Baltimore Department of Finance officials were forced to send a “special tax” bill of $1.2 million to East Baltimore Development Inc. in March in order to meet the scheduled payment on tax increment financing bonds sold to partially fund the $1.8 billion redevelopment of Middle East.
The special bill was triggered when property taxes attributed to the development last year were insufficient to cover the scheduled semiannual payment of $1,389,675 to bond investors, said Steve Kraus, chief of treasury management for Baltimore.
The actual tax increment attributed to the property amounted to $834,220, Kraus said.
It was the second time in two years that the increment has fallen short of the levels needed to repay the bonds.
In September 2011, finance officials used nearly $500,000 from a debt service account for the nonprofit EBDI TIF funds to help cover the $1.4 million TIF repayment due at that time.
“They told us they weren’t going to make it,” said Baltimore City Councilman Carl Stokes, a member of the EBDI board whose 12th District includes part of the EBDI project, of this March’s TIF payment.
“Their rationale has been that the economy took a hit and they took a hit and they have not been able to move free and clear enough with properties to produce revenue to pay the TIF.”
EBDI CEO Christopher Shea said in an email to The Daily Record that no public funds were used to repay private bond holders as part of the special tax bill, as a reserve fund was established at the outset of the TIF structure.
“Private funds for this purpose were set aside at the beginning of the project,” Shea wrote in an email, without elaborating on the source of those funds. As a nonprofit created by the city in 2001 under then-Mayor Martin O’Malley, EBDI’s board meetings and financial documents are not public.
“It is the basic design of all district TIFs that in the initial years of a project, taxes generated are less than taxes required to pay TIF obligations,” Shea wrote. “And in the later years of a project, taxes generated are in excess of taxes required to pay TIF obligations. Over time, they balance.
“The special tax payment was projected and built in to the project economics from the very beginning to cover the difference in those initial years.”
So far, city and state taxpayers have paid more than $250 million in public funds for the project, which has been under development for more than a decade. A five-part investigative series published by The Daily Record in January 2011 detailed time lag in the development schedule, complicated by the recession, disengaged elected officials and the unexpected difficulties in attracting the biotech firms that were the project’s targeted tenants.
Plans for the project have been revised three times, with the latest version showing a three-block public park to be constructed with state Program Open Space funds in the center of the footprint. The General Assembly approved $1.2 million for initial construction of the park in the session that ended this month.
TIF bonds, one of the main sources of funding for the EBDI project, have been used as development incentives in Baltimore for more than a decade. They are sold to private investors who are then repaid over a period of up to 30 years with future property taxes from the new development.
Other TIFs in Baltimore have made regular, scheduled payments to investors, including projects at Mondawmin Mall, Harbor View and Locust Point.
The TIF bond package for the EBDI project is the city’s largest to date, with two separate sales totaling $78.3 million in 2008 and 2009. The bonds ultimately will repay the investors a total of $199 million with interest over three decades, city finance records show.
The funds were originally earmarked to help finance infrastructure upgrades at the site, the household relocations and some demolition costs.
In 2011, though, EBDI officials diverted $8 million set aside for demolition and relocation in the 57-acre Phase II of the EBDI project to help pay for a new $42 million public school to be run by the Johns Hopkins University because private funds for the school could not be raised in time for the groundbreaking last summer. Hopkins is a partner with EBDI in the redevelopment, which is located just north of the East Baltimore medical campus.
For the second bond sale in 2009, the Annie E. Casey Foundation, also a partner in the EBDI project, invested $24 million after the tight economy made private investment options scarce. City records show a payment of $254,278 on Sept. 15, 2012 — even though the amount due was $1.2 million, records show.
Casey executives have said the nonprofit has been willing to be patient with repayment of the bonds because of the sluggish development at EBDI.
Both Shea and Kraus said there will be sufficient funds to make the payment due on the bonds in September.
Stokes, though, said it could be up to 24 months before full TIF payments are made from property tax revenues. That is when a planned hotel and an apartment tower on Eager Street near a new parking garage for Hopkins graduate students will be built at the site, he said, producing the private funds needed to repay the TIF.
“They will have built another couple of buildings in the next 24 months to take care of the TIF,” Stokes said.