By Donald C. Fry
No government program in Maryland has been as successful at nurturing community revitalization and, in the process, leveraging publicly-funded incentives into far greater amounts of private-sector investment and jobs as the Heritage Structure Tax Credit, which expires July 1.
Since the tax credit was enacted in 1996, $213 million in state tax credits for commercial rehabilitation of historic buildings have generated $923 million in private investment in the redevelopment of 407 properties across the state that ultimately generated $1.7 billion in total economic activity and more than 15,000 jobs, according to a 2009 report by the Abell Foundation.
Currently, state lawmakers are considering Governor O’Malley’s Sustainable Communities proposal to extend the heritage structure tax credit and broaden its scope in stimulating local economies, creating construction jobs, and supporting ecologically friendly development. The Governor’s proposed legislation provides enhanced benefits to the previous law and is consistent with smart growth principles.
Under the governor’s proposal, 40 percent of the credits, which were previously limited to historic buildings, would be available for non-historic structures: Main Street business districts, transit-oriented development areas, and BRAC enterprise zones.
Although Maryland was the first state to adopt Smart Growth principles, studies have found that our state’s implementation has been weak and lacked incentives to spur development into preferred growth areas. This bill provides some of those incentives.
Many lawmakers, whose primary focus is balancing the state’s budget, have rightfully been concerned with potential uncapped liabilities of a tax credit, which led to legislative action in 2002 in placing annual caps on the historic rehabilitation tax credit and then converting the initiative into a competitive grant program where awards would be made once a year to projects that were grant winners.
The governor’s proposal would return the program to a true tax credit available year-round to qualified projects.
Of course, lawmakers remain uniformly wary of burdening state government with any new open-ended costs.
Such concerns are addressed in the bill by again imposing a cap on the amount of tax credits that could be awarded in a given year. It must be noted that the legislation before lawmakers now does not significantly impact the current budget challenge because a tax credit is not awarded until a project is finished and occupied. Meanwhile, the state will reap revenue gains from the taxes paid on materials and labor during a building’s construction.
The conversion to a true tax credit program with a cap addresses lawmakers’ concerns while providing certainty and predictability of the program’s continuance to developers and lenders.
The point is, Maryland has a proven tool for creating jobs and profitable financial investments, while also revitalizing communities. Retrofitting existing buildings provides one of the most under-appreciated strategies for reducing resource consumption and increasing wealth.
The Maryland Historic Tax Credit Program is well established as a community revitalization engine, a key element in the renewal of downtowns and older established communities across the state.
Tax credit projects have benefited communities in every county in Maryland. The credits have been used for such transformative projects as the Bethesda Theatre in Montgomery County, the Brentwood Art Center in Prince George’s County, and the former Can Company in Baltimore.
The fact is, most of the 407 historic properties redeveloped under this program would not have been attempted without the equity provided by the combination of the federal and state historic tax incentive programs. These dollars are crucial in the decisions of financial institutions to provide financing or to deny financing. They are the dollars that make these projects eligible and worthy of institutional risk.
Objectively measured, these tax credits are among the most effective government tools to prime the private-sector economic development engine. Their value is not a vague assertion. The Abell Foundation found that each historic rehabilitation tax-credit dollar generates more than $8 in private-sector economic output.
In the midst of a recession, I understand why lawmakers might look askance at a tax credit, considering it simply as a short-term budgetary cost, rather than as a highly-efficient government investment that can be quantifiably leveraged into jobs, economic development and tax revenue.
But this program withstands the scrutiny of skeptics. Unlike many government programs that don’t lend themselves to traditional dollars and cents measurement of return on investment, these tax credits are proven government investments that deliver.
And we’re going to need them as we rebuild our economy.