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Business

City considers shrinking size of tax-break zone by one-third

Harbor East, Harbor Point and most of Locust Point would be removed from a state enterprise zone that offers businesses tax breaks under new maps drawn up by the Baltimore Development Corp.

The Baltimore City Council will review the plan this month to shrink the city's enterprise zone from 22,000 acres to 14,000 acres.

The state enterprise zone program gives tax breaks to businesses for investing in property or hiring workers.

"The enterprise zone has done its work in those areas," said Larisa Salamacha, the BDC's managing director of business development.

The new enterprise zone map, which would take effect June 15, focuses on office and industrial areas and removes predominantly residential neighborhoods, parks and commercial parcels that no longer require tax subsidies, officials said.

Because of a built-in transition period, some of the bigger waterfront projects that have been proposed or are under way would remain eligible for the tax breaks, including Exelon's Baltimore headquarters tower proposed for Harbor Point and Under Armour's planned campus expansion in Locust Point.

Likewise, businesses that now receive the credits would continue to get them for the duration of the 10-year tax break period, even if they fall outside the new enterprise zone.

The credits — on property taxes for building improvements and on income taxes for new hires — are available for businesses in distressed areas that meet criteria based on unemployment, income levels and population decline.

The city also is proposing that projects already using tax increment financing would be ineligible for enterprise credits.

The redrawn map shifts the existing enterprise zone boundaries to add new areas near St. Agnes Hospital, Gwynns Falls, Franklintown Road, North Avenue, Old Town, Reisterstown Station, Belair-Edison and a stretch of downtown between Lombard and Pratt streets.

Under boundaries set in 2002 for a 10-year-period, the city has the largest of the state's 28 enterprise zones.

Facing budget constraints, the state has asked the city to apply for a smaller zone with fewer residential areas. The state reimburses the city for half the lost tax revenue.

"The notion is to apply more scrutiny with respect to the cost of including areas in the state enterprise zone program," said Mark Vulcan, the state's program manager for enterprise zones. "Baltimore City being the largest enterprise zone in the state and having the highest fiscal cost to the state, we looked at that and said it might be worth … reducing rather than expanding the size of the enterprise zone."

BDC staff started by removing open space, parks, environmentally protected areas and predominantly residential neighborhoods, said Todd Dolbin, enterprise zone administrator for the quasi-public economic development agency. Then areas were scrutinized using census tract data to determine those that would meet the state's population, income and unemployment requirements.

The BDC plans to submit its proposal to the state's Department of Business and Economic Development by April 16 — the day it expects to introduce the plan to the City Council, which must pass a resolution adopting the proposal.

During a public meeting last week on the BDC's proposal, some city business owners and residents questioned the criteria used to determine the zone and focus areas within the zone that offer even greater tax subsidies. Others wondered whether the program was enough of an incentive for small businesses that pay higher property taxes than companies in surrounding jurisdictions.

Casey Jenkins, owner of Darker than Blue Cafe on Greenmount Avenue in Waverly, said his business would apply for the credit for a restaurant expansion.

"I think it's a great idea, but I wish this Greenmount corridor could have been a focus area," he said after the meeting in which he asked BDC representatives whether they had met with anyone in Waverly before re-drawing the map. "BDC is moving in the right direction, but they need more input from areas."

He added that he sees the incentive as a vehicle for growth, but there needs to be another mechanism, such as grants, "to make it viable for businesses like me."

Joan Floyd, president of the Remington Neighborhood Alliance, said residents were worried about having their properties included in an enterprise zone because that could then affect the area's position in the city's coming comprehensive rezoning.

Under the current map, the proposed 25th Street Station — a retail and housing development to be anchored by Walmart on the site straddling Remington and Charles Village — would be eligible for the credit. Neighborhood groups have worried about the project's impact on traffic.

In the past decade, nearly 850 companies in the city have received credits through the enterprise zone program.

For business improvements or new construction, it offers a 10-year property tax credit that starts out at 80 percent of the cost for the first five years. The credit then steps down by 10 percent a year, falling to 30 percent in the 10th year.

Businesses located in special focus areas get the 80 percent credit for the full 10 years.

The employment tax credit is subject to a variety of variables based on who is hired and whether the hire is in one of the focus areas. It can range from $1,000 in just one year for a hire anywhere in the zone to $9,000 spread over three years for the hire of an economically disadvantaged person in a focus area.

The state projects that businesses in Baltimore will receive a total of $21.8 million in credits in the 2013 fiscal year. Of that amount, the state reimburses the city $10.9 million, Vulcan said. In fiscal 2013, the city will benefit from $1.4 billion in capital investments in projects that receive the credit, according to DBED reports.

Maryland became one of the first states in the nation to offer an enterprise zone program in the early 1980s.

"The primary goal … is a geographic-specific economic development program," Vulcan said. "It's a parcel-specific program. You may have one parcel in and one out, and that's intended for economic development and growth of businesses that will support the local population. But geographically, it's specific to economically distressed areas."

Vulcan said the boundaries are re-evaluated as economic conditions improve. As areas see successful development, they no longer qualify, he said.

"It could be argued that the development in Harbor East might not have occurred had there not been a state enterprise program," Vulcan said. "Economic development occurring in Harbor East has served as a catalyst … for other close-by areas."

lorraine.mirabella@baltsun.com

Baltimore's enterprise zone

For more on the city's enterprise zone as well as the current and proposed maps, go to http://ezbaltimore.com or http://www.baltimoredevelopment.com/enterprise-zones

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