The transformation of a vacant, 12-story eyesore into a gleaming office building has brought workers, shoppers and diners to the northern edge of downtown Towson — thanks in part to a public financing package that waived repayment of millions of dollars in loans to a developer.
The county makes so-called conditional loans that do not require repayment if certain conditions, such as job creation, are met. The $3.5 million in conditional loans to Caves Valley Partners for the Towson project would rank as the largest ever forgiven; others have provided $300,000 to demolish vacant Pikesville buildings and $40,000 to renovate a bank branch in Randallstown.
While backers say such loans help spur development, some lawmakers and business owners are raising questions about the county government's lending strategy because it lacks written guidelines and isn't advertised, so few businesses know about it. Critics also say the loans are a waste of public funds and unfairly favor some businesses over others.
"I think it's corporate welfare," said state Sen. Jim Brochin, a Towson Democrat. He questioned the value of the Caves Valley deal for taxpayers as well as one for the renovation of the Greene Turtle restaurant in Towson. He said such loans amount to the government selecting which businesses should succeed.
"Are they [giving] any of the profits back to the government? Of course not," he said. "Then why are we picking and choosing?"
To get the $27 million Towson City Center project off the ground, Baltimore County offered the developer a $7.5 million financing package. Of that, $2 million was described as a conditional loan for an advance on tax breaks the project was scheduled to receive. Another $500,000, which has been forgiven, covered improvement costs. For retaining 260 jobs by 2017, the county will forgive another $1 million.
The county has provided nearly $15 million in loans to businesses and organizations over the past five years — and has forgiven or has offered to forgive about $4 million, according a review of county records by The Baltimore Sun.
Rick Bielski, an owner of the Charles Village Pub in Towson, said he did not know the county forgives loans until he learned about a conditional loan given to the Greene Turtle. The loan was part of a financing arrangement that prompted questions from the state comptroller and stoked a debate about whether it was the government's role to make — and then forgive — loans to select businesses.
"I've been up in the Towson area for 24 years, and I've never been given an opportunity to have any type of a loan that could be forgiven," Bielski said. "I was actually very, very surprised and shocked, with the state of the economy, that that would even be an option."
He received a $60,000 low-interest loan from the county to fix the pub's exterior, and said he is paying back "every nickel of it. I would love to have that forgiven at some point."
The state Board of Public Works approved a financing package in August for the renovation of the Greene Turtle. The county, meanwhile, made a $90,000 conditional loan and $175,000 repayable loan for the project.
The state, which describes its conditional loan program online through its development agency, doled out $13 million in such loans last year. Under the program, local governments whose businesses receive them must put up smaller, matching loans.
Supporters say county loans — including the conditional loans — are good investments for taxpayers, helping to spur economic development and job creation, especially by small businesses. They note that the loans often boost property values, leading to higher tax revenues.
Baltimore County Planning Director Andrea Van Arsdale said such businesses "at times can have difficulty in obtaining financing, especially in the recession. … Without this help, many of these projects would not go forward."
A lawyer for one of the principals in Caves Valley Partners said the firm had no comment on the loan, and the company did not respond to repeated requests for comment.
Conditional loans have characteristics that are not found in standard business loans. In some conditional loans, Baltimore County sets goals such as creating jobs and investing in construction, and awards the money once those goals are met. The county has also crafted conditional loans that provide money up front, with principal and interest payments deferred for a set period; if goals are met, the payments are forgiven.
In addition to the conditional loans, the developer of the Towson City Center project, which renovated the 1960s-era Investment Building, received a $2 million, 10-year conventional loan with a 2 percent interest rate as part of the county financing package. The county also passed through a $2 million state loan to the developer.
If a government does not have a large amount of cash to offer as a low-interest loan, a smaller, conditional loan can be an incentive for a business, said Greg Cole, who as head of the finance office at the Maryland Department of Business and Economic Development works with local development agencies. Cole said Baltimore County is unusual in Maryland because it offers some conditional loans independent of the state.
"The whole purpose is to compete on the national level to attract and retain companies in Maryland while using a minimum level of cash to do it," Cole said.
In Harford County, County Councilman Jim McMahan proposed last year ending the practice of giving matching conditional loans when projects get state financing; the proposal failed. This spring, he spoke out against a conditional loan of up to $160,000 for HP White Laboratory, a ballistics lab in Street.