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Harbor Point's tax deal facing council criticism

FinanceMedia IndustryBaltimore Development CorporationCarl StokesJames B. Kraft

The Rawlings-Blake administration is asking the City Council to approve more than $100 million in taxpayer assistance to help fund a large waterfront development that will house energy giant Exelon Corp.'s regional headquarters.

But some council members are questioning the proposal — which is scheduled to be introduced in the council Monday — in part because it comes on the heels of a lucrative tax break already granted for the $1 billion Harbor Point mixed-use development on the waterfront between Harbor East and Fells Point. The developer also is eligible for a third tax assistance program because it is building on a contaminated site.

Councilman Carl Stokes, who heads the council's taxation committee, said he is adamantly opposed to granting $107 million in tax increment financing for the developer, a request he says is motivated by "greed."

But supporters say the tax assistance programs will allow developer Michael S. Beatty's Harbor Point Development Group LLC to get the "best use" out of the 27-acre property, which they argue will spur millions in economic development and improve the well being of poorer areas of southeast Baltimore.

"The long-term benefits outweigh the short-term loss," said Councilman Robert Curran, who backs the proposal. "I believe in the long term, the funds will be recouped. It's a good value to the city."

If approved, the $107 million deal would be the second largest of its type in Baltimore. The city-owned Baltimore Hilton hotel was financed with $301 million in tax-exempt revenue bonds in 2006.

Under tax increment financing deals, the city issues bonds to pay for property acquisitions, infrastructure improvements and other project costs, then uses the increased tax revenue created by the development to pay off the bonds.

The former site of the Allied Signal chromium plant, Harbor Point now sits mostly vacant. Officials expect work to start this summer on a 23-story skyscraper to house the Exelon headquarters, space the company would lease from Beatty for an expected $120 million over 15 to 20 years. The site also will be home to Morgan Stanley and other tenants.

Beatty did not respond to a request for comment. Paul Adams, a spokesman for Exelon, declined to comment.

According to the legislation, Harbor Point would include apartments, hotel rooms and more than 3,000 parking spaces. The developers would use the $107 million in tax-exempt bonds to fund a series of projects that they say would serve the public good.

The developers would spend $60 million of the funds to build seven small parks, $21 million on a promenade, and $10.4 million on a bridge extending Central Avenue. They also would make a $2 million contribution to a nearby charter school, the Crossroads. The remainder of the money would go to fund infrastructure improvements along the development's streets and piers, the legislation states.

"The developer is understandably interested in maximizing its return on the property," says a report by MuniCap Inc., a Columbia-based public finance consulting firm, which analyzed the deal. "Without these improvements ... the property could not be put to its highest and best use."

But Stokes questions why the developers want the city to fund projects that he says other businesses pay for themselves.

"If the developer wants to make a gift to a school, they can do that with their own money, not taxpayer money," he said. "If they want to spend money on a big campus, that should be on their dime."

Last year, the council voted to grant the Harbor Point site status in the city's enterprise zone — meant for economically challenged areas — allowing it to forego about $53 million in local property taxes over 10 years.

Stokes and Councilman Nick Mosby voted against the measure, arguing that the Baltimore Development Corp. was taking advantage of a program meant to help the poor.

"The Enterprise Zone was set up for areas with impoverished conditions," Mosby said. He pointed out that Chicago-based Exelon committed in legal documents to keeping its regional headquarters within the city limits. "I would have preferred them to develop in central Baltimore or on the west side to help that area be rejuvenated."

Stokes said the property tax break of up to 80 percent was made possible only when the Baltimore Development Corp. drew a map of the Enterprise Zone expansion that he calls "indecent." By including census figures for Perkins Homes public housing and other poor areas within the boundaries, the Harbor Point site was able to qualify for a break it could not have received on its own, he said.

"It's unbelievable how unethical and immoral that was," Stokes said. "They've used those people and their lives and their impoverishment to get more money in their pockets. It's wrong."

BDC officials argued for the credit, saying the economic benefits of the project would help residents in poor areas..

Though the city will forego $53 million in property taxes due to the Enterprise Zone tax break, administration officials project the city will nonetheless take in $143 million in taxes from the project over 10 years — and then it will begin paying its full tax load on the $1 billion development.

"The focus should not simply be upon the immediate demographics of Harbor Point and Harbor East, but upon the broader demographics of that part of the city," the BDC, a quasi-public agency, wrote in an application to expand the tax credit zone. "When one considers southeast Baltimore, particularly the area immediately north of Harbor East, one can observe high poverty rates, elevated joblessness and ongoing lack of investment momentum. The continued expansion of Harbor East/Harbor Point is critical to the wellbeing of these communities."

Brenda McKenzie, president of the BDC, did not respond to a request for comment.

In documents submitted to the Maryland Public Service Commission in 2011, Exelon pledged to build a new regional headquarters in the downtown or harbor area of the city. The company told the regulatory body, which approved its purchase of Constellation Energy, that its new Baltimore headquarters would add more than 1,100 jobs to Maryland's economy.

Rawlings-Blake has called the Harbor Point development "an important project for the city." She has stressed the importance of creating jobs and keeping a major corporation in Baltimore.

The BDC and the city's Board of Finance have largely kept details of the tax increment financing proposal private. Last month the finance board barred the public from the 90-minute meeting in which board members voted in favor of the proposal. Assistant City Solicitor Mark J. Dimenna denied a public information request from The Baltimore Sun seeking details of the deal, saying they were "protected by the deliberative process privilege."

Ryan O'Doherty, a spokesman for Rawlings-Blake, said the administration would provide extensive detail about the deal on Monday.

Councilman James Kraft, in whose district Harbor Point sits, said he's backing the move because the developers met with neighborhood groups in southeast Baltimore and won their approval. He noted the difficulty of building on the contaminated site of a former chromium plant, and pointed out the developers initially requested $155 in tax increment financing, but have since decreased the request.

"My frustration is there's been such a delay with this process," Kraft said, adding that he wished the legislation had gone to the council last year. "We need to do it at today's dollars and not tomorrow's dollars. Costs have already increased because of the delay. Once it gets going, I believe the growth on that site will be quick and these bonds will be paid off."

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FinanceMedia IndustryBaltimore Development CorporationCarl StokesJames B. Kraft
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