The incentive was crucial to Brent Reynolds when he oversaw the Canal Street Malt House project, which turned a vacant warehouse at the edge of Little Italy into luxury condos.
Reynolds said the tax break made possible a high-quality conversion, as well as the construction of new units nearby. Because buyers knew they would pay minimal property tax for a decade, he says, he could demand higher prices for the condos.
Jim Palmer, Orioles radio announcer Joe Angel and former pro basketball player Sam Cassell. Cassell bought his condo in 2006 for $899,000, property records show. The credit has saved him $105,000, legitimately erasing more than 90 percent of the city taxes he would have owed without the subsidy.
Yes, Reynolds said, the city gave up a lot of tax money. "But what this project did for the area and future income for the city far outweighed the loss for 10 years," he said.
The tax bills for the Canal Street Malt House were calculated correctly, The Sun found after reviewing work sheets used by the state assessments agency to calculate historic credits. Work sheets for some other properties, however, contained multiple, repeated errors that translated to uncollected taxes.
Under city regulations, the credit applies only to the value of improvements. For example, if a rehab lifts a building's worth from $200,000 to $250,000, the city would forego tax on the additional $50,000 for a decade.
If market forces later lift the value to, say, $350,000, that additional $100,000 would be taxed, but in some cases the state exempted that additional market-driven value along with the rehab value.
The Sun's analysis found that mistakes in calculating the tax discounts occurred year after year. For instance:
• The state allowed some owners to avoid taxes not just on the rehab but on subsequent gains in the full market value of their homes, a mistake with negative financial consequences for the city during last decade's real estate boom.
• On projects costing $3.5 million and up, city law says owners are entitled to only a portion of the credit — 80 percent initially, then a declining percentage in later years. Yet for some properties the state neglected to reduce the credit, giving them a far larger tax break than the law allows.
• In a number of cases, owners received the tax break longer than the maximum 10 years, the state confirmed.
After being shown calculation mistakes going back eight years, Charles acknowledged his state agency's missteps but could not explain why they happened, attributing them to "clerical error."
He also volunteered that some problems resulted from a "glitch" that began in 2009. That's when the city and state began using computerized spreadsheets to speed processing of the credits. Because officials omitted safeguards that would have prevented overly large credits, the move accidentally caused even more errors, he said.
The biggest cumulative error identified by The Sun involved the Atrium apartments at Howard and Lexington streets, once the Hecht Co. department store. The city underbilled its owner by $576,000 going back to 2004, according to The Sun's analysis, which Charles confirmed.
Even without the errors, the Atrium would have had a generous tax discount under the program — 42 percent over seven years. Because of the errors, that discount ballooned to over 70 percent.
David Hillman, president of Southern Management Corp., which developed and owns the Atrium, said he was unaware of problems with the tax bills. But he said in his mind the property "shouldn't pay any taxes" at all, because the ballyhooed west side redevelopment that the Atrium helped launch has largely fizzled.
"The rents are no more than when the building opened — and they weren't high enough when the building opened," Hillman said. "That building loses several hundred thousand dollars a year."
Errors caused the city to underbill owners of The Munsey, an 18-story former office building at Calvert and Fayette streets, by $518,000 beginning in 2007, The Sun found and Charles confirmed. Federal Capital Partners, the Chevy Chase real estate firm that bought the building in 2010, is still reviewing the bills, its spokeswoman said.
In addition to the errors, The Sun found evidence that state and city officials had been alerted to problems with the historic credit program on at least two occasions more than a decade ago.
As early as 1999, the city complained to the state assessments agency, or SDAT, that it was not properly computing credits. Two years later, the city realized errors were continuing.