Preserve historic tax credit

March 12, 2002|By Tyler Gearhart

MARYLAND IS nationally known for its Smart Growth and Neighborhood Conservation Program. It is also known as one of the leading states for programs aimed at preserving its heritage and using historic preservation as a tool for economic development.

Perhaps the single most effective incentive available for enhancing and revitalizing older communities across the state is the Maryland Heritage Structure Rehabilitation Tax Credit.

But with the state in a budget crisis, the tax credit program is now being targeted for cuts.

The tax credit was enacted in 1996 as part of the Maryland Heritage Area program, designed to promote heritage tourism and economic development in the state's historic communities.

Originally adopted at 10 percent, the level of the tax credit was subsequently raised to 25 percent. As a result, use of the tax credit and the success of the program increased dramatically. Now Sen. Barbara A. Hoffman of Baltimore City and Del. Sheila E. Hixson of Montgomery County, both Democrats and supporters of historic preservation and the tax credit, have introduced legislation to cap the program.

The legislation would cap the tax credit annually at $25 million on a first come, first served basis, with a per project cap of $1 million. While providing predictability for the state budget, these changes would create unpredictability for developers and lenders. Few would be able to assume the costs or risks associated with satisfying the requirements of the tax credit approval process without the assurance that the credits would be available when met. Such changes would put an end to dozens of rehabilitation projects now on the drawing board and have a chilling effect on revitalization efforts such as Baltimore's west-side initiative.

In the past two years, 247 tax credit projects totaling $155 million of investment have been completed in 20 counties. Because the program targets investment in under-used and deteriorated properties, most of the rehabilitation has occurred in Baltimore City, which has 50 percent of the state's historic buildings.

For nearly three decades, millions of dollars and numerous programs have been aimed at stemming the decline of these and other communities, with little success. Could this program be the answer?

The fiscal and economic impact of the preservation tax credit and its power to leverage private investment as a tool for revitalization and Smart Growth is the subject of a new study prepared for Preservation Maryland by Lipman Frizzell & Mitchell and the University of Baltimore.

Contrary to the findings of state budget analysts, who have recommended cutting the program without considering its offsetting revenues, the study reveals that state and local revenues leveraged by certified commercial tax credit projects far outweigh the cost of the state's tax credit investment.

Looking at projects completed using the tax credit over the past two years, the study found that the $155 million in rehabilitation spending created 2,450 jobs paying $81 million in wages and creating a total output of $260 million in the state's economy.

During the projects' construction phase, 34 cents in net new sales and income tax is brought into the state coffers for every $1 of credit before it is even paid.

Clearly, direct and indirect state and local revenue taxes result from projects such as the American Can Co. in Canton, where the tax base expanded by 17.6 percent between 1997 and 2001. During the same period, the overall tax rate for the city expanded by only 4.4 percent.

The historic tax credit is preserving our heritage and helping to rebuild Baltimore and older communities across Maryland. That's an important investment for the state to make. The program should only be revised after its true fiscal, economic and social impacts are understood. It has been too successful in helping Marylanders to preserve, enhance and revitalize their communities to do otherwise.

Tyler Gearhart is executive director of Preservation Maryland, which is based in Baltimore.

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