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Daily Record investigation: A dream derailed

The nation’s largest urban redevelopment, a projected $1.8 billion effort to transform 88 acres of East Baltimore into a world-class biotech park and idyllic urban community, lies derailed amid vacant lots, boarded houses and unfulfilled dreams a decade after it began.

The effort to give new life to a decaying community behind Johns Hopkins Hospital began with unbridled optimism. Then-Mayor Martin O’Malley and civic leaders promised that it would energize the economy and create thousands of permanent jobs.

But a five-month investigation by The Daily Record has found that the project, promoted as “America’s new model for urban development,” is lagging far behind its original timetable. The recession, disengaged elected officials and unexpected problems attracting biotech firms have taken their toll.

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Meanwhile, an African-American community known as Middle East has been virtually eliminated and its more than 600 residents relocated to make room for the development known as The New East Baltimore.

The Daily Record’s report on the findings of its investigation, based on more than 50 interviews and examination of dozens of city, state and federal records, begins today. The five-day series is the first comprehensive public examination of the project’s finances, leadership, accountability and its record in achieving its original mission.

About $564 million has already been committed to the project, which is spearheaded by the nonprofit East Baltimore Development Inc. The public share of that amount is $212.6 million, more than a third of which is from loans that will take three decades for the city to pay off with diverted property taxes.

But the dream of a biotech park has been abandoned, putting the promise of thousands of new jobs in limbo. Public and private sector leaders are scrambling for a new focus for the project, saying it’s too big to fail.

“It has got to succeed,” said Shale D. Stiller, a Baltimore lawyer and civic leader who is a member of several boards deeply invested in the project. “If it does not succeed, it will be a big blot on Baltimore’s future.”

It also would be a major setback for two of the city’s most prestigious and powerful institutions, the Johns Hopkins University and the philanthropic Annie E. Casey Foundation, which have committed $85.5 million to the project.

Christopher Shea, EBDI’s CEO, said he is not worried by the lack of biotech development and housing and is confident the project will take shape successfully.

As evidence, he cited construction of housing for Hopkins graduate students underway now and plans for a new state lab and a state-of-the-art public school.

Part of the effort may be “way behind in some line in the sand [drawn] in 2002, but not behind now in my priorities to successfully resettle the community,” Shea said.

Little public oversight

Dubbed The New East Baltimore by EBDI, the project is the city’s most ambitious redevelopment effort since Charles Center-Inner Harbor in the 1960s and ’70s. It is larger than Harbor East by 18 acres.

Overseeing this massive undertaking is EBDI, a nonprofit created in 2002 by the city, Johns Hopkins and community leaders.

EBDI was intended to assure the project’s progress and continuity through changing mayoral administrations, according to Paul Brophy, former president and co-CEO of the Enterprise Foundation and an early consultant on the project.

Similarly, Charles Center—Inner Harbor was developed through a private corporation, according to Martin L. Millspaugh, its CEO from 1965 to 1985.

EBDI has operated much like a private corporation with little public oversight. Its board of directors, which reads like a Who’s Who in Baltimore power circles, has presided over heavy spending on consultants and staff salaries that far exceed those of Baltimore Development Corp., the city’s official development arm that is also a nonprofit.

Although the mayor approves the hiring of EBDI’s chief executive officer as a matter of protocol, according to former Mayor Sheila A. Dixon, the organization’s nonprofit status shields it from much public scrutiny. It was formed without approval of either the City Council or the Board of Estimates, and it does not have to adhere to city rules in areas such as hiring, competitive bidding and salaries.

The Daily Record’s investigation found that The New East Baltimore’s public funding is so complex and poorly scrutinized that local elected officials, some of whom serve on EBDI’s board, said they had little grasp of the $108.5 million in city funds committed to the project at a time of tax increases, and furloughs and pay cuts for city workers, including firefighters and police.

Dixon told The Daily Record that she did not know the city sold $78 million in bonds to support the project when she was mayor.

Those bonds, known as TIFs, for Tax Increment Financing, represent the project’s least obvious long-term costs to taxpayers.

