State can't afford unlimited credits for preservation

March 15, 2002|By Casper R. Taylor Jr.

IN 1996, I sponsored House Bill 1 establishing the Maryland Heritage Rehabilitation Tax Credit Program. It has been improved since then, making possible the redevelopment of centerpiece historic buildings in communities all over Maryland.

However, because there is no limit on the number or amount of credits granted in any year, the program's very success requires that the legislature establish a cap and guidelines in order to allocate the state's limited resources appropriately.

I am very mindful of just how successful this program has been. Preservation Maryland released a study last week that showed this program has resulted in at least a 6-1 spinoff of economic activity for the state. At a House bill hearing last week, a private businessman opposed to a cap said, "The state should act like a business and look at the net benefit of this program."

In having to balance its budget each year, the state does have to act like a business. It is a constitutional requirement. Just as in any business, the state cannot balance its books if it does not control its expenditures. This is a direct expenditure of state revenue. The state, like any business or private citizen, cannot balance current expenditures for a program against projected economic benefits.

With increased familiarity, this program has grown dramatically. A year ago, information provided to the legislature from the Department of Housing and Community Development (DHCD) indicated that the program had cost only about $2.1 million in cashed credits, and expectations were that the number would not grow significantly.

Recently, DHCD sent the legislature a list of approved projects showing that as of Feb. 1, the program had uncashed credits of about $110 million, due on completion of construction.

Some advocates have suggested that the state could solve its budget exposure simply by lowering the percentage credit from 25 percent to 15 percent of project costs or by imposing a per project cap of $2 million or $5 million. However, if one multiplies the $1.8 million average size of approved projects by the thousands of potentially eligible commercial buildings in Baltimore alone, the potential state liability for this program is hundreds of millions of dollars.

Every town in the state has scores of eligible buildings. How many new projects will developers choose to start in the coming year? No one can predict that.

The heritage tax credit program is a great one. Much of the historic heritage of this state is in our towns and cities. Some of our poorest communities are also the most historic. But the legislature has a responsibility to balance the state spending on this program against spending on the state's core responsibilities of education, public safety, health and human services.

In an editorial urging no change in the current program ("Tax credits vital for city turnaround," Feb. 24), The Sun said, "It would be a shame if short-sighted legislative thinking were to hobble the program, which has become a godsend for developers ..."

On the contrary, given the growth in this program, no objective community leader could urge that developers continue to have an unlimited state checkbook while all other state programs, including those for the city's poor and drug addicted, are subject to appropriate budget review.

Some parts of the program should not change. To avoid reneging on prior commitment, all approved projects should be grandfathered. To avoid a deep discount on the sale of each credit, the credits should remain refundable.

However, a cap of not more than $50 million for any calendar year would provide predictability for the state budget. DHCD records of approved projects indicate that a cap at that level would also allow the program to continue at its current pace. Separate large and small project pools would allow small developers to continue to participate.

We can adjust this program to ensure it continues to be effective and beneficial to the entire state. But fiscal responsibility demands that the state establish an overall cap and reasonable guidelines. To leave this undone would be inconsistent with the state's well-deserved reputation for good fiscal management.

Casper R. Taylor Jr. is the speaker of the Maryland House of Delegates.

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