The city of Baltimore wants to renew and expand an expiring tax break for developers and businesses that costs tens of millions of dollars annually.
A quarter of Baltimore — about 13,500 acres — is considered within an “enterprise zone,” meaning that developments and businesses in those areas are eligible for certain tax breaks from the city and state. The tax breaks hinge on improvements to the property and hiring benchmarks.
Developers and real estate brokers say the program can attract business to Baltimore and generate more tax revenue over the long term. But while it’s meant to spur investment in disadvantaged areas, there are concerns this tax break aids developers and businesses — not the people living in those neighborhoods.
Over the past decade, enterprise zones have cost the city of Baltimore about $180 million in lost tax revenue, according to a review of city records and budget projections. The state has refunded half that amount to the city.
The amount of property tax foregone grew in recent years, from $5.3 million in fiscal year 2013 to $24 million in fiscal year 2018. It has since stayed at about $20 million or more annually, which is a relatively small amount compared to the overall amount of property taxes collected in Baltimore. According to city financial reports, the total amount of property tax collected by Baltimore was $906 million in 2021.
The city’s enterprise zone program is set to expire June 14. The Baltimore City Council approved a new map proposed by the Baltimore Development Corp., the city’s economic development arm, without any discussion at an April 4 meeting. A spokeswoman for the Maryland Department of Commerce said the agency is expected to approve or deny the new map in mid-June.
The new map would add more than 3,200 acres to the enterprise zone program, bringing a third of the city under the program. Proposed changes include removing Harbor Point, the site in Fells Point that’s home to a new Exelon Corp. tower and the future T. Rowe Price Group Inc. headquarters.
Harbor Point, the site of a former chromium plant, has been largely redeveloped in the past decade. According to data from the U.S. Census Bureau, the area around Harbor Point no longer meets the poverty requirements to be considered an enterprise zone.
Mondawmin Mall in West Baltimore would be added, as well as other pockets throughout the city.
The city of Baltimore has more area covered by enterprise zones than any other city or county in Maryland.
Areas can be eligible for the designation if they have high rates of unemployment or poverty, have lost population or have a low median income.
Here’s how the program works in an enterprise zone: A developer buys an empty lot and constructs a mixed-use building. The developer has to keep paying property taxes on the original value of the site, but gets a steep discount on any increase in value created by the building. For five years, the developer pays just 20% of the increased property taxes. This discount generally starts to decrease after five years, and phases out after 10 years.
Business owners in enterprise zones also can get income tax credits for hiring employees in newly created positions.
Baltimore developer David Bramble, who recently agreed to acquire and redevelop the stagnant Harborplace in the Inner Harbor, said an enterprise zone designation works less like a tax break and more like a long-term investment. He is the developer behind Yard 56 in East Baltimore, a shopping center that used the enterprise zone program.
The zone doesn’t take away any current tax revenues from the city, Bramble said. It just temporarily reduces taxes on value added to a property.
“You’re not giving away tax money. You never would have gotten that money if the project hadn’t been built,” Bramble said. “I think that gets lost in the sauce. I think people have to remember you’re not losing something you already had.”
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Bramble said enterprise zone projects ultimately create far more tax revenue for the city as they age out of the tax credit. And the initial tax abatement on a new development can be the difference between investors financing a project or not, he said.
“You do need to provide that boost just to make that math work,” Bramble said of tax incentives.
Kate Jordan, a commercial real estate broker for Lee & Associates, said she’s in the middle of closing a deal to bring a company to Baltimore — and the enterprise zone helped make it happen. The company currently has offices in both Baltimore City and Baltimore County, but this move will put it firmly in the city, Jordan said. It’s an off-market deal, she said, and while calculating how much the company could invest, the enterprise zone tax credit proved valuable.
“It is something that people are very much actually considering and it is helping them come here,” Jordan said.
Jordan lives in the city and described herself as its “biggest cheerleader,” but acknowledges not everyone feels the same way.
“Getting businesses to consider Baltimore City, particularly in the central business district, is really painful,” she said. “There’s certain challenges the city has.” Prospective companies are concerned about parking and crime, and there are issues with transit and traffic, she said, but programs like the enterprise zones still can be a powerful lever.
