A new vision for Baltimore’s economy

Baltimore Development Corporation’s new economic development plan boldly asserts: “If we fail to adopt the strategies identified in this Plan, we can expect the City to continue to decline. Business as usual is not an option”. Sadly, there is not one specific recommendation in the entire 66-page plan that will create a single new job.  The plan lacks any reflection on the causes of the declining population or how past public policies have contributed to it.

Although the plan speaks of “equity” and “inclusion,” the actions of the city over the past 15 to 20 years, or more, contradict these words. The most glaring examples are the tax breaks and subsidies granted to influential white developers in Harbor East, Harbor Point, Fells Point and Port Covington.

There are no policies proposed in the plan that address our City’s greatest weaknesses — the high crime rate, few high-performing public schools, and high taxes.

Real estate taxes. With a tax rate double that of the surrounding jurisdictions, it is no wonder that disinvestment has been occurring in the city for decades. Recognizing this, large developers in Baltimore city have requested and been granted large tax breaks or subsidies. The plan recommends lowering the tax rate but there is no political will to do so. (See my plan in the online version of this commentary.). And the corporate and nonprofit communities have no incentive to do so either, since most corporate leaders do not reside in the city, and most of the large companies are not based in the city.

The high crime rate. Everybody talks about it, but nothing gets done. It is a huge disincentive to invest in our city. Companies have moved from the central business district to Harbor East and Harbor Point to escape the crime. Most experts acknowledge that a relatively small core group of violent repeat offenders is responsible for the majority of violent crimes, and they know who they are. Why is there no will to make our city safer and more attractive to people to live, work and visit here? The corporate community is silent. And the mayor’s recent “crime plan” lacks any sense of urgency.

Our failing public schools. The greatest inequity created by the city is our public school system, which fails to educate and prepare its children for life as adults to hold jobs and support their families. The political leadership, the education establishment, and the teacher’s union join together to defend an indefensible system and to consciously hide the ugly truth from the public.

Students are allowed to graduate lacking proficiency in English, math, science or general knowledge. We are lied to about graduation rates which are below 50% based on those who pass the required examinations. Students end up with high school diplomas even though they are not near qualified to earn a diploma. We place a low priority on vocational education that enables students to secure stable jobs and good wages. Thornton was supposed to fix the funding inequities, and now the Kirwan reform is touted as the silver bullet.

Strengthening the downtown. The plan fails to acknowledge that the downtown’s decline has been substantially caused by city policies. Through tax abatements and direct subsidies, the city has encouraged companies to relocate from the CBD to Harbor East, Harbor Point, and Port Covington, including Legg Mason, Constellation, T. Rowe Price, and Ernst &Young. Companies that might otherwise have located in the CBD were encouraged to locate in Harbor East and Harbor Point, such as Morgan Stanley.

The city’s whole strategic policy towards creating a vibrant city center has been wrongheaded. In a city of 600,000 people, a vibrant core is essential. When you stretch the major job generators over a large area, as has been done in Baltimore, you necessarily dilute the core.

Chicago, a city 4.5 times as large as Baltimore, has it’s “Magnificent Mile.” Even Los Angeles has a concentrated CBD. Since Baltimore’s employment population has been stagnant and the population has been declining, it has been a mistake not to have places like Harbor Point and Port Covington wait for future development. Consistent with this theme, government incentivizing new development at State Center and Penn Station is counterproductive.

Redevelopment of our struggling neighborhoods. Our struggling neighborhoods have suffered disinvestment from population decline and past failed policies. Vacant homes are a symptom of population decline, which cannot be solved by simply rehabilitating these homes. The failure of millions of dollars of investment in homes to lift such neighborhoods as Sandtown-Winchester, illustrates this point. My own experience has taught me that rehabilitating homes in declining neighborhoods is usually a wasted effort.

The following principles need to be followed for revitalizing our neighborhoods:

• Work from areas of strength, such as parks, e.g., Patterson Park or Lafayette Park;
• Concentrate the efforts in focused areas, as done by Patterson Park CDC;
• Invest in amenities that enhance neighborhoods and offer opportunities for families, including safe public spaces. Investment in new housing or housing rehabilitation is extremely asset intensive, and in these neighborhoods the return on investment is very low.

Hurdles for small businesses. If the city desired to make it hard for small businesses to start up and operate, it could not have come up with a more burdensome approach. The city seeks to collect revenues every way possible, without regard to its impact on small businesses.  The city should embrace the following actions:

• COVID-19 has taught us the value of encouraging outdoor dining, but the fee structure and permitting discourage this.
• Eliminate the personal property tax. It is a double tax: you pay a sales tax when you buy it, and you pay an annual tax on the same items.  Retail and manufacturing businesses are impacted the most;
• Eliminate redundancy and complexity in the various permits and approvals required that discourage small businesses from opening;
• Reinstitute traditional police patrolling along our commercial streets to encourage patrons;
• Move the “squeegee kids” that discourage people from coming downtown.

A real estate tax reduction  plan

In response to the BDC plan’s tepid support for tax reduction, I offer a specific tax reduction plan that can be implemented without cost to the city. It will revolutionize investment in our city.

Guidelines:

• Must be dramatic and immediate, not incremental as mayors and public advocates have proposed in the past;
• The rate must be as low or lower than the lowest rate of surrounding counties;
• It must apply to all residential and commercial properties (no more special breaks such as PILOT’s for properties).

Phase 1 Plan:

• Reduce the rate to $1.00 per $100 of value immediately for any new buyers of residential property, for an initial period of 5 years to test its success;
• There are approximately 5,000 to 7,000 home sales a year in the city;
• The average home sales price is approximately $125,000;
• If no more sales were to occur over the average number of sales, the annual loss of revenues would be $9,300,000 ($125,000 x 6,000 x 1.25 (rate difference b/w current rate and $1.00/$100);
• Immediately cease granting tax abatements for all new apartment project in the city. (I estimate the city is currently giving away at least $7,000,000 annually for such abatements.  The Department of Finance can provide the exact number);
• Immediately begin a “Buy in Baltimore” campaign with the support of Baltimore City Realtors, Baltimore-focused businesses, Live Baltimore, the leaders of our Baltimore based institutions, and our city leaders;
• Create a data base (available from Multiple List) to monitor monthly and annual sales, and net lost revenues. Prepare an annual report within 30 days after the end of each calendar year;
• Create a reserve of $40 million out of the $641 million in COVID-19 funds to cover any net shortfall over 5 years (I believe only a portion will need to be tapped).

Phase 2 Plan:

• Implement the tax plan described above across all property types in the city;
• Eliminate all special tax breaks and subsidies to private businesses and property owners;
• Phase in a plan where all non-profit and tax-exempt organizations pay a city services tax on property owned equal to $1.00 per square foot of building space.

David F. Tufaro is a longtime real estate developer and investor. His proposals for reducing the city’s real estate taxes can be found in the online version of this commentary.