The Rawlings-Blake administration is set to give $200,000 to help H&S Bakery move its Harbor East distribution center to an industrial area of East Baltimore — sparking discussion of whether subsidies should be needed to help a successful business expand.
City officials are praising the deal, which goes before the Board of Estimates Wednesday, as an inexpensive way to keep a large employer in Baltimore. But others are questioning why H&S needs any help from a cash-strapped city that has cut back on fire companies and recreation centers in recent years.
Some note that by moving the distribution center, H&S president John Paterakis will be free to use the site for lucrative development that already is eligible for tax breaks likely worth millions of dollars.
Councilman Carl Stokes, chairman of the council's finance committee and a critic of some tax subsidies, said he understood the city's effort to retain businesses but wished taxpayers didn't have to subsidize projects for already-successful companies.
"In light of the fact that he's moving so he can further enrich the property with other uses, being a good Baltimorean, you would think the company would not ask the city to go into its meager finances to help him to move," Stokes said. "There was a time when our corporate people were great city residents as well as city businesses."
Paterakis said the site at 2001 62nd St. in the Pulaski Industrial Area — where he plans to move the bakery's distribution center — is difficult to build on, and he asked the city for help with a tricky development. Paterakis and city officials said a number of city utilities are located at the site, where the Hollander Ridge public housing project once stood, and need to be moved.
Paterakis said he asked the city to do the work, but ultimately agreed to have his company do so using the city subsidy. "We also had a good offer from Baltimore County," Paterakis said. "We were weighing which one is best for the company."
City documents say the distribution operation has outgrown its current site, which "does not have adequate space for its product storage and distribution and its fleet maintenance operations." According to the documents, the city will be paying for some of the cost of "utility relocation" and "a portion of the developer's architectural and engineering expenses."
"This is all about retention," said Brenda McKenzie, president of the Baltimore Development Corp., the city's business development arm. "H&S is a very long-standing employer here in the city. This is an opportunity for us to play a very small role in a very large development." In all, H&S Bakery employs more than 850 people in Baltimore, city officials said.
Paterakis, the baker-turned-developer, has already transformed the area east of the Inner Harbor from a no-man's land into a prosperous district. He said his latest move will free up land he owns in Harbor East for further development.
H&S Bakery's current facility is bounded by South Central Avenue and South Eden, Fleet and Aliceanna streets, near a fast-growing shopping, hotel and business district. It is located within the city's Enterprise Zone, which means that new development there will benefit from 10 years of property tax breaks likely worth millions of dollars. New development in the Enterprise Zone gets an 80 percent property tax break for five years, and a diminishing break for five years after that.
Paterakis — who made a fortune supplying bread to McDonald's — said he is planning an expanded Whole Foods Market, a possible department store, apartments, condominiums and a parking garage at and near the Harbor East site.
Meanwhile, the future home of the distribution center is a housing development that was once in bankruptcy and has struggled to attract tenants. It, too, is in the city's Enterprise Zone.
Last year, an H&S subsidiary purchased the 2.8-acre former Hollander Ridge site for $1.5 million. City officials say the bakery plans to invest a total of $6.8 million in the site.
Councilman Brandon Scott, who represents the industrial area, said he believes the tax dollars generated by the two Paterakis developments will be much greater than $200,000.
"I'm very excited about it because we're trying to get more businesses to move to the district," he said. "Ultimately, we will recoup those funds and then some. It's a great thing for two neighborhoods in the city."
Greg LeRoy, director of Good Jobs First, an organization that tracks government subsidies to businesses, said he'd like to see more strings attached for local hiring when government distributes dollars for development.
"We don't think it's wrong," he said of using incentives for development. "The question is: Are you getting the best bang for your buck?"
As part of the deal, Paterakis must employ at least 70 people at the Hollander Ridge site or face a $2,800 fine for each employee under that total. Paterakis said he will have no trouble meeting that mark.
"There will be probably be close to 100 people working there," he said.
McKenzie acknowledged the difficult nature of building on some properties in the city. She called H&S Bakery a "phenomenal company."
"Baltimore is a built environment," she said. "There are certain costs associated with reusing that kind of land. We are really focused on retaining key jobs here in the city."
Councilman James Kraft, who represents Harbor East and nearby Little Italy, said he believed the deal was a wise move for the city.
"If keeping those jobs and a business that size for $200,000, then that's a good investment," he said. "It's also getting that Hollander Ridge site developed. That's been sitting vacant a long time."
But he said he hated to see the waterfront neighborhood lose the H&S distribution center and worried about congestion from future development plans.
"This is sort of the heart of the city right now," he said. "This is where people want to build, but we can't do it recklessly. We've got to find a way to solve some of these problems."
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