Baltimore’s historic preservation tax credit gets short-term extension as Mosby seeks changes

Published 2/28/2023 5:30 a.m. EST, Updated 2/28/2023 9:16 a.m. EST

Historic homes on Montgomery  Street in Federal Hill.

City Council granted a one-year extension Monday to a tax credit meant to preserve Baltimore’s historic character, an abbreviated timeline that Council President Nick Mosby said is intended to put pressure on Mayor Brandon Scott’s administration to get moving on a long-promised review of how tax incentives are affecting disinvested parts of town.

A previous version of the legislation recommended a five-year lease on life for the historic preservation tax credit, but earlier this month a City Council committee endorsed the much shorter, 12-month extension.

Approval for the short-term extension also comes after an analysis by city finance officials found the credit to be overly generous and failing to benefit struggling neighborhoods.

The credit is set to expire on Wednesday. The 12-month extension passed City Council unanimously Monday, with one member absent, and now goes to Scott’s desk for final approval.

What’s the historic preservation tax credit?

For over 25 years, Baltimore’s Historic Rehabilitation and Restoration Tax Credit, or CHAP, has granted 100% tax exemptions on the renovation and redevelopment of several thousand properties in designated historic neighborhoods of Baltimore. The credit has been extended periodically since its creation, and has seen a boom in usage over the last 15 years as the city designated more historic districts.

The credit has mostly been used for relatively small residential renovations, according to data provided by the Department of Finance, which are eligible for the 10-year, total tax exemption on development. Larger projects exceeding $5 million fall into a separate tier eligible for an initial 80% tax break, with the discount decreasing over the course of a decade.

At the hearing earlier this month, officials with the city’s historic preservation office said an overwhelming majority of people who have used the credit tell the city they would not have pursued renovations without the tax break. The credit has been especially useful for incentivizing renovation of vacant row homes, but is also responsible for larger-scale rehabs of places like American Brewery and York Road’s Senator Theatre, they said.

Historic homes on Eutaw Place in Bolton Hill.

Why is the program getting criticism?

In a centuries-old city, proponents and critics of the historic preservation tax credit have acknowledged the program’s importance for helping to protect and restore old buildings, especially at the residential level.

But the credit has drawn recent scrutiny from the city finance department, which issued a report in summer 2022 calling Baltimore’s menu of property tax breaks “highly inequitable.” The report, produced with the consultancy Ernst & Young, singled out the historic preservation credit as particularly in need of reform, arguing that the incentive is both inefficient and skewed in favor of wealthier neighborhoods.

Deputy Finance Director Bob Cenname has pointed to what he calls two “critical flaws.” The areas eligible for the credit — and those that have most often benefited from it — tend to fall along the city’s affluent and predominately white north-south corridor, the finance official has argued, while many disinvested neighborhoods either aren’t eligible or have seen relatively little use of the credit.

He’s also argued the credit’s 10-year, 100% subsidy is unnecessarily generous and in need of reworking to bring in some level of immediate tax revenue for the city. According to the finance department’s report issued last year, the credit cost the city about $12 million in unrealized tax revenues in 2022.

Officials with the city’s historic preservation office, meanwhile, defended the credit in the hearing earlier this month. While the credit has historically gone disproportionately to neighborhoods already benefiting from private investment, historic preservation planner Stacy Montgomery said the program is seeing much more uptake now in lower income parts of the city. An overwhelming majority of people who have used the credit tell the city they wouldn’t have done renovations without the tax break, she said, and annual tax revenues from properties graduating out of the program have grown by several million dollars over the last two decades.

What is the city doing about it?

In October of 2021, Scott announced a work group tasked with evaluating Baltimore’s portfolio of tax credits to ensure that the incentives the city is offering are “sustainably and equitably” growing the local tax base. In last year’s report, finance officials recommended that the administration’s work group take their analysis and develop a new package of tax incentives for the next 10 years.

But while a Scott spokesman told The Banner in August that the commission was slated to begin work in the fall of 2022, the group has yet to get started. The mayor’s office did not respond to questions about the status of the commission after the hearing earlier this month, and did not answer questions about it Monday, either.

In a statement Tuesday morning, Scott spokeswoman Jessica Dortch said the administration “remains committed” to reviewing and recommending reforms for the tax credit system and plans to “formally launch” the work group in the coming weeks. The process will “prioritize equity and collaboration” while listening to the input of Baltimore residents, Dortch said.

After Monday night’s meeting, Mosby said the City Council opted for the shorter extension in an attempt to pressure the administration to finally convene the tax credit work group, which the council president noted has yet to hold a meeting. The city should be looking for ways to create a more equitable tax credit system, Mosby said, but the administration isn’t delivering on its commitments.

“You keep saying that you’re gonna do something, but nothing has gotten done,” Mosby said.

Though some City Council members voiced support for a longer-term extension of the historic preservation credit at the hearing earlier this month, the committee ultimately approved a 12-month extension with the understanding that the work group would use that time to review the city’s options for reworking the credit. The finance department had proposed an 18-month extension.

Eric Holcomb, director of the city’s historic preservation division, called the credit’s 12-month sunset “a tight schedule” for the city to review the credit and propose alternate options, but added “we can make it happen.”

“I look forward to working with city colleagues to come up with a tax credit renewal bill that helps revitalize city neighborhoods,” Holcomb said.

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