Editor's note: The op-ed has been updated to clarify that the author is talking about TIFs and other city subsidy programs.
State Del. Maggie McIntosh calls the billions of dollars of development in Baltimore City "artificial wealth" because much of it is funded through tax-increment-financing (TIF) deals that allow for raised property values well before the property owners actually begin paying property taxes.
Might I suggest that there is nothing artificial about the wealth being created through TIFs and other misguided and abused public subsidy programs at some of the projects (Harbor Point, Canton Crossing, the Waterfront Marriott, Horseshoe Casino, etc.). Real wealth is being created, but the beneficiaries are not the school children, nor the residents of Baltimore City. The real winners are the developers.
You just have to "follow the money" to understand why the city may not have adequate resources for schools, parks, streets and libraries. Let's look at a recent TIF bond, put forward by the mayor and modified (for the first time) by the City Council, to see how the "wealth" dynamics work.
The city bond of $17 million for the University of Maryland BioPark is one of the city's more modest TIFs (as opposed to the "super TIFs," whose eventual impact concerns Delegate McIntosh). It would effectively be used to buy the building for the developer over the life of the bond, and, according to a city analysis, lead to a loss of over $15 million in education aid.
The ultimate "wealth," therefore, goes to New York based Blackstone Partners, whose managing partner is Stephen Schwartzman. The citizens of Baltimore give up over $30 million, and they still have to provide public services to the area around the Bio Park and maintain infrastructure as well as continue to carry the burdens of a problematic school system. Meanwhile, the property does not pay property tax into the city's general fund for those items.
Looking further, Mr. Schwartzman, estimated to be worth $9.5 billion, was recently ranked 44th on the Bloomberg Billionaires Index. Bloomberg does not consider that artificial, so I am not sure why our legislature should consider it as such. The actual owner of the building is Wexford Maryland Bio Park 3, LLC, which is owned by the Bio-med Realty Trust (BMR). BMR in turn is owned by Blackstone Partners, so you have connected the dots to get to the 100th wealthiest person in the world.
Recently BMR proudly reported operating at a 33 percent net profit and 66 percent gross profit — not bad. In January of this year, The New York Times carried a full page advertisement trumpeting Mr. Schwartzman's donation of $100 million for education in China, funding the Schwartzman Scholars at the Schwartzman College in that country. Conversely, Baltimore's school children are donating to him.
This is not to single out Mr. Schwartzman who may have never set foot in Baltimore and is likely to be unaware of his project's implications. Further, this not to suggest that this project is more harmful than others — in fact many of the other projects reported by The Sun (i-e. the casino) are more problematic and drain more wealth from the city.
Some of the legislators may be onto something when they say the problem is "with the formula" for aid to local public education. And rather than include property wealth in it, that "it makes sense to use median income." After all, the real wealth is not going to city residents, instead it is being channeled away from Baltimore to New York, China, Washington and to favored individuals who mostly reside outside of the city of Baltimore.
This is a timely matter for public discussion. Perhaps we should ignore growing income inequality and economic justice. Perhaps our leaders are right, that this is the only way these projects can happen. Perhaps also we should accept the realities of developer-driven election campaign finance. I have never had a Morality 101 course, but if our public universities offer it, I would be tempted to take it — especially if it includes case studies of Baltimore's recent approach to subsidizing development.
Ronald Kreitner is the director of WestSide Renaissance, the former director of planning for Maryland and former physical development coordinator for city of Baltimore. His email is email@example.com.