The purpose of a formative evaluation is to review the results of the program to date with a particular focus on the program design and the lessons learned from the experience to date. This is in contrast with a summative evaluation wherein all program results are available. In the case of CHPIF, the formative evaluation spans the activity over a three-year period from inception in the last quarter FY2003-04 to the end of July 2006. While the eligibility window for financing of new projects will close in October 2006, projects which have been deemed eligible will have two years to complete(until October 2008) under the CHPIF program.8
The objectives of this formative evaluation of the CHPIF program are:
This formative evaluative will not only be used to measure results to date but also serve as the basis for renewal and changes to the program, including its potential transformation into a tax credit program. This formative evaluation will also be used as input into the ongoing development of the HPI program and respond to the need expressed by provincial/territorial partners for financial program(s) to support commercial heritage projects.
While society as a whole benefits from the conservation of commercial and industrial built heritage, conservation costs are typically incurred by individual property owners. As a public good, there is a role for the state through incentives, regulation, etc to undertake measures in support of heritage conservation.
Actions by individual owners to renovate the places they own may not respect the heritage values or character defining elements. In order to increase the likelihood that owners of commercial heritage properties will include proper conservation9 in their investment decisions, some form of public subsidy – grants or tax credits are required and appropriate regulation.
While municipal governments are close partners in heritage activities (zoning, building permits, tax roles), they often lack the necessary capacity to support commercial heritage projects. In any case, the full value of the investment in heritage conservation is not generally captured in the municipal tax base.10
Thus, it is generally agreed that all governments need to collaborate and use the expertise and fiscal resources available to them, in their domain, to ensure heritage conservation occurs in a systematic way.
The federal government plays an active role in commercial heritage through expertise developed as a manager of the largest portfolio of heritage properties in the country and as administrator of Parks Canada Agency (PCA) programs.11 PCA is the largest custodian of both National Historic Sites (NHS) and classified federal heritage buildings.12
PCA encourages the conservation of heritage property across the country. PCA's mandate states:
"On behalf of the people of Canada, we protect and present nationally significant examples of Canada's natural and cultural heritage, and foster understanding, appreciation and enjoyment in ways that ensure the ecological and commemorative integrity of these places for present and future generations."13
PCA is active in "supporting the continued use of historical places so that they remain an integral part of our dynamic towns and cities."14 Under the Parks Canada Agency Act, PCA is responsible for national historic sites, other protected heritage areas, and heritage protection programs, including leadership regarding historic places in Canada, and the design and implementation of programs that relate primarily to built heritage.
The principal program of PCA partnership is the Historic Places Initiative (HPI). This program was launched in 2001 as a broad strategy to protect and conserve Canada's historic places for present and future generations by providing tools to engage Canadians in heritage conservation.
The HPI Contribution Program assists provinces and territories in participating in the ongoing development of the Canadian Register of Historic Places and the National Standards and Guidelines for Conservation. HPI is built on a collaborative relationship between the federal, provincial and territorial governments and has the following three core program tools:
Budget 2003 announced a further component of the HPI: the Commercial Heritage Properties Incentive Fund (CHPIF), a three-year contribution program that would encourage businesses to preserve Canada's commercial and industrial built-heritage properties. The CHPIF program was designed specifically to respond to the on-going and significant loss of heritage properties across Canada.15 CHPIF funding was designed to compensate businesses for a portion of the costs incurred in conserving heritage buildings.
The rationale for focusing the CHPIF program on the commercial sector was that, although government and the not-for-profit sectors were already active in heritage preservation, it was realized that other sectors must be engaged. Moreover, research has shown that while commercial and industrial built-heritage properties are among the most threatened, best-use options can often be found if some financial support is available to owners.
The CHPIF incentive program is linked to the core HPI tools, each of which also serves as an accountability mechanism for CHPIF:
CHPIF program parameters were elaborated after extensive consultation with stakeholders (provinces, heritage property owners, developers, and heritage professionals, etc.) to ensure their particular needs and circumstances were taken into account.
Many federal and provincial organizations in the heritage sector underlined the need for a tax credit program in Canada to replace direct contribution programs. More recently, in their September 16, 2005 statement, the provincial and territorial ministers of culture and heritage called on the federal government to implement a tax credit for built heritage.
