Editorial: Time to review development incentives

Posted: 6:42 pm Thu, February 9, 2012
By Daily Record Staff

The dynamics of the decision by Exelon Corp. to build its $120 million Baltimore headquarters for Constellation Energy Group at Harbor Point instead in the core of the central business district illustrate the need for a comprehensive review of the city’s policies for using publicly financed tax breaks to stimulate private development.

Exelon listed its reasons for choosing Harbor Point as “proximity to the downtown waterfront, the ability to accommodate 300,000 to 370,000 rentable square feet, a trading floor size of at least 70,000 square feet, office floor size of approximately 30,000 square feet and availability for occupancy in 2014.”

But money also talks, and the Harbor Point property had significant financial advantages over its competitors thanks to its publicly funded tax breaks.

There is no indication that Harbor Point’s owner, H&S Properties Development, manipulated the system to gain a competitive advantage over the central business district properties under consideration by Exelon.

To the contrary, it appears that H&S merely played the hand it was dealt. And that turned out to be a very strong and winning hand, given the tax increment financing and enterprise zone tax credits already granted by government for development of Harbor Point.

In many ways, Exelon’s decision to go to Harbor Point is the latest chapter in an urban redevelopment success story. The site that will house the city’s newest office building — now a vacant lot — formerly housed the Allied Signal Plant, which later became an Environmental Protection Agency Superfund cleanup site.

Government assistance at key junctures produced the desired results.

But when those results played out dramatically last week, they evoked the law of unintended consequences. Suddenly, thanks to past government assistance, Harbor Point on the burgeoning east side of the Inner Harbor stood out from competing sites on the west and north sides of the harbor.

In fact, when Exelon’s decision was announced, the city was fast-tracking $41 million in tax incentives to aid the developer of the old McCormick & Co. spice plant site who was competing for the new Exelon building.

City Councilman Carl Stokes, who last year headed a task force that recommended numerous changes in the way the city gives incentives to private developers, said the $41 million incentive package is moot, at least for now.

Good.

Rather than rushing to throw more money at a complex issue, city leaders should take a hard look at current policies and tailor them to meet growth and development priorities. As the downtown center of economic gravity inexorably shifts to the east, the need for incentives may well shift to the west.

But geography aside, how should these incentives be structured and when should they be granted?

There is already an excellent starting point for this reassessment — the report of Mr. Stokes’s task force, which was released late last year. Among other things, it called for public-private profit sharing and independent monitors to assess the financial performance of each project.

Mr. Stokes is planning a public hearing on the recommendations in the spring. Meanwhile, the task force met again Thursday, with several members demanding more transparency in the largely secret process of vetting TIF applications.

The task force is right. We do need a fully transparent process, and it needs to be part of a coherent public strategy for economic development. Until we have both in place, there should be no new TIFs.