House moves on tax credit

Preliminary approval for $50 million cap on historical renovations

`The state had no control'

Bill's fate uncertain in Senate

Hoffman calls it a `good start'

March 24, 2002|By Howard Libit | Howard Libit,SUN STAFF

Maryland's historic tax credit program would be capped at $50 million under a proposal given preliminary approval yesterday by the House of Delegates, the first limit on a tool described as crucial for the redevelopment of Baltimore's older neighborhoods.

But the compromise legislation represents a far less stringent restraint than the $20 million limit first sought by some lawmakers, who are concerned that the increasing use of the credit is eating into state revenues.

If the proposal is approved as expected by the House tomorrow, it will move to the Senate - where it is not clear whether it would win passage. The sponsor of a Senate bill, Sen. Barbara A. Hoffman, said she's generally supportive of the House plan but isn't comfortable with a cap on the program.

The House compromise - reached yesterday morning in committee - also ensures that all projects that had been approved for tax credits by the Maryland Historical Trust by Feb. 1 will be exempt from the new restraints.

"It's a wonderful program, and I'm proud that I put in the legislation that created it," said House Speaker Casper R. Taylor Jr., an Allegany County Democrat. "But you can't just have a completely unlimited swinging door."

Under current law, developers can claim a tax credit worth 25 percent of the cost of the rehabilitation of buildings in historic areas. If their tax liabilities are less than the credit, the developers receive money back from the state as a refund.

Over the past few years, use of the tax credit has grown, particularly as older Baltimore neighborhoods have become a more popular target for redevelopment. Legislative analysts estimate that unless limits are imposed, the potential cost to the state could grow to $50 million to $84 million a year, with most of the credits going to city projects.

The escalating costs alarmed some lawmakers, who proposed capping the program at $20 million a year and scaling back the tax credit from 25 percent of the cost of rehabilitation to 20 percent. The proposal also would have limited the maximum tax credit for any one project to $1 million.

Developers and top Baltimore officials told both House and Senate committees that such limits would damage the city's efforts to improve older neighborhoods - a key part of Gov. Parris N. Glendening's Smart Growth program.

Lawmakers don't disagree that the tax credits have given an economic boost to depressed areas and have increased property, income and sales tax revenue. They said they're worried that they don't know how many credits will be claimed from one year to the next, making it difficult to plan a budget.

Yesterday, Del. Sheila E. Hixson, a Montgomery County Democrat and chairwoman of the House Ways and Means Committee, said the program has been "very successful" in spurring improvements in Baltimore.

"The problem is it's open-ended," said Hixson, the lead sponsor of the bill. "The state had no control over it."

Under the House compromise, the program would be limited to $50 million per year in tax credits. The cap would not apply to residential rehabilitation of $200,000 or less, letting homeowners earn a maximum credit of $50,000.

Of the $50 million cap, $20 million would be set aside for large projects and $30 million would be reserved for projects that cost $12 million or less - making them eligible for a maximum credit of $3 million. The credit would remain at 25 percent.

"This will keep the program running progressively and provide what Maryland needs in limits," said Del. Clarence Davis, a Baltimore Democrat and co-sponsor of the bill. "It will provide an opportunity and encouragement for our city's young developers."

Hixson said that by letting programs "already in the pipeline" be exempt from the new restrictions, "we took care of the problems we heard of as best we could."

Although the Senate has not yet agreed to the House plan, Hoffman called it a "good start" yesterday.

The Baltimore Democrat said she wants to achieve the same goals as the House but is hesitant to set a cap on the credits. She also said she worries that one developer could use the full $20 million earmarked for large projects.

"I'd like to do what they're trying to do without the overall cap," Hoffman said. "This is something to work with. We're getting closer to what we need to do."

Instead of a $50 million cap on the program, other ideas suggested by lawmakers include limiting the type of projects that could participate or decreasing the size of the tax credit for which large projects would be eligible.

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