Historic preservation tax credits threatened by Ehrlich, legislators

Hoping to avoid a big hit to the state treasury, Gov. Robert L. Ehrlich Jr. is proposing to further rein in a popular program that has fueled a boom in the renovation of older buildings, mainly in Baltimore.

Ehrlich's move to put a yearly limit on the historic preservation tax credit comes as fretful local officials, developers and preservationists head to Annapolis today to rally behind the program at a Senate hearing.

The program could face a more serious threat: legislators in both chambers have submitted bills to kill it. But the sponsor of one, Sen. J. Lowell Stoltzfus, an Eastern Shore Republican, said yesterday he now will back the governor's alternative.

Neither Stoltzfus nor Ehrlich's office specified what the proposed limit would be, but both put it in the $25 million range. Last year, the state approved historic preservation credits worth almost $30 million.

This is the second straight year the General Assembly has explored limiting the credits, which have helped pay for the American Can Co. complex of shops and restaurants in Canton, the Hippodrome Theater's revival on downtown's west side and many home renovations.

Last year, lawmakers made the credit less generous and limited it to $3 million per project. Adding an overall statewide limit on credits every year would make it easier to anticipate the state's cost, said Martin G. Madden, an adviser to Ehrlich.

"Certainly, when you're facing a $1.8 billion budget deficit, you need to bring those things that are open-ended under some type of fiscal cap," Madden said.

But defenders say weakening the program too much would be shortsighted.

"I know we're in tight fiscal times, but down the line, as a result of this tax credit, you're going to see a plethora of development happening," said Sen. Nathaniel J. McFadden, a Baltimore Democrat.

The program's success is partly what has made it such an inviting target.

Supporters say the spin-off from renovations in the form of new taxes and jobs makes it a key economic development tool.

But viewed in isolation, the value of credits earned by completed projects has skyrocketed from $200,000 in 1997 to nearly $30 million last year.

Stolzfus called his bill "an effort to stem that flood."

Here is how the program works now, in simplified form:

A developer or homeowner can receive a credit of 20 percent of the cost of a renovation project, subject to approval by the Maryland Historical Trust, a state agency. The figure was 25 percent before the General Assembly reduced it last year.

On commercial projects, state tax credits are combined with federal historic credits equal to another 20 percent of the cost of the renovation, effectively doubling the benefit.

The state credits have been used everywhere in Maryland except Charles County, said Tyler Gearhart, executive director of the nonprofit group Preservation Maryland. "It's statewide," he said.

The vast majority of the credits, though, have gone to commercial projects in Baltimore. Major city projects that have used the credits include the Tide Point and Montgomery Park office complexes as well as conversions of the Hecht Co., Standard Oil and Munsey buildings into housing.

West-side promoters say the program's continued health is key to future progress. One project still in an early stage is the $7 million conversion of the Mayfair Theater on Howard Street to apartments and stores. The $1.4 million state credit is "critical" to the project, said Ted Rouse, a partner at Struever Bros. Eccles & Rouse.

"This is one of the very few programs that has worked to channel growth back into the city," said Mayor Martin O'Malley. "It is not only good for restoring great architecture but also prevents suburban sprawl."

There are signs that last year's changes are having an effect. The Maryland Historical Trust estimates that completed projects will qualify for $19.1 million in credits this year, down from $28.8 million last year. The weak economy may be partly to blame, but the limits are likely a factor as well, said Michael Day, chief of preservation services at the trust.

Day said developers may chafe under a statewide limit because they will worry about being shut out by the time they reach the head of the line. But he said the main goal is to save the program, which currently is scheduled to end in June of next year.

"It is the best thing since sliced bread in bringing back neighborhoods and communities, and giving light at the end of the tunnel to Baltimore and other cities," he said.

Sun staff writers David Nitkin and Tom Pelton contributed to this article.