“It’s making people look at the city who would never consider Baltimore in the first place,” Jordan said.
Terri Harrington, a broker who founded a commercial real estate firm, said she thinks expanding the enterprise zone program in Baltimore — especially to cover more of downtown — is important. She said it creates a competitive advantage for bigger tenants.
“Smaller businesses very rarely ask about them and generally don’t want to go through the application process,” Harrington said in an email. “That being said, not having it puts your property at a disadvantage, especially in a situation where the building across the street is in it and your building is not.”
Jim Lighthizer is the principal and managing partner of Chesapeake Real Estate Group and a former president of the Maryland chapter of a commercial real estate development trade group called NAIOP, where he had to defend and explain enterprise zones to lawmakers.
He described the enterprise zone tax credit as an “arrow in your quiver,” but sometimes it can be decisive.
“In a competitive, down market, it absolutely makes or breaks a deal,” Lighthizer said. He pointed to a deal in Harford County to build a massive e-commerce warehouse park, which Lighthizer said would not have happened with the enterprise zone designation.
Mac McComas, senior program manager at Johns Hopkins University’s 21st Century Cities Initiative who studies urban economic growth, said enterprise zones have their roots in a 1980s program launched in the United Kingdom to target poor urban areas. Now, about 40 U.S. states have some form of enterprise zone program, he said.
He notes some economists are critical of them. They believe the tax breaks are not actually that persuasive and that development would take place without them, McComas said. Another concern is that they lure development that would happen anyway from one part of a region to another, rather than incentivizing wholly new development.
This map shows Baltimore's proposed boundaries for Enterprise Zones, where developments and businesses are eligible for certain tax breaks, and for Focus Areas, where the relief is even more generous. The final lines are subject to approval by the Maryland Department of Commerce.
Small businesses — which often have more opportunity for job growth — are less likely to pursue these credits, McComas noted.
Because there are so many overlapping tax credits and incentive programs in Baltimore and other cities, it is hard for researchers to peel them back and determine the effectiveness of a single program, McComas said.
McComas thinks it’s important to look at how else Baltimore and Maryland could have spent those tax dollars lost to the enterprise zone program. He listed several alternatives, including investing in public education, streamlining city services and cutting red tape, creating more job training programs, or adding technical assistance roles within the city to help businesses launch and grow.
David Neumark, a professor at the University of California, Irvine, has studied place-based tax breaks across the country. Neumark said most economists think there are better ways to incentivize job creation.
“There’s very little evidence that property investments create jobs,” he said. “It obviously depends on what you’re building.” A new apartment building might look nice, but it doesn’t create nearly as many jobs as a factory, Neumark said.
Low-income communities “probably need jobs more than anything else,” Neumark said of the enterprise zones program. “It’s just not clear that these things aren’t just tax breaks for groups that like tax breaks.”
The Evening Sun
Nneka N’namdi has an idea of how else to spend the foregone tax dollars under the enterprise zone program. She lives in the Heritage Crossing neighborhood of West Baltimore, which has parts of Pennsylvania and Fremont avenues covered by an enterprise zone.
“We haven’t seen the conditions in our neighborhood change substantially as a result of those projects,” N’namdi said of nearby developments. “In large part, it’s folks coming into neighborhoods with preconceived notions about what is needed.”
N’namdi founded Fight Blight Bmore, an organization dedicated to lowering the number of vacant and blighted properties in Baltimore while helping residents remain in their neighborhoods.
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Rather than give tax breaks to developers through enterprise zones, the city should end the tax sale, an annual auction of property liens, N’namdi said. When residents fall behind on property taxes and water bills, the city sells that debt to private debt collectors for millions of dollars. In 2020, Baltimore sold liens to 1,015 owner-occupied properties with an average unpaid property tax bill of $5,709, for a total of about $5.8 million, according to a state report.
The debt collectors add fees and a 12% interest rate to the debt, N’namdi said, and sometimes they even foreclose on longtime city residents, harming neighborhoods and wiping out generational wealth.
If the city and state really care about community development, N’namdi said they could use tax dollars that would otherwise be forgone by the enterprise zones to keep Baltimore’s most vulnerable residents in their homes.
“Community development is not about building buildings,” N’namdi said. “It’s about supporting people in the community.”