaper article failed to
account for the inapplicability of these two
incentives to church properties. They also
failed to account for a significant disincentive,
which I alluded to in discussing the market
value incentive. "Historic" designation
and the incentives that go with it are intended
to preserve the cultural or aesthetic value
of the property. Preservation is accomplished
by restricting the "historic" property
owner's ability to alter the historic characteristics,
usually the appearance or use, of the property
so as to diminish the cultural or aesthetic
value of the property.
While church properties will frequently have
cultural or aesthetic value, churches own
property to use it, and may also attach spiritual
significance to it. A property owner who values
property solely for its utility will not want
restrictions that may interfere with the owner's
ability to adapt the property to the desired
use. A property owner who values the property
for spiritual reasons will likewise not want
a secular authority (the government) to have
any influence on the owner's ability to adapt
the property to spiritual considerations.
Preserving the cultural and aesthetic value
of historic properties is a goal that is obviously
important to many people. There are, however,
costs associated with such preservation that
may not be immediately apparent, but which are
significant and which may conflict with other,
non-economic priorities of some property owners.
Officially labeling a property as "historic"
does make a difference, but whether that difference
is positive or negative will depend on the priorities
of the property owner.
