On Wednesday, Baltimore's Board of Estimates approved a property tax break that would save a typical homeowner $140 a year — good news, to be sure. But that may have failed to impress many Baltimoreans in light of Monday's decision by the city's Board of Finance to endorse $107 million in tax increment financing for the Harbor Point development that is slated to become the eventual Baltimore home of Constellation Energy's new owner, Exelon.
The deal, which still would have to be approved by the City Council, reignites an old debate about Baltimore's willingness to cut deals with developers for projects downtown and on the waterfront while still charging residents by far the highest property taxes in the state. Critics see it as the city giving away the store to help the rich get richer. City officials defend the practice as a means to entice investment in the city — and generate jobs and taxes — that would not happen otherwise. In this case, both have something of a point.
The first thing to understand about the deal proposed for Harbor Point is that it isn't a property tax break. The project is getting an automatic, temporary reduction in its property taxes because it is in the city's enterprise zone, but what the city is considering now is whether to grant the project tax increment financing. That means the city would issue bonds to pay for infrastructure associated with the project and pay them back with property taxes generated by the new development. If for some reason, the property taxes aren't sufficient to cover the bond payments, the developer, not the city, would be on the hook. The notion that the city is somehow spending money on developers rather residents is false, as is the idea that it's letting the developer avoid paying taxes. The developer would not pay reduced property taxes as a result but would be spared some of the expense that would be necessary to make the project work.
In this case, the TIF bonds would pay for roads, utilities, an extension of the Caroline Street bridge and parks on the site. And because the development plan calls for a mix of office, retail, restaurant and residential uses — essentially a somewhat quieter version of Harbor East — those amenities would benefit the general public and not just Exelon employees. If developer Michael S. Beatty follows through on his plans, he will create what amounts to a new, 28-acre neighborhood with substantial public space on the waterfront on what is now vacant, polluted industrial land.
Another key point to consider is that even with the TIF bonds, the city expects to come out substantially ahead on this deal. The Baltimore Development Corp. estimates that over the 30-year span of the TIF deal, the project would generate about $518 million in city taxes in excess of the cost to repay the bonds. That additional revenue would, theoretically, enable Baltimore to invest in better services or to cut taxes in a way that benefits the city as a whole.
However, none of that answers a more fundamental question, which is whether developments like these would happen with lower subsidies or none at all. Perhaps Harbor Point is a good deal for Baltimore, but could it get a better one? That calculus is further complicated in this instance because Exelon, as part of its merger with Constellation, promised the Maryland Public Service Commission that it would build a new regional headquarters building in downtown Baltimore. If it had chosen to build in another site that required less new infrastructure, might the city have seen a greater benefit?
Such questions are virtually impossible for the public to answer because deals like this one are negotiated by the BDC behind closed doors. Officials say that is necessary because such discussions involve proprietary information. That puts the onus on the City Council, which will hold public hearings on the proposal, to scrutinize the deal carefully. They need to take the opportunity not just to ask questions about the details of Harbor Point but also to get the BDC's new president, Brenda McKenzie, to articulate her philosophy on when and how the city should get involved in deals like this one and to describe the standards she will use in evaluating them. Development deals like this one aren't the pure giveaways that critics contend, but they aren't something city officials should get too comfortable with either.Copyright © 2015, The Baltimore Sun