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Baltimore's quick economic growth contributes to loss in state aid to schools

Here's the good news: For the second year in a row, Baltimore's economy is improving faster than anywhere else in Maryland.

Here's the bad news: Once again, that has contributed to deep cuts to the city schools budget.

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Because much of Baltimore's economic growth has been fueled by a wide array of tax subsidies, city government looks on paper a lot richer than it is, lawmakers and budget analysts agree. Some of Baltimore's most valuable buildings pay little or no property taxes, but a state formula that determines aid for schools assumes that they do.

In the past year, the city's assumed wealth per pupil grew by nearly 10 percent — double the pace of anywhere else in Maryland. That growth, calculated based on both property values and resident income, combined with a drop in student enrollment to cause an automatic cut of $24 million in state aid to Baltimore's schools.

But many of the city's schools still lack heat, air conditioning, working water fountains, supplies and staff, officials point out.

"The fact that, after years lagging behind the state, our economic growth is being used against the children of the city is a bad thing," Mayor Stephanie Rawlings-Blake said. "Far too many people are still recovering from the Great Recession. We know our schools continue to have needs in excess of the budget we're able to provide."

Baltimore still will receive the most per-pupil education aid in the state next year: $12,022, similar to this year, but down from $12,474 last year. The state average is $7,451 per student.

About 1,900 fewer pupil slots will be funded after city schools CEO Gregory Thornton found that some students were incorrectly kept on the rolls. School officials are investigating why — and for how long — the student count was wrong.

But Maryland's poorest jurisdiction also is facing multimillion-dollar cuts for the second year in a row because of the city's economic growth. Baltimore has added more than 8,000 jobs in the past year and the city's assessable tax base grew by about $2 billion.

The biggest Baltimore development last year was Amazon's new warehouse. Offering more than $40 million in subsidies, state and city officials cheered when they lured the company to Southeast Baltimore to build a new warehouse that employs 2,500 people.

But the Amazon properties — valued at $141 million — cost city schools about $1.4 million this year under the state's funding formula. At the same time, Amazon receives a break of $2.3 million on its $2.7 million tax bill.

Amazon's entry into the Baltimore market comes after both Horseshoe Casino Baltimore, valued at $360 million, and buildings in the Canton Crossing development, valued at $65 million, were added to the tax rolls the previous fiscal year, contributing to the boost in wealth. The casino, while adding 1,700 jobs, caused a $3.6 million drop in this year's school funding.

An Amazon spokesman declined to comment.

For years, Baltimore and state officials have offered tax subsidies to stimulate development, arguing that a growing economy would benefit many in Baltimore.

Officials offer Enterprise Zone tax breaks for developers who build in impoverished areas and brownfields breaks for those who build on polluted land.

The Baltimore Development Corporation and the City Council often approve what are called "payments in lieu of taxes" and tax-increment-financing deals to favored developments. Harbor East's Baltimore Marriott Waterfront hotel, for instance, pays just $1 a year in lieu of property taxes for 25 years.

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Baltimore officials have acknowledged that they hadn't considered the loss in state aid when they granted breaks slashing what projects pay in local property taxes.

Thomas Cafcas, a research analyst at Good Jobs First, a subsidy watchdog group, says legislative bodies around the country didn't fully think through how tax deals to encourage development would affect aid to local schools.

"It's an absurd outcome of state aid formulas," Cafcas said. "Urban areas are the most likely to bounce back after recession. Combine that with [tax-increment financing deals] and you've got a very weird situation of state dollars interacting with local subsidies in a very negative way."

Del. Maggie McIntosh, a Baltimore Democrat, has proposed a bill that she hopes will address what she calls Baltimore's "artificial wealth." She says the legislation would stop future tax deals from affecting education funds.

She is proposing that state funding formulas stop considering the increased property value from tax-increment-financing deals until those projects begin paying property taxes into the general fund.

McIntosh endorses such deals as necessary for a cash-strapped city to grow but doesn't want to see city students harmed. She believes the massive Harbor Point development, which is underway near Harbor East, and planned developments at Sparrows Point in Baltimore County and Port Covington in South Baltimore could have a large impact on school funding. She calls these projects "Super TIFs," or tax-increment financing deals.

"Because of these 'Super TIFs' being proposed, there could be millions of dollars lost in education funding for Baltimore City and Baltimore County," McIntosh said. "They create an artificial wealth that has an impact on the schools formula. We want to prevent that."

Tax-increment financing deals require a jurisdiction to float millions in bonds to pay for a development's infrastructure. Increased taxes from the development are used to pay off the debt instead of going toward city services, such as schools or police.

In 2013, the Baltimore City Council approved $107 million in tax-increment bonds for infrastructure for the $1 billion Harbor Point development. Those bonds will accumulate $174 million in interest for a total debt obligation of about $281 million, which the city plans to pay using tax revenue from the development.

The development won't begin contributing new property taxes to the city's general fund until 2025.

McIntosh's bill has 15 co-sponsors. A hearing is scheduled for 1 p.m. Tuesday in the House of Delegates Appropriations committee.

State Sen. Andrew A. Serafini, a Republican from Washington County who sits on the budget committee, said he agrees that state funding formulas need to change.

He compared the rising wealth around Baltimore's harbor to developments around Deep Creek Lake in Garrett County or resorts in Ocean City. He said such pockets of wealth make jurisdictions look richer than they actually are.

"It makes more sense to use median income to determine the funding formula," he said. "This is the problem with the formula."

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