Md. may cap development tax credits

Assembly bills target subsidies costing state tens of millions

`It's a development-killer'

Funds have aided work on Tide Point, Can Co. renovations

February 20, 2002|By Gady A. Epstein and Scott Calvert | Gady A. Epstein and Scott Calvert,SUN STAFF

An obscure state historic tax credit program initially intended as a modest effort to boost aging properties and neighborhoods has exploded in the past year into a generous font of government subsidies for commercial projects, mostly in Baltimore, at a cost to the state of tens of millions of dollars.

The program has become so popular and expensive, in fact, that budget-conscious legislators have introduced bills to put strict limits on the tax credits, troubling Baltimore leaders and developers who say the subsidies have helped fuel a rebuilding boom in the city.

City officials and developers say the program is essential to projects worth hundreds of millions of dollars that are revitalizing neighborhoods and business districts, from the Howard Street Corridor to the conversion of the former Montgomery Ward building in Southwest Baltimore to the redevelopment of the American Can Co. building in Canton.

"Very simply, without the historic tax credits, you wouldn't see Montgomery Park, you wouldn't see the Can Company, you wouldn't see Tide Point," said Janet Marie Smith, vice president for planning and development at Struever Bros., Eccles & Rouse Inc. "There are an endless number of examples."

Struever Bros. is by far the biggest beneficiary of the program. Its ventures alone have qualified for about $30 million in tax credits, more than half of the $52.5 million awarded so far in the program's five-year history, according to the latest figures available from the Maryland Historical Trust.

But others have come to rely on the program for less-heralded projects and are worried about the prospect of new limits being imposed: "It's a development-killer," said Anthony J. Ambridge, a developer and former city councilman.

The powerful chairwomen of the General Assembly's two tax committees, Sen. Barbara A. Hoffman, a Baltimore Democrat, and Del. Sheila E. Hixson, a Montgomery County Democrat, say they must rein in the program.

Approved applications for tax credits have skyrocketed from $2.4 million in 1997, the first year of the program, to more than $74 million last year, making it by far the largest tax credit program in the state, though only a portion of those credits have been cashed in so far.

"The state was taking, really, a big hit, a big loss," said Hixson, who, like Hoffman, wants to limit the credits to $20 million or $25 million a year. "Of all the tax credit programs we have, this one went crazy."

The mushrooming tax-credit debate pits a city hungry for economic development against a state hungry for cash. It also sheds light on a little-understood way that the public subsidizes the business of commercial development, especially in the city, benefiting not only developers but also their financiers.

Developers like Struever Bros. have mastered the art of winning millions of dollars in state and federal tax and loan subsidies for ambitious renovations of abandoned warehouses, factories, department stores and apartment buildings - projects the developers and city officials say wouldn't be economically feasible without public dollars. Often, in fact, the financing summary of large commercial projects in the city reads like a checklist of government programs.

Here's how Maryland's historic tax credit, one of the most generous of its kind in the nation, works:

A developer or homeowner is eligible for a credit of 25 percent of the cost of a renovation project, subject to the approval of the Maryland Historical Trust.

To help finance a commercial project, a developer typically sells the credit, often to a financial institution or other investor, in exchange for a smaller amount of cash up front. The financier pays about 55 percent to 65 percent of the dollar value of the credit.

Once the project is complete, the credit can be converted into cash. For instance, if the owner of a $10 million credit owes only $1 million in state taxes, the state writes off the tax debt and pays the owner the difference - $9 million, tax-free.

On commercial projects, the state tax credits are always combined with federal historic credits equal to another 20 percent of the cost of the renovation. Virginia developer David H. Hillman, who plowed an estimated $20 million into the Hecht Co. Building on North Howard Street, fondly calls that project "the house that tax credits built."

Although the credits are available statewide to help anyone rehabilitate an eligible home or building, most of the money flows into commercial projects in the city, home to the state's largest concentration of historic buildings and neighborhoods.

"It's probably been one of the most important tax incentives to redevelop historic buildings in Baltimore in the last 10 or 20 years," said Mayor Martin O'Malley, who said the program was in line with the governor's desire for Smart Growth investments in older communities.

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