PROVIDENCE –– State lawmakers have killed the popular but costly historic tax credit program to stanch losses in government revenue.

But before the program fades into history, its cost is actually going up.

To recoup lost income from projects under way, the state may borrow as much as $356 million.

For the current budget and the fiscal year that begins July 1, the state plans to borrow $150 million to fill the holes left by the tax breaks.

“We’re coming up on the fiscal year end, so we really have to do it,” said Maureen E. Gurghigian, managing director for First Southwest Co., who is advising the state on the borrowing. “The state’s revenue picture has been hit.”

The tax credit program, created in 2001, has helped pay for the redevelopment of mill buildings throughout the state, making luxury condominiums, offices and restaurants out of decrepit, long-vacant structures.

The credits, worth about 30 percent of the cost of a project, helped transform the abandoned Masonic Temple into the Renaissance Providence Hotel and turn the Old Colony Bank on Weybosset Street into a Hampton Inn and Suites.

However, facing shrinking revenues, lawmakers in 2008 passed a moratorium on additional tax credits. From 2005 to 2008, the program had cost the state $21 million to $40 million annually.

But to avoid undermining developers who had banked on the support, legislators decided to gradually phase out the program and authorized the state Economic Development Corporation to borrow hundreds of millions of dollars to cover its remaining costs.

In May, Governor Carcieri asked the EDC board to borrow the money. The bonds, he said, would help budget writers overcome the challenge of projecting tax receipts without knowing how many tax credits would be submitted in a given year.

But the borrowed money does not come cheap. To service $150 million in debt, First Southwest estimates that the state could end up paying $23 million annually for nine years, for a total of $207 million including principal, fees and interest.

The interest rate will be determined after national ratings agencies review the state’s troubled finances. State officials held conference calls with Moody’s on Monday and with Fitch and Standard & Poor’s on Tuesday, according to Mark Dingley, chief of staff for state Treasurer Frank Caprio.

The new ratings are expected next Tuesday or Wednesday, and the state could issue bonds as early as late next week.

Because of the recession, state officials do not expect all the projects awarded tax credits to go forward. In all, the remaining participants are expected to cash in, or sell, $200 million in tax credits over the next three fiscal years.

The EDC board approved the borrowing with little debate. “We don’t want to stop projects,” board member George Shuster, chief executive officer of Cranston Print Works, said at the May 18 meeting.

Attorney Normand G. Benoit, who is helping the state issue the bonds, said the borrowing will rescue projects that will not only generate temporary construction jobs but also provide long-term tax revenue. “The economic benefit,” he said, “is going to continue.”

The debt payments, however, will also outlive the construction. Already, the Ocean State has the country’s ninth-highest per-capita debt, according to a 2008 report by the Rhode Island Public Expenditure Council.

In an interview, John C. Simmons, RIPEC’s executive director, said the state’s overall debt burden is under control.

But as shuttered businesses and rising unemployment deprive the state of tax revenue, Simmons said, the annual debt service will consume an increasing percentage of state spending.

bgedan@projo.com