A record $535 million in city financing to help billionaire Kevin Plank redevelop Port Covington could face tough questions from members of the city's Board of Finance.
The financing would be used to build infrastructure in Port Covington, where Under Armour's founder is planning a massive redevelopment anchored by a campus for his sports apparel company. It needs to be approved by the board and the full City Council.
"There's a perception from my end, and probably the public's end, that we're creating projects that are making people very wealthy, and these people are already extremely wealthy," board member Larry I. Silverstein. "So we should just make sure that we're not being taken advantage of."
Silverstein noted that past financing — Harbor Point, the future home of energy company Exelon's regional headquarters, benefited from such a deal — has faced similar criticism.
Plank's private real estate firm, Sagamore Development, this month asked the city to contribute $535 million toward parks, roads, utilities, bike lanes and other infrastructure in Port Covington, where they hope to build offices, shopping, restaurants, and thousands of apartments next to the new Under Armour campus.
The project is estimated to cost $5.5 billion, including $1.4 billion for infrastructure.
The city's contribution would pay for improvements that include a $19.7 million eastern waterfront park; $17.6 million in changes to Key Highway; a $26 million "archaeological pier" and a $15.3 million pedestrian swing bridge connecting to Westport, according to a project list shown to the Board of Finance on Monday.
In addition to the city's $535 million, Sagamore is seeking about $574 million in federal and state funding for transportation projects for the area, where they want to create a new Light Rail spur and new highway access.
Baltimore's money would come from bonds issued by the city, which are repaid with new property taxes generated by the project, a mechanism known as tax increment financing or TIFs.
Tax increment financing can be controversial because it often involves higher interest rates than more traditional bonds — leading to more debt — and because it limits the city's ability to use the new tax revenue generated by the improvements for many years.
If approved, Sagamore's TIF would play out over several decades, as the city issues the 30-year bonds in several rounds. The first round is expected to be worth about $49 million.
"This becomes a 50-year commitment by the city?" said Board of Finance member Frederick W. Meier Jr. "The concept of making a 50-year commitment is somewhat alien to me."
The TIF deal would be structured to allow Sagamore to receive a market rate of return on the project — typically between 10 percent and 20 percent, said Keenan Rice of MuniCap, a Columbia firm hired by the city to review the deal. The precise figure remains in flux.
Meier said that range sounded high, given the general rate of growth in the economy.
"We want the City of Baltimore to be a good place for the private sector to invest money, and we know that they have to get a reasonable rate of return but we don't want to use a TIF to give a developer an extraordinary rate of return," Rice said.
Board members also expressed skepticism about relying on Under Armour to spur millions of square feet of new development, including 7,500 new residences, many of them rental. The project is expected to generate an average of $34 million in annual tax revenue for the city, with much of the revenue coming in later years.
Stephen Kraus, the city's deputy finance director, said the city wouldn't issue bonds unless city officials felt the project was viable.
He said the city is negotiating with the developer over the phases of the project, to allow the city to receive more significant financial benefits sooner. The city also is considering asking another entity, such as the Maryland Economic Development Corporation, to issue the bonds so that they are not counted against the city's debt load, he said.
The quasi-public corporation, which would charge a service fee, would be "very receptive" to working with the city on Port Covington bonds, Robert Brennan, MEDCO's executive director said in an email.
Port Covington is located in an Enterprise Zone, making it eligible for significant tax breaks.
Board members did not ask whether the project also could lead to cuts in state funding for the city's schools, which is based on a formula that relies on property values, rather than tax receipts.
A bill pending before the Maryland General Assembly has been amended so that it would only address potential funding shortfalls for the next few years.
The bill is designed to be a stop-gap measure, said Howard Libit, a spokesman for Mayor Stephanie Rawlings-Blake. He said she is not concerned about the project's effect on school funding because lawmakers intend to revise the formula more comprehensively in later years.
Kraus said he expected the five-member Board of Finance, which includes the mayor and city comptroller, to continue review at its monthly meetings in April and May.