Rethinking redevelopment

Our view: To retain the state's soon-to-expire historic rehabilitation tax credit, Governor O'Malley has little choice but to stretch its mission in multiple directions

February 08, 2010

Let's say you are a governor and need your state legislature to renew a highly effective economic development program that has helped a single jurisdiction, albeit one with a high concentration of poverty, much more than the rest of your state. Would you:

A. Patiently explain to lawmakers the program's benefits, the rare opportunity to match a proven strategy with a community in need, and expect them to do the right thing.

B. Bribe them.

If you chose A, you have probably just killed the Maryland Heritage Structure Rehabilitation Tax Credit, a program that provides developers with a financial incentive to renovate older buildings that has helped bring an enormous amount of economic revitalization to Baltimore. Rampant parochialism in the Maryland General Assembly has all but ensured that the program in its existing form will not be allowed to continue.

Enter Gov. Martin O'Malley, who proposed last week in his State of the State address a new Sustainable Communities Tax Credit that greatly expands the sorts of projects that would be eligible for a 10 percent to 20 percent tax break. The proposed three-year, $50 million program would award tax credits for transit-oriented development, the renovation of eligible Main Street retail districts and other types of nonhistoric commercial revitalization.

Why? While there are merits to all of these ideas, the motivation is almost certainly to woo legislators from outside Baltimore, who have long been lukewarm toward a program that has generally resulted in 75 percent of the tax breaks going to projects in the city over the 14 years it has existed.

Baltimore's success in rehabbing historic structures is not because of politics but a result of the city's economic and historical circumstances. It is home to 60 percent of the historic buildings in the state, many of them cheap enough to meet redevelopment criteria, and a substantial number of architects and builders who know how to design and create such projects.

But apparently that's not acceptable to lawmakers from places like Montgomery County, who have far fewer historic buildings in their districts but a strong desire to bring home the bacon for their constituents. Small wonder that Governor O'Malley has had to find ways to make more rural and suburban redevelopment projects eligible for assistance.

Perhaps this can be made to work, but it's a challenging approach. The proposal would require the state to compare a lot of apples and oranges in deciding, for example, whether creating much-needed housing for military workers near a suburban MARC commuter train station is more worthy than renovating a vacant manufacturing site to create affordable apartments, shops and offices.

Make no mistake, all of the purposes proposed in the governor's bill are worthy, if only because they encourage the kinds of Smart Growth policies and job creation opportunities we steadfastly favor. But what a shame that apples can't be appreciated as apples and oranges as oranges - because the all-inclusive approach is unnecessarily complicated and problematic.

Even so, the legislation is likely to face a battle in the House, where it's in the hands of both the Environmental Matters Committee - chaired by Maggie McIntosh, a city delegate who favors the rehabilitation tax credit in its current form - and the Ways and Means Committee, chaired by Montgomery County's Sheila E. Hixson, who has long opposed it. The state's looming budget deficits could spell trouble for the measure as well - at least if it's wrongly seen as a handout and not an investment in economic recovery.

As a recent Abell Foundation report points out, rehabilitation tax credits produce $8.53 in economic activity for every dollar invested. That makes the program a veritable golden goose of economic opportunity that envious lawmakers would be foolish to destroy.


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