What would $1 billion do for Baltimore's struggling neighborhoods? Let's find out.

Residents of Baltimore’s less affluent communities have been complaining for years about tax incentives for waterfront development and crumbs for neighborhoods struggling to survive, and no amount of explanation about the difference between tax increment financing and direct city subsidies can make the issue go away. City leaders have been promising to change that for years, and now Mayor Catherine Pugh says she has a plan to make that happen. In her state of the city speech, she set a goal of a billion dollars in investments in city neighborhoods over four years, and on Wednesday, she began to explain how she intends to get there.

The first step is to raise capital. Ms. Pugh wants to issue bonds to be paid back through long-term leases of three or four city-owned parking garages; she estimates that could produce $55 million in seed money, which would be managed by a new, non-profit, public-private entity. Its mission would be to invest strategically in parts of the city where revitalization is possible but not assured by the market alone. The idea is that the Neighborhood Impact Investment Fund would add missing pieces of financing for housing and commercial developments (and possibly small business start-up costs) and would thus leverage much more in private dollars than the city contributes alone.

This is not a new idea — just one that’s long overdue for Baltimore. Cities like Cincinnati and Detroit have had similar funds for decades, fostering the creation of affordable and market-rate housing, commercial development and small businesses. Her funding source isn’t novel either; former Mayor Stephanie Rawlings-Blake wanted to sell some city-owned parking garages to pay for new recreation centers, but she got nowhere with the City Council. (An eventual attempt at an end run around the council fizzled after Mayor Pugh took office.) Mayor Pugh’s idea to lease rather than sell the garages may be an improvement, in that the city will keep its assets in the long run, but in terms of bang for the buck, it’s definitely better. Not only does it hold the promise of unlocking many times more private capital than the public invests but it also stands to make continual investments over years and decades in improving neighborhoods, not just a one-time construction project. That’s what has happened in other cities.

But the key to making both the private investment and longevity of the effort possible is for the new entity to be strategic about what projects it takes on. That means working outward from areas of relative strength rather than bankrolling projects in the most blighted neighborhoods, or piggybacking on existing public and private investments, whether that’s development around an anchor institution or the construction of a new school.

Can such a strategy really produce an impact as large as the mayor’s $1 billion goal? That’s ambitious but maybe not impossible. Such entities in other cities have been magnets for philanthropic and private investments that multiply the initial stake, and banks often become investors as a means to satisfy their federal requirements for community lending. Cincinnati Development Fund President and CEO Jeanne Golliher says the amount of capital such an effort can unlock varies from project to project, but the ratio can be as high as nine to one.

The CDF shows what Mayor Pugh’s neighborhood investment fund could become. Started 30 years ago with just a half-million dollars, it has helped develop thousands of units of affordable and marketplace housing throughout Cincinnati and was a catalyst for a boom in the redevelopment of that city’s downtown, where the population grew tenfold in a decade. Ms. Golliher’s advice to Baltimore: Make sure to keep a strong focus on affordable housing. Neighborhoods there that were once written off as lost causes are now facing a different problem — gentrification. “You can reach that tipping point faster than you thought possible,” she says. That’s a problem we’d like to have.

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