Developers get breaks to buy Baltimore's public housing

Developers buying Baltimore public housing are getting millions in tax breaks.

Baltimore officials have awarded tax breaks worth millions to developers buying a dozen of the city's public housing complexes, some of which are being sold for far less than their state-assessed value.

Under terms approved by Baltimore's spending board, the city will excuse an estimated $1.7 million a year in taxes for at least two decades as part of a plan to privatize and renovate thousands of public housing units. The size of the tax breaks for the 10 developers and the sale prices of the 12 properties have not previously been disclosed; The Baltimore Sun obtained the figures through public records requests.

The city says the tax breaks were needed to attract developers to buy and revitalize aging public housing units in "desperate need of rehabilitation." The Sun found leaking ceilings, crumbling tiles, mildew, roaches and rat droppings at several complexes to be sold. The developers will make $178 million worth of repairs to the first 12 complexes alone, officials said.

And the nearly $100 million collected from the sale of those developments will be invested in the city's remaining public housing. The Housing Authority is getting $18 million from the sale of two McCulloh Homes high-rises alone.

In all, the Housing Authority plans to sell 23 complexes — 40 percent of its public housing. Officials stress that the privatized units will continue to be operated as low-income housing, with eligibility and rents dictated by the federal government.

But some question whether the sales in Baltimore — one of the first cities to sell its complexes under a national plan — are a good deal for the city and its public housing residents.

"There's been a real lack of transparency about this program," said Jessica Lewis, co-founder of the Right to Housing Alliance, an advocacy group. "It's hard to say whether the contracts are fair because they've been so tight-lipped about it."

Lewis' organization argues the sell-off converts "public goods" into a "commodity [whose] purpose is to provide profits to the new owners." She questions the terms of the contracts, which she says don't guarantee that the buildings will remain low-income housing after 40 years.

But City Councilman Carl Stokes, who grew up in East Baltimore's Latrobe Homes, says he's glad to see deals for public housing renovation instead of pricey new waterfront developments, where other city tax breaks have gone.

"If there's going to be a good deal of money bringing these buildings up to the 21st century, I can understand and support a break," he said. "Just because people don't have strong incomes doesn't mean they should be subjected to living in poor conditions.

"When I go to Latrobe, where I grew up, people bring me in the house and show me mold. I say, 'I don't want to be here, and you shouldn't be here either.'"

At McCulloh Homes in West Baltimore, James Hill, 72, says the auditorium leaks, sometimes bringing water "up to the knee." In some apartments, Hill can smell mildew. In others, he sees roaches.

"Under the present administration, you're paying your rent and you have nothing to show for it," said Hill, president of McCulloh's residents council. He says he's hopeful the developers will improve conditions.

"At first, we were skeptical," Hill said. "Now that we've actually seen photographs of where the place is going to go, we're really enthusiastic about it."

The developers buying the McCulloh high-rises will pay $79,570 a year in lieu of property taxes, less than a quarter of the $404,000 full property tax rate. Officials say the break was needed to entice a business to take on the project, the same rationale given when similar breaks have been awarded for large commercial projects such as Harbor East.

Hill notes approvingly that representatives of The Community Builders — the firm buying McCulloh — attend weekly meetings with residents to explain what they're doing and answer questions.

"It feels like they care about people more than the profit," Hill said.

At West Baltimore's Bernard E. Mason Senior Apartments, Gary Stroud, 54, is less optimistic about the privatization plan. He believes the Baltimore Housing Authority has cut back on maintenance since embarking on the deals, expecting the private developers to fix problems after the scheduled sales this fall.

"We pay our rent to Housing, but we get hardly anything from Housing," Stroud said. "Anything that needs to be fixed in the building, they stopped doing it." And despite promises from the Housing Authority, Stroud worries about tenant protections once developers take over.

"It's ridiculous how they've been trying to keep people in the dark," he said.

The Housing Authority announced last year that it would sell off 40 percent of its public housing to private developers as part of the national plan to raise money for upgrades and maintenance. The program comes after years of protest by cities that the federal government has failed to provide the necessary funding for upkeep and repairs.

Baltimore is the 26th-largest city in the country, but has the fifth-most public housing — more than 11,000 units. The Housing Authority says it would cost $800 million to renovate or repair all of them. The privatization plan will address about half the problem, officials say.

Besides the city tax breaks, each developer who buys a public housing complex is also set to receive millions in federal incentives — federal tax credits and "developer fees," or payments to developers. The Housing Authority declined to provide figures for the developer fees. State documents say they cannot be more than $2.5 million per project.

