The Baltimore City Council gave preliminary approval Monday for two more years of tax breaks for developers rehabbing historic properties — despite concerns that the program is riddled with errors and amounts to a giveaway to developers who would rehab older buildings without it.
The multimillion-dollar program is set to expire next month. While the city's budget director questioned the program and whether the city could afford it, developers and residents rallied around the tax credit as a way to revitalize areas from the waterfront to poorer neighborhoods and called for its extension.
"Many, many citizens and developers said the program is working very well, it's effective and, in fact, is helping to repopulate communities across our city," said City Councilman Carl Stokes, chairman of the taxation committee, before the council voted unanimously to extend the program.
A final vote is scheduled later this month. If approved, developers and residents would have until 2016 to apply for the tax breaks, which last 10 years.
City finance officials, in questioning the continuation of the credit, said the program costs about $1.7 million annually.
"It is questionable whether the credit is actually stimulating development that would not have occurred otherwise," Andrew W. Kleine, the city budget manager, wrote in a letter to the council.
Kleine cited a Baltimore Sun analysis that showed about one-third of historic credit recipients told the city on surveys that they'd still do the rehabs without the abatement.
The program also been plagued by errors. In 2012, The Baltimore Sun found the city did not collect more than $1.5 million in taxes because of historic tax credit errors on apartment buildings and commercial properties.
Last week, Mayor Stephanie Rawlings-Blake said the city will make lump-sum payments to owners of historic properties whose tax bills in coming years will be higher than what government officials had told them to expect. Officials estimate that about $3 million will be distributed to 300 property owners. City and state officials are trading blame over who bears responsibility for the errors that led to the excessive credits.
Under the tax credit program, the full value of approved restorations and renovations of historic buildings goes untaxed by the city for 10 years.
Council members said they believe the credit stimulates growth and helps the city more than it deprives Baltimore's budget. The city's Commission for Historical and Architectural Preservation said the tax break has generated more than $560 million in investment since its creation in 1996.
"It's been an effective tool for the city of Baltimore," said City Council President Bernard C. "Jack" Young. "It's a tool that attracts people here."
States and cities across the country — from Seattle to New York — have similar programs, though they vary widely in form. Baltimore's historic tax credits cover 100 percent of construction costs for projects less than $3.5 million. For projects with construction costs more than $3.5 million, the city covers 80 percent in the first five years and smaller amounts for the second five years.
At a City Council finance committee hearing last week, many testified in favor of extending the life of the credit.
Kathleen Kotarba, director of the city's Commission for Historical and Architectural Preservation, called the tax credit "extremely significant and quite valuable to communities citywide."
Evan Morville, a partner in Seawall Development Corp., said the tax credit is a key reason why the company can keep rents low in its Union Mill development, where 1-bedroom apartments rent for $800 a month. Without the credit, he said rent would be raised to $1,000 a month.
"For us, this isn't really a matter of debate, but a matter of necessity," he said.
Johns W. Hopkins, executive director of Baltimore Heritage, said the tax credit program serves communities throughout the city — not just in popular neighborhoods along the waterfront — and is one of the only development incentive programs in the city to do so.
"It truly is an egalitarian program that is benefiting a whole host of people who fly under the radar," he said.
David Borinsky, CEO of Come Home Baltimore, said his company has rehabbed almost 40 homes in East Baltimore's Oliver neighborhood, and without the tax credit, that number "would be zero."