Urban successes, built on tax credits

Developers say public subsidies vital for projects

March 13, 2002|By Gady A. Epstein | Gady A. Epstein,SUN STAFF

The expanded Charles Theatre is a financial success today, the linchpin for hopes of rebirth in the oft-troubled patch of Baltimore just north of Pennsylvania Station.

But if left to survive on its own, the old Charles Theatre might have shuttered its doors for good by now - that impressive expansion merely a forgotten vision.

The theater "slowly would have sunk," said co-owner James E. "Buzz" Cusack, 60. "It never really made any money."

That an unprofitable arthouse theater became an urban success story is an illustration of how public subsidies can trump the free market economy. For better or worse, Maryland's historic tax credit program has helped finance many projects, including the expanded Charles Theatre, that might have flopped if left to find money on their own.

As the Senate Budget and Taxation Committee examines the spiraling cost of the tax credit in a hearing today, legislators will face fundamental questions:

Is it a good thing for the public to finance projects for private interests? And if yes, how much of a good thing is too much?

"I don't want a program that's so rich that projects that wouldn't work at all without it get a crutch," said Sen. Barbara A. Hoffman, the Baltimore Democrat who is chairwoman of the budget committee. "I don't want the state to be looked at as a sugar daddy."

The tax credit, which helps finance the rehabilitation of older buildings in historic areas, many of them in Baltimore, has soared in popularity in the past few years, at a potential cost to the state of $50 million to $84 million a year, according to the latest estimates by legislative analysts.

Hoffman's legislation would put a $25 million annual cap on the program, but she has since softened her stance. She agrees with arguments from developers, preservationists and city officials that the tax credit is the state's most effective tool for encouraging Smart Growth in older neighborhoods and business districts.

But with the state facing its worst budget crunch in years, a number of other leading legislators remain determined to put tough limits on the program.

Developers say such limits would threaten dozens of projects that need a boost from the government - from low-income and senior housing to modest commercial buildings to high-profile "anchor" projects like the Charles Theatre that developers hope will be cornerstones of neighborhood rebirth. Many also receive support from other government programs, perhaps by necessity in a city where luring private investors can be difficult.

One possibly threatened project is The Chateau at 903 Druid Park Lake Drive - the redevelopment of a vacant eight-story building into a predominantly low-income apartment building that the developers hope will help spur a renaissance in Baltimore's Reservoir Hill neighborhood.

The project will cost nearly $8 million not counting the developer's fees, and virtually all of the money comes from public sources: low-interest loans of $2.5 million; federal low-income housing tax credit financing of $3.3 million; and federal and state historic tax credit financing of $2.3 million. In addition, there's a $300,000 grant from a federal revolving loan fund supported by banks.

In the end, taxpayers put up millions of dollars; the developers, led by Philadelphia-based Pennrose Properties Inc., put up very little; and Pennrose and its partners will get an apartment building with low debt payments. Well-practiced in the art of courting public finance, Pennrose argues that the project wouldn't work any other way without a private developer willing to take losses for many years.

"These projects are typically extremely thin. They're in marginal areas. They are expensive, expensive to do," said Catherine Caskey Fennell, the head of Pennrose's Maryland office. "It's not a big moneymaker for us. It's just not."

Fennell also argues that the public gets a return on its hefty investment: Forty-seven apartments, 34 of them for low-income residents, and, most important, the transformation of a prominent abandoned building.

"Reservoir Hill is a neighborhood in transition. That neighborhood has so much potential," Fennell said. "This project has to happen for Reservoir Hill to continue to work. ... You cannot have an eight-story monolith standing there vacant. You can't."

The pay-off, advocates say, is evident with success stories such as the Charles Theatre in the 1700 block of N. Charles St. Like The Chateau, the Charles is a project in which taxpayers have far more money invested than the owners.

When Cusack pondered expanding it more than four years ago, the theater wasn't making money. He believed he could change that, that he could remake the turn-of-the-century railcar building next door - an abandoned, cavernous space known best as the Famous Ballroom building - and the original theater into a thriving five-screen arthouse.

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