A politically connected construction company owner could receive $700,000 to $6 million in income-tax breaks from a land deal that the state is considering in Southern Maryland, legislative analysts said yesterday.
At a hearing in Annapolis, skeptical lawmakers questioned the wisdom of the proposal to sell 836 acres of state conservation land to a private buyer for $2.5 million without any assurance that the buyer would follow through on a promise to donate some land for schools and leave the rest largely undeveloped.
"We do not have a guarantee," acknowledged General Services Secretary Boyd K. Rutherford.
Rutherford also explained the genesis of the possible sale, relating how a buyer approached Gov. Robert L. Ehrlich Jr.'s administration even before the state purchased the property last year. He declined to name the potential buyer, but state officials have said it is Willard Hackerman, president and chief executive of Whiting-Turner Contracting Co. in Baltimore and a major donor to both political parties.
With the governor's blessing, Rutherford said, the state bought the land with the intention of reselling it, for the same price.
"Quite frankly, we probably would not have bought the property last year but for a person willing to come in and stand in our shoes," Rutherford said, adding that money from the sale can be used to preserve more open space.
"We looked at that as a win-win situation . . . protect property from development at no additional cost to taxpayers and move forward with the project," he said.
Warren Deschenaux, director of policy analysis for the state's Legislative Services Department, questioned the state's decision to act as middleman.
"The state is sort of in an unusual position of being the broker -- the in-between person in a transaction that has a lot of tax angles to it," Deschenaux told the Senate Budget and Taxation Committee. "That's not necessarily bad, but it is different. We need to consider the extent to which the state wants to be in the tax-planning business."
Lawmakers questioned why Hackerman was singled out to receive tax benefits and a land deal without a new appraisal.
"This guy came along, made an offer, so we went ahead and did it -- that whole process bothers me," said Sen. Edward J. Kasemeyer (D-Baltimore County), addressing Rutherford. "The right thing to do would have been to say, 'That's a pretty good idea. We should . . . take bids or proposals on that concept.' Did that ever cross your mind?"
Rutherford sent a memo to lawmakers in August describing the potential deal with an unnamed "benefactor" who would buy the land and donate 120 acres for schools in St. Mary's County. Except for the schools, Hackerman would not build on the land, which is in a rural preservation area, and he would have to hold on to development rights for a year to get tax benefits.
"If there's no agreement, all he's doing is buying," Kasemeyer said as other committee members nodded. "Why do you always refer to him as a 'donor' or a 'benefactor'?"
Rutherford said that "given all the uproar," they decided to have an independent appraisal of the land.
Deschenaux said the land's value, and its potential for development, could dramatically affect the possible tax benefits if Hackerman donated the development rights.
At the low end -- if the land could not be developed -- the buyer could deduct the donation just like any other charitable gift, with a potential savings of more than $700,000 in federal, state and local income taxes. If the land was worth $20,000 an acre, the potential savings could be $5.6 million in federal taxes and $1.2 million in state and local taxes, Deschenaux said.
And there are a variety of different tax programs that could benefit a buyer in that situation, including donations over years with smaller benefits continuing over time.
Rutherford said that when Ehrlich (R) returns from a trip to China, he will talk with him about the hearing and whether they are well enough satisfied with the negotiations to bring the plan to the Board of Public Works for approval.
"We're not in a rush," he said.