Although the initial request for one of three public tax breaks for a $1 billion development on the city’s waterfront near Harbor East is $107 million, the cost of repaying that amount will balloon to more than $283 million over the three-decade term of the bonds, according to city documents.
The tax increment financing, or TIF, request was made by developer Michael Beatty as part of his quest to build an extension of Harbor East to house, in part, a 23-story tower and trading floor for energy giant Exelon Corp. The project is planned for a barren site near Fells Point that once held the Allied Signal chromium plant.
The TIF is structured to help build infrastructure, a bridge and parks at the 27-acre parcel by selling bonds to private investors who will be repaid at a 6.5 percent interest rate over 30 years from diverted city property taxes. That increases the $107 million request by Beatty Development Group LLC currently under consideration by the council to more than $283 million, including legal costs, debt service and establishment of a cash reserve as an investment security wall, over the life of the deal, according to Baltimore Development Corp. records compiled by MuniCap Inc., the city’s financial analyst.
“It’s like buying a house,” said Councilman James B. Kraft, whose District 1 includes Harbor Point. “You have to look at the long-term picture here.”
Stephen Kraus, treasury chief in the city’s Department of Finance, said the larger Harbor Point TIF figure is common “borrowing costs.”
“This is standard structure,” Kraus said Monday. “I would like to emphasize the point that this is all for city-owned public infrastructures; it’s not going to board rooms or to pay for chandeliers. It’s going to roads, curbs and parks. There’s going to be a bridge. I think there may be a misconception, because we are not handing over a check to the developer. This is going for the public ownership portion of that site.”
The Harbor Point TIF bonds would be sold in three phases, BDC documents show. The first would total $95.1 million over a 30-year period with gross debt service payments; the other two would total $32.9 million and $155.5 million over the same period.
The first bond sale could occur by early fall — if the City Council votes in favor of the Harbor Point TIF. That vote could take place as early as mid-August if the Taxation, Finance and Economic Development committee, scheduled to discuss the proposal Wednesday, approves the request.
Cost versus benefit
Harbor Point’s tax break would join a list of other city TIFs that include $78.3 million for the redevelopment of Middle East by East Baltimore Development Inc., $7.9 million for development at Clipper Mill and $15 million for the redevelopment of Mondawmin Mall.
Councilman Carl Stokes, who as chair of the Taxation, Finance and Economic Development Committee will conduct a live televised hearing at 5 p.m. Wednesday, said the TIF will strain the city’s struggling finances because it will deny millions from flowing into the general fund while bond holders are repaid.
“The figures certainly are outstanding in the sense that people are talking about $107 million in tax diversions and actually the number is going to be closer to $300 million,” Stokes said Monday. “This is clear that we are losing hundreds of millions of dollars.”
Stokes blamed the site selection. He said when Exelon, which committed to state regulators to build a local headquarters and trading floor in Baltimore, chose Harbor Point over other downtown sites, it forced the need to ask for a great deal of public subsidies.
“If Exelon were to build their building on any other piece of land in downtown Baltimore, there would be no need for a TIF infrastructure and we would receive all of the property tax right away. Putting it where it is now denies the city of the benefit of Exelon even building in downtown Baltimore.”
BDC officials say the Harbor Point project will create more than 6,600 permanent jobs and bring in $19.6 million in new tax revenues once the project is completely built out in a dozen years.
In the event that Beatty Development Group defaults on the project, the taxpayers would take back the property at a tax sale if another developer or bank did not come in to purchase the property, TIF included.
“You do have to be careful that your TIF debt isn’t more valuable than the project, and we’re not even close,” Kraus said.
Do TIFs work?
Richard Dye, an economics professor at the Institute of Government and Public Affairs at the University of Illinois Chicago, said he was familiar with the Harbor Point project and TIF request. A self-proclaimed “TIF skeptic,” Dye said the 30-year cost compared to the initial request is part of an overall mirage in that form of public subsidy for private development.
“To me, TIF is hidden taxes, hidden debt and hidden governance,” Dye said. “It’s just so confusing. In the case of Exelon, they are obliged to build in the city anyhow, so … taxes would be collected on a building wherever it is.
Joan Youngman, senior fellow at the Lincoln Institute of Land Policy in Cambridge, Mass. and a national expert on tax increment financing, said the granting of such tax breaks to developers often excludes voters from the open debate.
“On the face of it, it’s a way of raising funds without raising taxes,” he said Monday. “That’s why the political debate is truncated. But it does put pressure on the tax base, not in the form of a tax increase, but the added pressure that can result in looking for additional operating revenues elsewhere.”
She said the original intent of TIFs was to steer public funds to sites “where the market would not put money.”
That is hardly Harbor Point, according to Kraft. He likened it to one of the most attractive parcels to develop “in the world” and said Beatty and Exelon have an opportunity to erect a world-class landmark, like the Sydney Opera House.
“They could build a building there that could make people come from around the world to see it,” Kraft said.