Over the concerns of Baltimore's finance officials, the City Council is considering a two-year extension of tax breaks on historic properties.

Council members will vote tonight to extend tax credits for property owners who improve historic properties until 2016. The deadline to enter the program was set to expire next month.  

But in a letter submitted to the council, city finance officials said the program costs Baltimore's budget $1.7 million annually.

"The finance department has concerns about the long term continuation of this credit," wrote Andrew W. Kleine, the city budget manager, in testimony submitted to the council. "... It is questionable whether the credit is actually stimulating development that would not have occurred otherwise."

Kleine cited a Baltimore Sun analysis that showed about a third of historic credit recipients told the city on application surveys that they'd still do the rehabs without the abatement. 

At a City Council finance committee hearing on Thursday, though, 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, rent would have to be raised to $1,000 a month. 

"For us, this isn't really a matter of debate, but a matter of necessity," he said of the tax credit.

Johns W. Hopkins, executive director of Baltimore Heritage, said the 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." 

"My company couldn't exist without this credit," he said. 

The Baltimore Sun has detailed problems with the historic tax credit program, in which the full value of approved home renovations goes untaxed by the city for 10 years. In 2012, The Sun found the city did not collect more than $1.5 million in taxes because of historic tax credit errors on some apartment buildings and commercial properties.

Last week, Mayor Stephanie Rawlings-Blake said that 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 told them to expect. Officials expect about $3 million to be distributed to an estimated 300 property owners.

Ellen Burke, partner at City Life Historic Properties, a home rental company in Baltimore, said her company has renovated hundreds of homes in Baltimore, including through the real estate crash. 

None of that work would have been done without the historic tax credit, she said. "We would be doing zero houses," she said. 

The tax credit should be credited with "dramatically" reducing blight, crime, drug use, rats and trash in many city neighborhoods. 

It is an option for potential homeowners that lenders also like to see, she said. 

"The banks are actually asking our buyers right off if the houses they're buying are eligible," Burke said.

Councilman William Cole asked if the city should "continue to be so generous" in the scope of the program, and Kotarba said she believes the wide net the program uses brings value back to the city.

Councilman James Kraft said the program has made "a tremendous difference in the character of our city and it has made it such a unique place in many ways."

He said it has also contributed to the population increase in his district, and is no different than other programs that offer credits for new development and for brownfield development. 

Councilwoman Mary Pat Clarke said she agreed with Kraft on how valuable the program is for the city. 

lbroadwater@baltsun.com

Twitter.com/lukebroadwater