The money has gone to buy homes, demolish buildings, relocate residents and build underground infrastructure for water, sewer, state-of-the-art fiber-optic and electrical systems.
Of the $564.7 million tab so far, $212.6 million has come from the cash-strapped city, state and federal governments, $214.2 million from private developers, $92.5 million from the Johns Hopkins University, the Annie E. Casey Foundation and other nonprofits, and $45.4 million from investors of federal tax credits.
And nowhere is there a comprehensive, independent public accounting of the funds and how they have been spent.
A five-month investigation by The Daily Record found that large sums have been spent to pay consultants for plans that may never be used, and generous salaries have been paid to the EBDI staff.
The newspaper found an intricate trail of 15 sources of public money for the project. In one case, there was a $3.5 million disagreement between EBDI and the city Department of Housing and Community Development about how much money EBDI had spent on infrastructure. The city said $1.8 million; EBDI said $5.3 million.
The amount of private investment in the project was overstated — sometimes significantly — in EBDI public reports. An undated EBDI document written to lure investors inflated the amount of private investment by more than half a billion dollars. The same incorrect figure was included in EBDI’s 2005-2006 annual report.
The reports incorrectly stated that private developer outlay for the first 31 acres of the project, known as Phase I, was $848 million, or 86 percent of the project’s investment.
The magnitude of private investment “is unique for enterprises of this nature,” said the undated document written for investors.
John T. “Jack” Shannon Jr., EBDI’s CEO until 2009, said the $848 million figure was actually an estimate by the project’s master developer, Forest City-New East Baltimore Partnership, of how much private investment would go into the project’s first 31 acres when fully built.
The $848 million should have been labeled “projected private development,” Shannon said.
In recent years, figures stating the amount of private investment in the project have disappeared from public EBDI reports. The annual reports for 2008 and 2009 contain no monetary figures but rather colorful pie charts showing only percentages of investment by governments and foundations. There is no mention of private investment.
Cynthia Swisher, EBDI’s chief financial officer, said private investment figures were omitted because EBDI’s former communications director decided to mention only investment generated directly by the nonprofit and not “investments made in privately owned real estate.”
‘I would urge transparency’
Since its creation in late 2002, EBDI has operated largely independently by virtue of its status as a nonprofit in spearheading the city’s biggest urban redevelopment project since the construction of Charles Center-Inner Harbor in the 1960s and ’70s.
In interviews that began last fall, The Daily Record found that key elected officials have paid scant attention to the project’s finances, despite its magnitude.
Although two members of the Baltimore City Council sit on EBDI’s board as nonvoting members, the nonprofit is not audited or overseen by City Hall in any formal way. City Comptroller Joan Pratt has no fiscal oversight over EBDI because of its nonprofit status.
City Councilman Carl Stokes recently told The Daily Record that he would call for a public audit of the project.
But Mayor Stephanie Rawlings-Blake said on Monday she sees no need for such an audit.
“I don’t think a public audit is anything to run from, but I am sure in accordance with regulations for them as a 501c3 that their financial books have been audited as regularly as they should be,” the mayor said.
“I am also confident in the community leaders that have been a part of the EBDI process there. The former head [of the board, Joseph Haskins Jr.], as well as the chair now [Douglas W. Nelson], have very good reputations for their financial acumen as well as integrity.”
The mayor approves the hiring of EBDI’s CEO as a matter of protocol, according to former Mayor Sheila A. Dixon, who approved the hiring of Christopher Shea, the current CEO. Dixon said then-Mayor Martin O’Malley approved the hiring of Shannon, the first CEO.
Paul T. Graziano, the city’s housing commissioner and a nonvoting member of the EBDI board, receives monthly reports from EBDI on the project’s progress but discards them after reading them, said Cheron Porter, his spokeswoman. But she said Graziano and other city officials are in “regular communication” with EBDI.
City Council President Bernard C. “Jack” Young held hearings in April 2009 about EBDI’s minority hiring and relocation practices. But he and the two council members who now represent the area said they knew next to nothing about the project’s public funding when interviewed last fall.
There is also little fiscal oversight at the state level. Although Lt. Gov. Anthony Brown is a member of the EBDI board of directors, state Comptroller Peter W. Franchot and legislative auditors have no fiscal oversight responsibility over EBDI.
EBDI declined to give The Daily Record copies of its internal audits. It is not legally required to make them public because of its nonprofit status.
When asked about the inconsistent and inaccurate public reporting of the project’s finances, urban development consultant Paul Brophy said, “I think accurate reporting is to the program’s advantage — reporting where the money’s coming from and where it’s going. I would urge transparency.”
Brophy, former president and co-CEO of the Enterprise Foundation, was an early consultant to the project before EBDI was formed.
“Nobody ever believed that figure of $848 million anyway,” said Raymond A. Winbush, director of the Institute for Urban Research at Morgan State University. He was an early critic of the project because of the decision to eliminate the community that occupied the redevelopment area.
“Once we asked to see a [breakdown] of that money and they didn’t want to show us,” he said. “They never gave it to us because they said it was private money and they didn’t have to.”
‘A legal and moral obligation’
Public money paid $169 million, or 77 percent, of the $219 million it cost to purchase and demolish properties, relocate residents and build new infrastructure for The New East Baltimore, according to figures provided by EBDI and the city and compiled by The Daily Record.
