Business leaders and landlords are proposing to raise a surcharge on downtown commercial properties this summer to make up for falling property values and to help pay for capital projects such as improving parks, installing additional video cameras and making the city more pedestrian-friendly.
The increased role of the private sector comes as the city may be forced to cut public services. The Downtown Partnership of Baltimore, which runs surcharge-funded programs aimed at keeping the area clean and safe, estimates the proposal would raise more than $1 million a year. That translates to about $300 a year for a three-story mixed-use building and $95,000 for a large Class A office building of 500,000 square feet.
The surcharge funds municipal-type services, from emptying garbage cans to maintaining green spaces. As city government officials scramble to cover a $121 million operating budget shortfall and have less local money to devote to capital projects, businesses will need to step up if they want upgrades in an area that draws more than 150,000 people every day, the Downtown Partnership says.
"There's just not enough capital money to go around for the projects we need," said Kirby Fowler, president of the Downtown Partnership.
"This is a way for downtown to help itself," added Michael Evitts, a spokesman for the nonprofit group.
While privatizing public services in cities has been a trend for years, John K. McIlwain, a senior fellow with the Urban Land Institute in Washington, hasn't heard of businesses in other cities offering to shoulder more costs in the wake of the severe economic downturn.
"It's a difficult thing to try to do because the businesses themselves are suffering," he said. "If you push it too far, you're simply going to shut down more stores."
The recession pushed office vacancies within a mile of downtown Baltimore to nearly 20 percent last year. McIlwain thinks the proposed surcharge increase — and the potential impact on businesses — is pretty modest. The downside is that limits the amount of capital work it could finance.
"When everybody's hurting, how much can you pay to do the longer-term capital improvements?" he said. "Those are tough calls."
The current surcharge is 14.39 cents per $100 in assessed property value, paid by commercial property owners — or their tenants, if that expense is passed on — in the Downtown Management Authority district. The area stretches into parts of Mount Vernon to the north and is roughly bounded by Interstate 83 on the east, Greene Street on the west and Conway Street on the south.
The Downtown Partnership's board has endorsed raising the charge to 21.39 cents per $100 in assessed value. The Downtown Management Authority board, made up of business leaders and property owners, also is in favor of such an increase.
"We know it's something that has to be done," said Michael Haynie, managing director of the Tremonts, the hotel and meeting facilities on St. Paul Place and Charles Street. He sits on the management authority board as a property owner representative. "Downtown is an investment for us, and we have to bite the bullet."
Though the proposal would increase the surcharge nearly 50 percent, the actual increase in owners' bills could be significantly smaller because of declining market values.
The average price per square foot of commercial properties sold in downtown Baltimore during the first three months of the year was about 30 percent less than the average two years earlier, according to real estate information firm CoStar Group. Assessments lag behind the market, but commercial real estate brokers are warning the Downtown Partnership to expect less from the surcharge in the coming years if it isn't raised.
The 7-cent proposed increase would bring in almost $2.2 million a year if assessments don't change. A 15 percent drop in the assessable base — what the Downtown Partnership expects — would shave the net increase to about $1.2 million.
Declining property values would mean less ready cash for capital projects, but the Downtown Partnership also is seeking more authority to borrow money.
Robert Manekin, a Downtown Partnership board member who works in commercial real estate, thinks the proposed surcharge increase is necessary — and probably too small. A 10-cent increase would be better, he said. He wants to see capital improvements downtown, and he's anxious to avoid backsliding.
"There are those of us who remember what the downtown was like before the Downtown Management Authority was created," said Manekin, a senior vice president at Manekin LLC, a commercial real estate services firm that represents landlords and tenants, "and we clearly do not want to return to that condition."
James A.C. Kennedy, chief executive of money manager T. Rowe Price Group, a major downtown employer that leases its headquarters tower on Pratt Street, said he's "100 percent" in favor of a surcharge increase. "The incremental fees they're asking for are very worth the money," he said. "We're more than willing to pay our fair share."
The surcharge went into effect in 1992, the last time the city was struggling under the aftereffects of a recession and real estate downturn. Businesses and property owners were concerned that downtown revitalization would stall if they didn't create a fund to keep the streets clean and safe.
Now the Downtown Partnership has a wish list of projects looking for funding. Installing more video cameras and pedestrian-level lighting for safety. Taking down the neglected Baltimore Street skywalk. Creating a park with fountains on President Street.
"We don't want the traditional core of downtown to have a dated feel to it," said Fowler, the head of the partnership.
Businesses are already raising money for another long-wanted project — removing the tall berms along Pratt Street, which hem in pedestrians and drive property owners crazy, Evitts said. But that's another item on the to-do list for a capital fund if the fundraising effort falls short.
The city's proposed capital budget does have some money for downtown projects, including work to make Hopkins Plaza at Baltimore and Charles streets a more inviting place to gather. But sources of capital-project funding that aren't already earmarked are down, in some cases to zero.
"It's a pretty austere kind of budget," said Thomas Stosur, the city's planning director.
The Downtown Partnership's budget, along with any surcharge increase, must be approved by the city's Board of Estimates. That decision is set for April 30. A public meeting is planned next Tuesday for downtown property owners and tenants to weigh in.
Evitts said all property owners have been notified by letter. Three have complained, but they were mollified to learn that their increases would work out to less than $150 even if their assessed values don't drop, he said.
Councilman Bill Henry, the City Council's representative to the planning commission, said the surcharge proposal "shows an incredible amount of forethought."
"I see this as a willingness among downtown businesses to reinvest in the city," said Henry, who represents parts of North and Northeast Baltimore. "That's going to be a good thing for all of us."