Sold to investors in 2008 and 2009, the bonds financed the purchase and demolition of houses and relocation of occupants. Repayment, which began in 2008, is supposed to come largely from diverted property taxes collected on the developed land that would otherwise go into the city’s general fund.

By 2039 the city will have transferred $199 million in property taxes to repay the bonds with interest, according to debt service projections provided to The Daily Record by the city’s finance department.

Also, the city will have to repay a $21.2 million loan over 15 years from federal Community Development Block Grant funds used to revitalize communities throughout Baltimore. By 2024 the city will have paid $28 million in principal and interest, according to the loans’ amortization schedule.

As a nonprofit, EBDI is not audited by the city or state government. Officials at EBDI declined to show The Daily Record its internal audits, saying that it is not required by law to make them public.

Some of the financial information made public by EBDI has been incomplete and inaccurate.

Over the last five years, some EBDI reports have omitted any mention of private investment in the project while others have overstated the current amount of private investment by more than half a billion dollars.

The nonprofit’s 2005-2006 annual report displayed a pie chart showing $848 million in investment from private developers, or 86 percent of the total first phase of the project.

But The Daily Record found that by 2010 only $214 million had been invested by private developers, according to figures obtained from EBDI, private developers and private foundations.

The inflated numbers, says John T. “Jack” Shannon Jr., then EBDI’s CEO, were actually estimates for future private investment, Shannon said he does not know why that was not stated in the reports.

Biotech dream fades

Plans for a life sciences park of 1.1 million square feet and as many as five buildings — once the linchpin of The New East Baltimore project — are no longer considered feasible.

One biotech building of 278,145 square feet opened in 2008. That structure, the $100 million John G. Rangos Sr. building, is scheduled to be 80 percent occupied in May when the Lieber Institute of Brain Development moves in.

Plans have been scrapped for four more life sciences buildings that were to produce thousands of jobs. A vacant lot reserved for one of those buildings has been turned over to the state for a new Department of Health and Mental Hygiene lab that will probably not create many new jobs.

“It’s not going to be a biotech park,” said Stiller, who served on EBDI’s board and is a trustee emeritus of the boards of Johns Hopkins Medicine, Johns Hopkins Health Systems and Johns Hopkins Hospital.

“It was because of our inability to attract it. I don’t know why it didn’t happen. The University of Maryland did a very good job across town,” Stiller added.

The university’s downtown biotech park has 500 employees in 455,000 square feet rented in three buildings, with two more buildings planned with another 295,000 square feet.

In late December, the University of Maryland BioPark received $65 million in tax-exempt federal Recovery Zone bonds, stimulus funds that will allow developers to obtain tax-free financing to expand the park.

Meanwhile, as the biotech dream fades in East Baltimore, Johns Hopkins is moving ahead on a 4.6 million-square-foot biotech park in Montgomery County near its Rockville campus.

Still searching for jobs

Thousands of permanent jobs promised for The New East Baltimore have been slow to materialize.

In the early years EBDI received federal money on the premise that the biotech park would create 1,750 jobs. As recently as 2009, EBDI reported to the federal government that the entire project would eventually generate 6,500 permanent jobs.

Today, more than two years after the lone biotech building opened, there are 422 employees there. An EBDI employment official says she does not know how many jobs were created or simply transferred there when business tenants moved there.

None of the permanent jobs, though, were created for East Baltimore residents, as had been promised.

Most of the 2,378 jobs created elsewhere in The New East Baltimore were temporary construction jobs that lasted an average of two months.

Of the total jobs created, 695 have been created on the EBDI staff, at the new East Baltimore Community School and at local businesses in health care, customer service, hospitality and tourism, according to a Daily Record analysis of EBDI statistics and interviews with current and former EBDI officials.

Housing comes slowly

The project began in 2001 with plans to relocate 732 households and clear wide swaths of East Baltimore. So far, 669 houses and other buildings have been demolished and another 700 are ready to come down, many of them long-vacant.