Relocating 732 households and buying 1,838 properties cost taxpayers $101 million.
The high cost of relocation was due to unprecedented amounts paid to each household. The city and EBDI originally sought to pay less than $50,000 per household, according to former residents and city officials.
But bitter protests by the residents secured payouts of between $150,000 and $265,000 per household, according to federal documents examined by The Daily Record.
Officials at the Annie E. Casey Foundation and EBDI say they paid the higher sums because federal law required it and because it was the socially responsible thing to do.
Shea, EBDI’s CEO, said EBDI staff counseled several families after they moved so they would not lose their new homes to foreclosure as the subprime mortgage crisis hit.
Explaining the high relocation payments, former EBDI CEO Shannon said, “We needed to look not where people were today, but on fair-housing laws, where they needed to be. We had families in substandard housing and houses not big enough for their families. So we needed to adjust.
“Keep in mind these individuals did not ask to move. We had a legal and a moral obligation to get this exactly right. If it required more funding and time to do it, then so be it.”
EBDI has also spent heavily on consultants, sometimes for plans that were abandoned or shelved, according to The Daily Record’s examination of public documents and inquiries to EBDI.
-In 2007 EBDI paid the local architecture firm of Ziger/Snead $614,000 for plans to renovate and expand the vacant Elmer A. Henderson Elementary School at 1101 N. Wolfe St. The plans were scrapped after vandals stripped and burned the building, making it unusable, said Shea and Shannon.
-Two master plans have been written since the project began, costing a total of $1.8 million.
The first, a 2001 plan depicting the project’s first phase, was commissioned before EBDI was formed. Prepared by Urban Design Associates of Pittsburgh at a cost of $930,000, the plan promotes 1.5 million to 2 million square feet of biotech space and contains designs and floor plans for several types of homes that have not been built.
The plan was financed by the Goldseker Foundation, which paid $790,000, the Abell Foundation, which paid $65,000, and the city, which paid $75,000.
A second master plan, from 2006, cost EBDI $825,000 and was created by Sasaki Associates, an architectural and planning firm with offices in Boston and San Francisco. That plan, outlining development for Phase II, is still in a draft form but has been shelved because the market for building new housing dried up, said Shea.
Last summer, EBDI and Forest City-New East Baltimore Partnership hired the local advertising firm of Carton Donofrio at an undisclosed sum to “rebrand” the community and relaunch the project.
‘A Third World country’
The complex level of public investment is no surprise to outside experts on public financing or those who have been in charge at The New East Baltimore.
The magnitude of the project, they said, has dictated the many layers of financial wizardry needed to acquire, demolish and begin to rebuild during the recent recession as lenders remain frozen and wary.
“This by no means was seen as an inexpensive project,” said Haskins, the former EBDI board chairman. “But we saw it as a project with a lot of future implications for the city and state and potential to become a national model of how to revitalize an area that looked like a Third World country.”
Haskins, who is chairman, president and CEO of Harbor Bank, was one of the first Baltimore leaders selected by then-Mayor Martin O’Malley to plan the transformation of the Middle East neighborhood. He worked with Shannon, EBDI’s first CEO.
“The level of public investment that’s required at the outset of these projects will always be substantial at the beginning, compared to the level of private investment,” explained Shannon.
“What EBDI has put together is infrastructure and provided the platform to attract private investment in the neighborhood. The level of public investment will not increase and private investment will,” he said.
Shannon’s comments shed light on why the investments to date are so top- heavy with public funds — tax dollars were largely spent to eliminate the old Middle East community and rebuild infrastructure.
And Brophy notes that the project has heavy upfront support from foundations because of the “social purposes that are in play here” with unprecedented support services for relocated residents.
Private money, Shannon says, largely pays for new development. For example, the project’s lone biotech building cost was paid for with $100 million in private funds.
Meanwhile, city taxpayers and their elected officials are staring at a multimillion-dollar commitment in public funds that will last for the next 29 years.
Two of the largest public investments in the project are loans that must be repaid with interest from tax dollars, saddling the city with $227 million in payments. That’s in addition to the $212.6 million already committed.
The largest public investment comes from the sale of $78 million in Tax Increment Financing (TIF) bonds to investors that must be repaid with future property taxes diverted from the project’s first 31 acres. By the year 2039, Baltimore will have paid $199 million in principal and interest to bond investors.
A $21.2 million loan, called a Section 108 Loan, from the U.S. Department of Housing and Urban Development, is being repaid from Community Development Block Grants.
Those grants, used to renovate houses and upgrade parks, are a dwindling federal resource that is the lifeline to communities throughout the city. By 2024 the city will have repaid $28 million in principal and interest.
Other government funds come from a myriad of sources, including city general funds, motor vehicle revenue funds, city waste water bonds, city general obligation bonds, city public works revenue, state capital funds, state sunny day funds, federal empowerment zone funds, federal rent vouchers, and federal tax credits.
Councilman Stokes, who has created a task force to study TIFs and other development incentives, said it’s “ridiculous” for the city to divert property taxes to repay loans.
“It’s a lot of money [even] if it returns investments to the citizens,” he said last week. “But it won’t return investment to citizens. The citizens will foot the bill.”