Lift the cap

March 20, 2006

Tinkering with the success of Maryland's historic tax credit program has cost the state, and last year's experience provides the latest evidence: Supporters of the program say $350,000 in available commercial tax credits went unspent and several dozen business projects in Baltimore that might have benefited from this economic engine lost out because the city had received its share under the law.

The program needs to be more flexible - and there's an easy fix.

The Maryland Heritage Structure Rehabilitation Tax Credit has helped foster redevelopment and revitalization of historic properties and homes, especially in the city, since 1996. But Baltimore's success with the program (it has the largest stock of historic properties) led to concerns - carping, really - about the cost of the program, the distribution of credits and the city gobbling up the bulk of them. To ensure that other locales benefited, the General Assembly in 2004 limited the state tax credit fund for commercial properties to $20 million and prohibited any jurisdiction from receiving more than 50 percent of that money, effectively capping the city's share at $10 million.

That might have made sense in theory, but not in practice. First, most of the historic properties outside of Baltimore that received tax credits were residences, which are not subject to the caps imposed on the commercial credits. Second, after Baltimore reached its limit and other jurisdictions got their share, $350,000 remained unspent - and couldn't be allocated to other city projects. That doesn't make sense. If other projects were eligible for a tax credit, why not let them vie for the remaining funds?

Lifting the 50 percent cap would ensure that all the money available in a given year is spent. That's the objective of an Ehrlich administration bill that also wisely increases to $30 million the state money available for commercial tax credits. Holding a second round of awards would be another way to disperse unspent funds; after all, the program has criteria and ranks applicants.

Revitalizing historic properties has been a worthy investment in Maryland. A new analysis by University of Maryland researchers found that every dollar spent on tax credits generated $8.79 in economic benefits, including $3.49 in wages. Researchers Richard Romer and Kristen Waters went on to estimate the financial impact of not awarding tax credits to the 43 commercial projects in Baltimore that applied for them last year: a loss of 683 jobs worth $27 million in wages, $1.6 million in state retail taxes, $1.4 million in property taxes, and $558,572 in state income tax.

Lawmakers who don't want to revise the tax credit program in an election year, lest they be branded too Baltimore-friendly, are being pound-foolish. The tax credit program pays dividends on lots of levels - and leveraging other redevelopment may be the least of it. That potential exists whether you're talking about South Baltimore or Silver Spring.

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