CREDIT GOV. Robert J. Ehrlich Jr. with holding firm in his pledge to work to retain the state's historic tax credit program, an incentive plan that works.
The program allows developers and homeowners of historic buildings to get up to a 20 percent tax credit on their project after it is done. When paired with the federal 20 percent historic tax credit, it can mean the difference between go and stop on building in this recession-recovery economy.
But the program is due to expire on June 30, and its passage in the General Assembly is not guaranteed. Some legislators fret over unpredictable yearly costs to the state, and others assume the plan benefits only Baltimore, but the facts don't bear them out.
From its start in 1997 through Aug. 21, 2003, 749 residential projects statewide have brought in $47.6 million in rehab spending on $9.5 million in credits; 196 commercial projects have brought $445 million in spending on $89 million in credits. Though they may worry at the programs' growing ever more popular, legislators cannot quibble -- and should stop tampering -- with its success.
The state's return on these promissory notes starts as soon as construction begins, via income and sales taxes. On average on commercial projects, the state gets back 34 cents on every dollar promised before it even gives out that dollar (the credits activate on completion of the project), according to the task force that studied its effects this fall. The first year after a project is completed, the state gets back $1.02 for every tax dollar waived; in the first five years, it gets back $3.31.
For eye evidence, just stroll around the American Can Co. in Baltimore, where a rewarded renovation project has spurred 18 percent growth in its neighborhood's assessed tax base, or AFI Silver Theatre and Cultural Center in Silver Spring, where the theater's renovation is a centerpiece for blocks of redevelopment. Or projects in Frederick, Easton, Cumberland, Cambridge and Salisbury, among many others.
Because of very tight budget constraints and the reasonable desire to predict just how much money would be coming in, the General Assembly put a cap on the total amount of credits that could be given out in 2003. But that cap carried unfortunate -- if unintended -- consequences.
The $23 million limit for 2003 was reached in early June, and some firms that rushed to apply before the vouchers ran out were nowhere near ready to start construction. Their calling dibs on the benefit prevented others who were ready from getting in on the deal. Many of those left out were homeowners and smaller-scale developers -- just the groups legislators had aimed to target in the later years of the program.
Projects had to go on hold as their applications were returned, and at least a dozen stalled or died statewide. On Baltimore's west side, a two-rowhouse development on Park Avenue fell apart. Retail and residential plans for another abandoned parcel on North Howard Street are on permanent idle after the proposal didn't get 2003 credits; it is in the lottery for the $13 million in credits set for 2004.
The draft bill the task force sent to the governor's office has no yearly tax-credit cap; Mr. Ehrlich has said that he likely would have to set such a cap to boost its chances in the General Assembly.
A limit may be necessary, but based on the lesson of last year, the amount must be higher. This is not the time to be low-balling a wise investment.