City to pursue federal tax credits for Plaza Theatre that could net $2.8 million

City leaders have approved pursuing federal historic tax credit financing for the Plaza Theatre restoration project that could provide the city with a net benefit of $2.8 million.

The Palm Springs City Council voted unanimously May 28 to authorize a letter of interest that allows city staff to explore the complex financing mechanism with the Plaza Theatre Foundation and the National Trust Community Investment Corporation. The federal tax credit program is designed to encourage restoration of historic buildings by connecting private investors with tax incentives.

“This is a federal tax program designed to encourage restoration of historic buildings, and this is the perfect example of it,” said Councilmember Jeffrey Bernstein, who made the motion to approve the proposal.

Under the proposed structure, a private investor would provide over $5 million in investment equity to the theater project in exchange for federal tax credits. The city would receive $2.5 million within the first 18 months, with the total net benefit reaching $2.8 million over the life of the agreement.

The Plaza Theatre Foundation has raised $9.5 million and secured a $2.5 million state grant for the restoration of the historic theater at 128 South Palm Canyon Drive. The city contributed $2 million for the project’s design. The foundation has committed to providing $24 million in total funding, representing about 65% of construction costs, with an additional $10 million to be repaid to the city over time. The city awarded the construction contract in December 2023.

“The foundation is doing all of this to raise money to pay back the city, and that’s a pretty unusual situation to have volunteers who are spending this amount of time and effort and intellectual capacity on this project,” Bernstein said.

Foundation board member Judith Blanchard said the organization has been working on the tax credit proposal for about a year with specialized consultants and legal counsel. She noted they initially considered both historic tax credits and new market tax credits but decided the historic option was less complex. 

The Plaza Theatre has already received approved Part 1 and conditional Part 2 approvals from the National Park Service, important steps in qualifying for the federal historic tax credits.

The letter of interest does not legally obligate the city to enter into the financing arrangement. The agreement requires a $25,000 deposit for continued due diligence work and mandates that any deal must close by July 29, 2025. 

If negotiations fail, the city and foundation would be responsible for paying costs incurred during the review process, with NTCIC estimating $100,000 in legal costs, the foundation estimating $100,000, and the city’s legal fees estimated at $50,000.

Finance Director Christopher Mooney said the tax credit structure involves transferring tax ownership to a private entity through a long-term lease while the city retains title to the theater. The private investor’s financial incentive ends after five years, at which point they typically exit the transaction.

Any final tax credit financing agreement would return to the City Council for review and approval at a public meeting.

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