The project has been stymied first by the rise in home prices and later by the recession. In its early years, when EBDI was relocating families, the cost of comparable housing and a grassroots protest by residents and their supporters forced the nonprofit to pay millions more than expected on relocation.

The $21.2 million federal loan was not enough to cover acquisition, relocation and demolition. Instead, EBDI used it almost exclusively for relocation, along with millions of dollars from Casey and Hopkins and $6 million in federal rent subsidies. Another $11 million from the state paid for demolition, according to federal documents.

By the time the ground was cleared in early 2009, the full brunt of the recession had hit. Financing dried up and housing demand waned.

Today, only 37 percent of rental and for-sale homes planned for the New East Baltimore’s first phase of 31 acres have been built.

EBDI projected, as recently as May 2008 in a bond offering to investors, that there would be 599 houses completed or under construction by now. But there are only 220, mostly rental apartments for senior citizens and other tenants.

Five of the completed units are upscale condominiums, listed for sale for as much as $320,000. Two have been sold.

In addition, another 40 old row houses are being renovated for people from the original neighborhood.

Retooling the plan

Despite the delays in redevelopment, The New East Baltimore has been a destination for planners from Miami, Buffalo, Cleveland, Atlanta, Philadelphia, Birmingham and New Orleans, according to EBDI’s 2005-2006 annual report.

“It is being watched around the country,” by both philanthropic and academic institutions, urban development expert Paul Brophy said of the project, which he said stands alone nationally in size and scope.

Leaders of the project’s inner circle also see its outcome as a reflection on Baltimore.

“If in time we can’t make that community resemble the vision we had for families and kids and workers there, the city is in trouble,” said Douglas W. Nelson, the Casey Foundation’s recently retired CEO who is chairman of the EBDI board.

Most principals associated with the project say its future now depends on the developer’s ability to retool the master plan as the grip of the recession remains tight.

Scott Levitan, senior vice president for developer Forest City-East Baltimore Partnership, which is overseeing the project, said a Baltimore advertising agency, Carton Donofrio Partners, was hired last summer to “rebrand” and rename the community and create a plan to market it to middle-class families and commercial developers.

That plan — which Levitan described as “psychographics and additional market research” — will be ready early this year, he said. He declined to reveal how much Carton Donofrio is being paid and who is paying for it.

“I am not going to discuss it,” Levitan said. “It’s not public information.”

Shea said EBDI has contributed $130,000 toward the Carton Donofrio contract. Forest City is paying the rest of the cost, but Shea said he did not know how much.

Two previous master plans for the project, now in limbo, have cost $1.8 million, according to The Daily Record’s analysis.

Levitan said the hope for the new plan is to provide “a full bundle of amenities in the community with more retail and civic space.”

“We have learned there will need to be, at least for the pioneers, significant incentives to buy,” he said. “We have to get over the perception that it’s a dangerous area. Perception is 99 percent of the battle.”

Now instead of a massive biotech development, planners are focusing on what kind of affordable homes they can build to lure middle-class residents and how they can attract commercial development, which they hope will include a hotel, a grocery store and restaurants.

EBDI has spent $95,000 on lawyers and other consultants to research, prepare legislation and make budget projections for an East Baltimore Community Benefits District that would charge new homeowners an extra tax to pay for private security and maintenance.

Some of the few remaining residents oppose the district, which has yet to be created, even though they would be exempt from paying the tax.

As new redevelopment plans unfold, many current and former residents, including City Council President Bernard C. “Jack” Young, remain angry that their former neighborhood was demolished.

“They would never have done that in Little Italy, they never would have done it in Greektown. Why did they do it there?” Young asked. “They tore down a whole generation of East Baltimore.”

Lisa Francis, who lives in a renovated row house in the 1100 block of McDonogh Street, chose to remain in the community.

“Oh my God, it is a living hell for me,” she said of her new life, complicated because she cannot buy homeowner’s insurance for less than $1,262 a year because of the blight that surrounds her. “I’m the only person on this block. At night, I pray.”