Tax credits may survive feared cuts

Administration argues to preserve program for historic area rehab

Rising costs a concern

Legislators indicate willingness to listen but want spending cap

March 14, 2002|By Gady A. Epstein | Gady A. Epstein,SUN STAFF

Momentum in Annapolis is shifting in favor of the state's historic tax credit program, which may survive the legislative session with relatively modest changes despite fears that the tax credits have become too costly.

At a Senate hearing yesterday, the Glendening administration weighed in against tough cutbacks proposed for the program, arguing that it is the state's best tool for encouraging Smart Growth.

And House Speaker Casper R. Taylor Jr., who had spoken out most strongly about the need to limit the cost of the program, said in an interview yesterday that he would support a much higher cap than initially proposed.

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 of $50 million to $84 million a year, according to the latest estimates by legislative analysts.

Legislators had proposed limiting the credits to $20 million or $25 million a year, arguing that the state can't afford such a costly program when it is facing its worst budget crunch in years. Baltimore developers and city officials said they stood to lose the most under the proposals, since the bulk of the money from the tax credits flows into commercial developments in the city.

But the mood has shifted in recent days, even as legislators are planning hundreds of millions of dollars in budget cuts. Aides to Gov. Parris N. Glendening and a leading senator support some changes, but no overall limit on the credits at all, and Taylor is proposing an annual cap of $50 million.

"The payoff that the state gets from that level of investment is clearly worth it, economically and culturally," said Taylor, an Allegany County Democrat.

Taylor and some other top legislators, who helped create the program, accept at least some of the arguments that developers, preservationists and the Glendening administration made at yesterday's hearing, before the Senate Budget and Taxation Committee.

They argue that projects supported by tax credits help revitalize depressed areas; that they pay back state and local governments in increased property, income and sales taxes; and that it's become essential to Glendening's Smart Growth initiative to boost development in older areas.

"It's become the most successful Smart Growth initiative in the state, bar none," said Harriett Tregoning, the governor's Smart Growth secretary. She told senators that the tax credit program has "a catalytic effect," that "it doesn't just affect a single building, that it really does revitalize an entire neighborhood."

Instead of capping the program, state officials told senators, legislators should reduce the credit from 25 percent of a project's rehabilitation costs to 20 percent. Sen. Barbara A. Hoffman, a Baltimore Democrat who is chairwoman of the committee, said she also doesn't support a cap, though she said a 20 percent credit may still be "problematic."

Other legislators are urging at least some sort of fixed limit on costs.

"Somehow or another, this thing has to be capped, so that there is some predictability," said Sen. Robert R. Neall, an Anne Arundel Democrat. "I mean this could be the tax credit that eats the budget."

Taylor said after the hearing that he believed a $50 million cap would save the state millions of dollars. "If you don't cap it, this thing is so popular and is so productive and has so many places to be used that it would go far beyond $50 million," he said.

Before the hearing, the governor indicated he might agree with Neall and Taylor, notwithstanding the official position by his aides.

"We think there should be some limitations, because if it's totally open-ended, it's impossible to budget," Glendening said.

Whatever the outcome, Baltimore developers who had feared that new restrictions on the tax credits would threaten a host of commercial developments throughout the city -- from the Howard Street Corridor to East Baltimore to Canton -- were breathing easier yesterday.

"I'm much relieved from a few weeks ago," said developer Wendy Blair, who had feared she might lose much of an expected $2.7 million tax credit for her planned conversion of boarded-up buildings in the 400 block of N. Howard St. into 74 housing units. "I was really quite distressed. I'm feeling a lot better."

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