MARYLAND IS nationally known for its efforts to stem sprawling development and revitalize its older communities. And the most effective program for accomplishing these goals is the state's rehabilitation tax credit, one that has also become a powerful tool for economic development.
Ironically, with the slumping economy and the resulting budget crisis, legislation has been proposed that would eliminate this tax credit program. The House Ways and Means Committee scheduled a hearing on the bill for today.
Last year, the General Assembly reduced the credit from 25 percent to 20 percent and capped individual commercial projects at $3 million in order to address budget concerns.
While there was broad support for the program, many feared it was spiraling out of control. The changes were made with the goal of keeping the cost of the program under $50 million in credits a year. Those changes worked. The dollar amount of projects dropped 57 percent over the past year, with a total of $28 million in credits approved in 2002.
Nonetheless, the proposed legislation would terminate the tax credit program in June. Only applications received before Feb. 1 would be eligible for credits. If passed, it would put an end to dozens of rehabilitation projects on the drawing boards or already under way, and have a chilling effect on revitalization efforts such as Baltimore's west-side initiative.
But eliminating the program would have no effect on the current or even next year's budget. A project that receives application approval today would not receive credits until 2005 or 2006 after the rehabilitation is completed and the project is certified. Applications for credit claimed in the current fiscal year generally were approved two years ago.
Gov. Robert L. Ehrlich Jr., who supported the tax credit program in his campaign, has offered a package of amendments to the bills. The good news is the amendments extend the program through December 2006. The bad news is they include a $25 million program cap, a $20,000 cap on individual residential projects and a limit of 250 to the number of applications accepted per year (there were 500 last year).
But while providing predictability for the state budget and bureaucrats, these changes create unpredictability for the owners, developers and lenders that carry out the projects. Few will be willing or able to assume the costs and risks associated with satisfying the requirements of the program without the assurance that the tax credits will be available when met.
Since the tax credit program was enacted in 1997, it has resulted in $800 million of investment in the rehabilitation of more than 750 historic buildings in 23 counties across the state. Clearly, it has played a significant role in softening the effect of the economic downturn on Maryland.
Critics complain that the majority of the rehabilitation activity has occurred in Baltimore City, which has half of the state's estimated 50,000 designated historic buildings. But for decades, hundreds of millions of dollars of state and federal aid have been aimed at stemming the decline of Baltimore and other older cities with little success. Now we've found an efficient, market-driven program that works. Isn't that a smart investment for the state to make?
The rehabilitation tax credit is creating new jobs, attracting new homeowners and helping to rebuild communities across Maryland. At the same time, it is generating significant new revenues for the state. Isn't that the type of program legislators should want to continue?
Tyler Gearhart is executive director of Baltimore-based Preservation Maryland.