Baltimore finds funds for EBDI TIF

Account is emptied to spare nonprofit from extra tax bill

Daily Record Business Writer//September 18, 2011

Baltimore finds funds for EBDI TIF

Account is emptied to spare nonprofit from extra tax bill

By Melody Simmons and Joan Jacobson

//Daily Record Business Writer

//September 18, 2011

Baltimore finance officials have drained nearly half a million dollars from a special account to help cover the $1.4 million repayment due this month on $78 million in tax increment financing bonds issued for the struggling East Baltimore Development Inc. project.

The transfer means the city will not have to levy a special tax at this time on vacant properties owned by EBDI as part of the 88-acre redevelopment effort near Johns Hopkins Hospital.

The action in early September came only a week after city officials had told The Daily Record that property taxes from the EBDI development would cover only $905,000 of the TIF debt payment and special tax bills would be issued to EBDI to cover the rest.

Steve Kraus, chief of the treasury management for the city’s Department of Finance, said he used $480,000 from interest on the bonds. Kraus said the maneuver was a one-time event, and the fund has been cleaned out.

“That’s the end of it,” he said.

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The financial maneuver illustrates the delicate balancing act by city officials and EBDI executives as the $1.8 billion urban redevelopment project enters its second decade.

The $78 million in TIF bonds sold to private investors to help finance the project will cost Baltimore $199 million with interest through 2038, according to documents from the city finance department.

But in 2011, the first year that bond principal payments as well as interest payments have been due for the EBDI TIF bonds, the pace of development has been so slow that the project is not generating enough property taxes to cover the payments.

The scenario is being repeated at several other Baltimore developments where the recession has slowed growth to a crawl.

Kraus said he has sent special tax bills totaling $652,000 to the developers and owners of properties at three other developments relying on TIF financing: Clipper Mill, Mondawmin Mall and Belvedere Square.

The use of TIF financing has been scrutinized by Baltimore officials over the last year. A task force appointed by City Council member Carl Stokes is expected to release a report this month on TIF bonds and other city-driven development incentives, such as payments in lieu of taxes.

Last month, in an attempt to fuel development at the EBDI site, the state Board of Public Works ratified a deal in which state taxpayers will pay $18.1 million to the city through 2024 as part of an intricate financing arrangement to build a $184.8 million lab for the state Department of Health and Mental Hygiene.

The payment in lieu of taxes was needed to help pay off the TIF bonds because the lab will be built on a vacant lot behind the Kennedy Krieger Institute intended for private life sciences development. As a state-owned building, the lab will not generate any property taxes to pay off the bonds.

So far, 229 housing units have been built at the site alongside only one of five planned life sciences buildings. Original plans called for up to 600 homes to be built by now, according to a 2008 bond offering to investors. The homes were planned to generate property taxes to pay toward the TIF.

City taxpayers are not liable to repay the TIF if there are shortages of property tax revenues, Kraus has said.

City documents outlining the TIF show that the property owner, EBDI, would be liable for the debt if there is not sufficient property tax revenue collected to repay the bonds. If the property owner defaults, the land would revert to the city, as any other tax delinquent property would — and the bond holders would not be repaid.

With the interest account now zeroed out and the next $1.4 million TIF payment due next March — and another $1.4 million due in September 2012 — the need for a special tax on EBDI may arise again.

Christopher Shea, EBDI’s CEO, confirmed that on Aug. 28, his organization expected to be assessed the special tax. He said his nonprofit would make the payment from an escrow account of “dedicated unrestricted cash.”

EBDI has $2 million in the escrow, Swisher said, in the Aug. 30 email.

“EBDI has demonstrated to the city Board of Finance, the ability to deposit an additional $1.5 million,” Swisher wrote, adding that EBDI is moving cash into an escrow account to cover future TIF special tax payments.

That account will total $3.5 million and will be funded with “unrestricted New Markets Tax Credits equity” from other EBDI projects. Federal New Markets Tax Credits have recently been sold to help finance construction of a $40 million public school and a parking garage at the site.

The repayments to bond investors are scheduled to come from property taxes on the project’s first 31 acres, north of Johns Hopkins Hospital, where development of a biotech park has been scaled back since the first life science building was built.

Development of hundreds of homes has also been delayed due to the recession and reluctance of developers to risk building in one of the city’s most crime-ridden communities.

More than 600 houses and other buildings have been demolished and more than 700 households relocated, leaving large swaths of grass where new development should be providing property taxes to repay TIF bond holders.

EBDI and officials of Forest City-New East Baltimore Partnership, the master developer, said a $60 million graduate student tower for Hopkins students will be completed in June 2012. A parking garage, financed by Forest City, is also expected to open in 2012.

The Johns Hopkins University, a nonprofit and the owner of the graduate student tower, will pay an annual $400,000 PILOT for the development once it is opened. Forest City is expected to pay an undetermined amount of property taxes on the garage, which will be diverted to repay the TIF.

In addition to the bonds now being repaid, there are two other bond series due for repayment from the EBDI project.

Records show a payment of $1.2 million is due this month to the Annie E. Casey Foundation, which purchased $24 million in TIF bonds in 2009, according to debt service payment schedules provided to The Daily Record by the city Department of Finance. The Baltimore-based foundation, one of the nation’s largest philanthropies, is a major investor and partner in the EBDI project, along with Johns Hopkins.

The foundation’s Board of Trustees, however, voted to be “patient” with the repayment of those bonds, former CEO Douglas Nelson said last year. Nelson retired from the foundation in 2010 and is now chairman of the EBDI board.

Kraus said in August and again this month that the TIF payments to Casey do not have to meet a deadline, and that Casey “is willing to wait” until property taxes are available.

Sue Lin Chong, a spokesperson for Casey, confirmed Kraus’ statement.

“We expect that payment to the foundation will be made when there are enough tax revenues generated by the property,” she said.

Chong did not say how long the foundation is willing to wait.

The $24 million bond investment is Casey’s largest outstanding loan, according to its 2009 IRS tax statement.


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