Some fear tax credit cap could hurt city

West-side renewal could be derailed, developers say

February 21, 2002|By Scott Calvert | Scott Calvert,SUN STAFF

Attempts to revive downtown Baltimore's struggling west side could be jeopardized if state legislators put strict limits on an unexpectedly popular tax break for restoring old buildings, developers and city officials said yesterday.

Maryland's 5-year-old historic tax credit program is a key piece of the financing puzzle for projects up, down and around North Howard Street. Lawmakers grappling with a budget deficit want to rein in the program because of its soaring cost.

While projects across the city would be affected by the new restrictions, the cumulative effect on the fledgling west-side initiative would be detrimental, officials say. Developers can use the credits to cut their tax bills by an amount equal to 25 percent of the renovation costs.

"It's been pretty key," said Sharon R. Grinnell, chief operating officer of Baltimore Development Corp., the city's economic development arm. "Without the historic tax credit, so many of those buildings will just sit underutilized and not be redeveloped for some time."

The impact could be greater on the west side than in other areas because of a deal Mayor Martin O'Malley made two years ago with preservationists. The mayor agreed to protect at least 260 older buildings along the Howard Street corridor that were targeted for condemnation.

That makes rehabilitation the only method of redevelopment. And that, officials and developers say, makes historic tax credits critical because otherwise they cannot charge rents high enough to pay the renovation costs.

Lawmakers say some west-side projects such as the Hippodrome Theater restoration seem likely to be exempted from the legislation, but others - including two residential projects - cannot count on similar protection.

"I'm very worried," said David H. Hillman, who has mostly finished converting the former Hecht Co. department store into 173 apartments for about $20 million. "I don't want to be standing out there like a pyramid in the desert."

Hillman should be able to cash in his $4 million state tax credit for the Atrium, which opened in September. And he is unapologetic, estimating that his renovations have pumped $2 million into the state in sales and payroll taxes.

But he fears for other proposed projects that he is counting on to bloom around his seven-story building at Howard and Lexington streets, making the area a place where people will want to live and shop.

Developer Wendy Blair plans to spend $17 million to put 74 housing units in boarded-up buildings in the 400 block of N. Howard St. To make it work, she said, she needs a $2.7 million state credit, with a federal historic tax credit.

But under legislation being considered by the General Assembly, the state credit would be capped at $1 million for each project (and at $20 million or $25 million a year statewide). The effect, Blair said, "would more than likely kill the project."

Also vulnerable, BDC officials say, is a proposal by Struever Bros., Eccles & Rouse Inc. to turn the long-shuttered Mayfair Theater into 47 apartments at a cost of $7 million. The project, in the 500 block of N. Howard St., would be funded partly by a $1.75 million state credit.

Bank of America's $70 million Centerpoint project - envisioned as a complex of 383 apartments, stores and a parking garage - has a $4.4 million state credit. But its planning is far enough along that all but $350,000 would be "grandfathered," according to BDC. It occupies the block bounded by Howard, Eutaw, Fayette and Baltimore streets.

Across Eutaw Street from Centerpoint sits the 88-year-old Hippodrome. The $60.5 million public-private effort to make it a Broadway playhouse includes $11 million in state historic tax credits. (In this case, as often happens, an outside investor is to buy the credits at about 60 cents on the dollar, then cash in the credit when the project is done.)

State Sen. Barbara A. Hoffman, a Baltimore Democrat who heads the Senate Budget and Taxation Committee and a sponsor of the tax credit measure, said she intends to protect the theater, considered the keystone to the west side.

Not that the Maryland Stadium Authority, which is overseeing the theater's transformation, is taking anything for granted. "We're holding our breath like everyone else on the tax credit issue until we see how it shakes out," said Executive Director Richard W. Slosson.

Hoffman and other legislators say they support the program but want to find a way to control the cost. Approved applications for tax credits have skyrocketed from $2.4 million in 1997 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.

Such credits reduce a developer's tax bill. A $1 million tax credit would cut the developer's tax liability by that amount.

Depending on what the General Assembly does to the program, a number of west-side projects at a preliminary stage might have to be scrapped or revamped. A plan to turn a series of buildings in the 400 block of W. Baltimore St. to doctors' offices assumes the availability of state historic tax credits.

Meanwhile, scores of buildings sit in varying states of decline with no firm plan to revitalize them.

Without the generous state tax credit, Hillman said, he would not have undertaken the $20 million Hecht's project "in a million years." The way he calculates it, the rents he will get, even when the building is fully occupied, would only support payments on an $11 million mortgage.

"The tax credits are the bridge that make these projects work," he said.

Sun staff writer Gady A. Epstein contributed to this article.

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