Developers are set to receive tax credits designed to spur the construction of new apartments and homes in Baltimore under legislation the City Council approved Monday.
The tax credits, which received no opposition from the council, are part of a plan by Mayor Stephanie Rawlings-Blake to keep families in Baltimore and attract new residents to the city.
"We look at different trends in the market that help us to determine what credits might put the city in the best position to be competitive," said Kevin R. Harris, a spokesman for Rawlings-Blake. "It's part of a broader strategy. We look at the data and we look at what people are saying they need to move into the city and to stay in Baltimore."
The council gave key approval on a voice vote to a plan over 10 years that would knock between 30 percent and 80 percent off tax bills for newly constructed or renovated apartments. The break comes in the difference between the taxes due before the improvement and afterward.
The tax credit builds on a similar program available over 15 years to developers who build and improve apartments downtown and in targeted areas of the city. The new program allows developers to build fewer units.
The council also voted to reauthorize property tax credits on newly constructed homes and on significant improvements to vacant and abandoned houses. That bill now goes to Rawlings-Blake for her signature.
Under that program, developers and homeowners can receive a tax credit for 50 percent off the taxable value of a house. The percentage decreases annually over five years.
The credit was first approved in 1995 and modified over time to include rehabilitated structures.
Councilman Carl Stokes, who chairs the council's Taxation, Finance and Economic Development Committee, said the tax breaks are important, but likely won't entice developers who are not already inclined to build in Baltimore.
"I don't think they're game-changers," Stokes said. "Lowering the property tax rate across the city greatly and quickly would be a game-changer, would spur greater development faster."
Rawlings-Blake also is lowering property taxes for homeowners, with the latest installment lowering the bill for an average home by $174 in the fiscal year that begins July 1. Taxes on a $145,500 house will drop from $3,269 to $3,095.
But Stokes said increases in the water and sewer rates are canceling out those savings. The water bill for a typical customer — which is set to increase by 42 percent over three years — jumped by about $100 this year.
"We're taking pots of money we could be using smarter," he said. "There are tens of thousands of citizens who are not getting real tax relief. We give them a little bit, and then we jack up the water bills."
Still, Jeff Kayce, a vice president with Bozzuto Development Co., said an analysis of taxes is an essential part of the process to determine which projects to move forward on. Among Bozzuto's recent projects are the Fitzgerald apartment tower near the Maryland Institute College of Art and the Union Wharf apartments in Fells Point.
"There is no secret that the tax rate in Baltimore City is very high, and frequently the total tax bill is the most prohibitive part of any project we underwrite," Kayce said. The tax credits are "good for the city and good for the development that will act as a catalyst."
The Rawlings-Blake administration says the 15-year incentive for apartment construction and renovation has been a success. The tax break, which went into effect last year, can be used for projects with at least 50 units downtown and in seven other areas, including Station North and the Belair Road corridor.
Several projects are in the pipeline for the 15-year credit, according to officials. The first credit was granted last week.
Expanding the so-called High-Performance Market-Rate Rental Housing Tax Credit is projected to generate $45.4 million in additional property taxes over the next decade. After the credit is factored in, officials expect another $15.1 million for city coffers during that period.
The new tax credit — to be available on projects of 20 or more units — would reduce rates on the new apartments by 80 percent through the fifth year of the program. The credit would drop from 70 percent to 30 percent over the remaining five years.
The expanded tax credits could receive final approval as early as July 17.
Dominic Wiker, development director for the Time Group, said the lower threshold for the number of units that would qualify for the 10-year apartment tax credit would open up possibilities for new projects. The Time Group is building 171 apartments at 520 Park Ave. in Mount Vernon.
"It would certainly give us cause to look at other communities, particularly with a smaller footprint," Wiker said. "It helps on the margins. Any kind of financial relief, even on a temporary basis, can be positive."
William Voorhees, the city's director of revenue and tax analysis, said tax credits for both new apartments and newly constructed and rehabilitated homes must be re-evaluated in the coming years to protect against the risk of investing in an oversaturated housing market.
The apartment tax credit would need to be reauthorized after five years, while the credit for new construction and rehabilitation would need to be reauthorized in 2019.
"We have a chance to stop and take another look and see what the demand is and what the supply is," Voorhees said. "The last thing we want is an oversupply."
The council also considered a third tax credit at Monday's meeting.
A bill was introduced that would make homeowners who move from one house in Baltimore to another in the city eligible for tax relief worth $1,000 in the first year. The credit would drop to $600 in the fifth and final year.
The Resident Retention Credit, authorized this year by the General Assembly, is capped at $3 million and would be granted on a first-come, first-served basis.
If approved by the council, the city is expected to begin taking applications for the tax credit on Oct. 1.
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