The commercial development industry in Maryland managed to stave off a bill requiring developers receiving certain public financing to pay laborers the prevailing wage, but the bill is expected back next year.
House Bill 466 sponsored by Del. Cory McCray, D-District 45, would’ve forced developers receiving $500,000 in tax increment financing to pay a jurisdiction’s prevailing wage. The legislation failed to advance after receiving an unfavorable report in the Economic Matters Committee.
“I think that on projects that the state is subsidizing, whether it’s a tax credit, whether it’s through hard dollars, or whether it’s through leveraged dollars, that people should make a good wage, people should have health care — everybody, not some people but everyone, should have health care, respectable retirement and just working conditions,” McCray said.
McCray, at the time the legislation was introduced, said the bill is necessary because private developers who receive public financing often pay below the prevailing wage. As a result, he said, that drives down the annual wage reported to the Department of Labor, Licensing and Registration, which is used to set the prevailing wage in the state.
Tax increment financing works by allowing local jurisdictions to issue bonds to pay for infrastructure, such as sidewalks, roads and parks needed to pave the way for a development. It’s then hoped that the debt will be paid off with increased property taxes associated with the development.
The state law allows individual jurisdictions to decide whether to use the mechanism. Baltimore has been the most aggressive user of the public financing tool in the state, while neighboring Baltimore County does not use tax increment financing for projects. Critics of tax increment financing portray it as a giveaway to wealthy developers who build projects that increase demand for local services that aren’t paid for because the property taxes go to paying off debt.
Tom Ballentine, the lobbyist for NAIOP Maryland, which advocates for commercial real estate interests in the state, said the organization opposed the bill because of the increased expense placed on developers who are accepting a risk benefiting local governments and communities. Tax increment financing, he said, serves as a mechanism to get the debt off a local government’s balance sheet.
“It’s the developer who guarantees the debt, and it’s the developer who usually engineers and manages construction of the infrastructure. So, it’s a much different situation than applying prevailing wage to public works projects,” Ballentine said.
The use of tax increment financing became a hot button issue in Baltimore last year when the city approved $660 million in public financing for Sagamore Development Co.’s proposed Port Covington overhaul. The developer intends to use the money to build public infrastructure on the roughly 260 acres of underutilized industrial property it plans to transform into a $5.5 billion mixed-use development. Under Armour — its CEO Kevin Plank backs Sagamore financially — plans to independently build a global headquarters on the peninsula but will not use public financing on that site.
Sagamore testified against the bill saying the bill could raise the cost of infrastructure contracts on the site between 3 and 15 percent raising contract costs by an estimated $26 million. The company’s representatives also told the Economic Matters Committee the bill could result in needing an additional tax increment financing authorization of about $33 million.
“Timing matters. The Port Covington TIF was initially authorized in 2016, not accounting for the cost increases that would be caused by this 2017 legislation. Any increase in the cost of work will result in a shortfall, jeopardizing the overall infrastructure and development plan and jobs coming to Baltimore City,” according to written testimony Sagamore provided the committee.
McCray, previously a labor activist who credits a union apprenticeship with helping turn his life around, said he intends to bring the bill back again next year. After conversations with leaders in the city, such as Mayor Catherine Pugh and City Council President Bernard C. “Jack” Young, an overhauled bill would likely raise the threshold a developer is able to receive to several million dollars in public financing before triggering prevailing wage requirements.
“I think we all agreed that anything that justifies about a half-billion dollars should make sure that everybody makes a good wage, that everybody has health care and that everybody has respectable retirement,” he said.