The U.S. tax credit program, known as the Historic Preservation Tax Incentive, was referred to as a very successful strategy in bringing private investment into the restoration and rehabilitation of historic places. PCA engaged Ernst & Young to review the US commercial heritage trends, tax credit program and its applicability to the particular Canadian circumstances.16 As part of the consultation process, Ernest & Young consulted with officials from the Ministry of Finance and CRA on the applicability of tax credits within the Canadian fiscal system for heritage purposes, as well as what might constitute a credible demonstration of the parameters of a tax credit regime – albeit contained in a contribution program.17
Thus, a number of key parameters of a tax credit were incorporated into CHPIF for testing, in the expectation that the experience gained through the CHPIF would help the federal government – specifically, the Ministry of Finance and CRA – assess the case for the introduction of tax-based measures for built heritage in Canada.
Accordingly, CHPIF is designed to lever private investment in built heritage projects. Demand for CHPIF by developers depends on the financial parameters of heritage projects and commercial real estate trends. In evaluating the potential impact of CHPIF and potential alternatives to the program, it is important to understand those parameters and trends.
Built heritage activity is subject to the same fundamentals as the larger commercial real estate market. Macroeconomic trends (borrowing rates, interest rates, availability of financing, GDP) and local market conditions (vacancy rates) largely determine the strength of overall commercial real estate activity.18 The federal government is a player in the built heritage market in both its ownership of heritage property and in undertaking conservation and rehabilitation projects for its own portfolio.
The number and value of commercial projects which might qualify for CHPIF and the portion of these projects which are listed in the CRHP determine the pool of potential projects which might qualify for CHPIF funding. In the short term, the actual demand for CHPIF is largely determined by the development plans of private property owners and developers who have heritage buildings in their portfolios and the experience of municipalities in working with developers seeking to use municipal incentives for heritage properties.
CHPIF funding was originally set at $10 million per year over a defined three-year period i.e. with a sunset provision. With the completion of the last round of applications by October 2006, the program will stop accepting new projects - with the provision for funding in two subsequent years 2007-08 and 2008-09 in order to ensure completion of those projects already approved.
8 A contradiction was noted in the terms and conditions of the program: proponents can apply over a three year period (1 November 2003 to 31 October 2006) and have two years to complete their project (thus 31 October, 2008 for the later applicants) but the program is scheduled to close on 31 October, 2007. A one-year extension of the administration of the program is allowable under the Program's Terms and Conditions and a request will be submitted to the Minister in the near future. This will allow all projects to benefit from two years to complete work and file a claim.
9 According to the Conservation Standards and Guidelines of the HPI program.
10 Municipal assessments are based on market value. In most cases, the difference in increase in market value of a commercial property due to proper rehabilitation work as opposed to the type of rehabilitation or renewal work, which would be undertaken on a commercial basis, is marginal, whereas the additional costs incurred by the owner/developer can be significantly greater.
11 The 2003 Auditor General Report (November 2003), Chapter 6, 'Protection of Cultural Heritage in the Federal Government' deals with properties owned by the federal government. Source: Historical Places Initiative. Presentation 'Revitalizing Canada's Communities through a Tax Credit for Commercial Heritage Properties', Jan. 2004.
12 Out of 201 federally-owned NHS and 268 classified FHB, PCA accounts for 73% and 48% respectively. Other federal departments which have significant classified FHB are DND, PWGSC, DFO and NCC.
14 Source: PCA web site
15 In 'CIHB Revisited', a 1999 study, it was found that 23% of urban buildings listed in CIHB had been lost through demolition. Source: Heritage Research Associates, Margaret Carter. This study has not been updated. However, the consensus of stakeholders was that loss of heritage properties continues to represent a significant on going problem.
16 The E&Y Study was based on the theoretical application of key features of the US Historic Preservation Tax to the Canadian commercial heritage market.
17 Early feedback from Finance indicated skepticism towards the addition of new tax credit programs, for commercial heritage or any other purpose, as these were seen to breach the integrity of the Canadian taxation system.
18 Demand forecast models for heritage real estate have been constructed, notably by Rutgers University, to take into account the supply of heritage buildings and macro economic factors, as well as market-by-market analysis (including key players' intentions).