State assessment records were unavailable for all of the properties being sold; because no taxes are now paid on the government-owned buildings, some may never have been assessed. But a review of assessment records for five complexes shows the Housing Authority plans to sell four of them for millions less than the state-assessed value of the buildings.

Those and other public records reviewed by The Sun show how the financing of the projects works, and how little up-front money developers must invest. For example:

•Housing Authority officials plan to sell Chase House, a 17-story building in Mid-Town Belvedere, for $7.6 million — far less than its assessed value of $11 million. The developer, Homes for America, will pay the city $200,000 a year less than if the property were fully taxed at its state-assessed value. The developer will get $11 million in federal tax credits, $10.7 million in financing from the Federal Housing Authority and a $9 million loan from Baltimore's Housing Authority. The developer will put $74,000 of its money into the project, which is expected to produce $17 million in improvements.

•The Bel Park Tower in Northwest Baltimore is slated to be sold for $8.5 million, less than its $10.5 million assessment. Its city tax break is worth about $180,000 annually. Landex Development will receive $10.4 million in federal tax credits, $13.5 million in financing from the Federal Housing Authority, and a $8.6 million loan from Baltimore's Housing Authority. The developer will put $898,000 into the project, which includes nearly $15 million in revitalization.

•The Housing Authority plans to sell The Allendale apartments on West Franklin Street for $6.6 million; the complex is assessed at $8.5 million. Enterprise Housing Corp. will get a city tax break of about $150,000 annually. The developer also will get $8.1 million in federal tax credits, $8 million in financing from the Federal Housing Authority, and a $7.8 million loan from Baltimore's Housing Authority. The developer will put $304,000 of its own funds into the project, which is scheduled to include $13.2 million in upgrades.

•Primrose Place on South Caton Avenue is scheduled to be sold for $5.7 million; it is assessed at $8.6 million. The city tax break for the project is estimated at $160,000 annually. The development team, which includes Towner Management and French Development,also will get $6.1 million in federal tax credits, $6.1 million in financing from the Federal Housing Authority and a $7.1 million loan from Baltimore's Housing Authority. Financing documents do not list a developer contribution as part of a deal, which includes $8.4 million in work on the building.

Developers contacted by The Sun declined to comment for this article and referred questions to the Baltimore Housing Authority. Housing officials said they conducted "independent, third-party appraisals" before arriving at the sale prices but could not explain the discrepancies with state assessments. They noted that the properties will undergo substantial renovations, including new community spaces, laundry rooms, exercise rooms, heating systems, plumbing, balconies and windows.

Some residents will need to be relocated during the work but will have a guaranteed "right of return," Housing officials say. Residents cannot be charged more than 30 percent of their income for rent, officials said.

The city's tax breaks were approved — without details publicly revealed or debated — in April by a 4-1 vote of the city's Board of Estimates. Three seats on the board are controlled by Mayor Stephanie Rawlings-Blake. The other two members are City Council President Bernard C. "Jack" Young and Comptroller Joan Pratt.

With Young voting no, the board approved a template for the tax breaks and authorized the city's finance director, Henry Raymond, to approve the individual deals, in which developers make reduced payments to the city in lieu of property taxes.

Without the city's tax breaks, the properties "would not be financeable" and the Housing Authority "would not be able to secure the significant capital resources necessary to complete the full modernization and updates to these buildings," city officials wrote in Board of Estimates documents.

The tax breaks, called PILOTs, were calculated based on an estimate of 10 percent of what the complexes' tenants will pay in rent. The 12 developments have more than 2,300 housing units combined. The figures suggest that residents of these facilities will pay more than $5.6 million in rent each year.

In voting against the tax breaks, Young said he's opposed to the plan in general. "It privatizes public housing," Young said. "The danger is lost jobs." Unions have warned that as many as 200 maintenance workers and building monitors at Baltimore's public housing properties could lose their jobs.

Kevin Harris, a spokesman for Rawlings-Blake, said she shares Young's concern, but is working with employees "who may be at risk of losing employment" to make sure they have other options in city government.

Harris said the privatization plan "is a great opportunity to the city. It represents millions in investments, renovations and upgrades."

City Councilman Bill Henry, who chairs the council's housing committee, noted that the deals are largely being financed by the federal government.

"This is an example of how the federal government treats affordable housing. The only way the federal government will make money available is if they're giving it to private owners," he said. "Washington won't give the money to cities themselves, but they'll give it to the private developers."

Henry added that he saw nothing wrong with the city granting tax breaks to encourage developers to focus on public housing.

"Our city has a real crisis when it comes to dignified, well-maintained housing that is available to people on the low end of the affordability spectrum," he said. "It's an opportunity to put money into these units, making them better places to live for people who deserve to have a good quality of life."

lbroadwater@baltsun.com

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