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Assembly passes bill to avoid $300M loss to Baltimore schools stemming from city's tax deals

Assembly passes bill to avoid $300M loss to Baltimore schools stemming from city's tax deals
Rendering of the proposed Under Armour campus at Port Covington from the water. Tax incentives for Port Covington would not diminish state funding for Baltimore schools under proposed legislation in Annapolis. (Bohlin Cywinski Jackson + Nelson / Baltimore Sun)

The Maryland General Assembly passed a bill that is expected to save Baltimore’s public schools from losing more than $300 million due to special tax deals awarded to developments that make the city appear more prosperous than it really is.

The legislation — sponsored by Del. Maggie McIntosh and Sen. Bill Ferguson, both Baltimore Democrats — applies to certain tax deals awarded to developments across Maryland, but will have the biggest effect in Baltimore, which has authorized one of the largest such deals in the nation on its southern peninsula in Port Covington.

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The legislation indefinitely extends protections for Baltimore schools and other districts from the negative impact of developments subsidized by tax-increment-financing deals, known as TIFs. HIgh-end developments built using TIFs make the city look artificially richer on paper, resulting in a loss of school funding.

Under such deals, valuable Baltimore properties pay little or no taxes to the city’s general fund — which can be used for schools — and instead pump the money into paying off bonds used to the subsidize the development. The projects improve the economy, which causes the state formula to deliver less school aid. But the projects don’t contribute enough tax revenue to replace the lost funding.

“This bill protects our school funding,” McIntosh said. “When Baltimore and other jurisdictions need to use TIFs as a method for funding infrastructure for economic development, this bill ensures that TIF will not inadvertently affect our school funding.”

Baltimore’s City Council has issued $660 million in tax-increment-financing bonds for the $5.5 billion Port Covington development proposed by Under Armour CEO Kevin Plank. A fiscal analysis of the development predicts it will cost Baltimore’s schools $315 million over time unless school funding formulas are changed.

The legislation passed the state Senate unanimously and the House of Delegates by a vote of 134-3.

Tom Geddes, CEO of Plank Industries, praised the passage in a statement.

“The future of cities depends on two inextricable things: education and economic progress,” Geddes said. “No city should have to ever make the choice between the two — and the good news is that this bill ensures we don’t have to anymore. The Port Covington Development Team promised that we’d fight hard for a permanent fix to the state education aid formula and we delivered on that promise.”

Three Republicans voted against the bill, including Del. Joe Cluster of Baltimore County.

Cluster said he’s worried the legislation could encourage more special tax deals for developers, which he says deprive jurisdictions of tax revenue while enriching businesses. Taxpayers from across Maryland will have to pick up the bill for Port Covington, he added.

“I’m not a big fan of TIFs. Somebody’s got to pay those taxes,” he said. “We’re having a problem building good schools in Baltimore County. We give so much to Baltimore. It’s continuing to give them an edge that other jurisdictions don’t have.”

During the debate over whether to authorize the massive tax-increment-financing deal for Port Covington in 2016, state legislative leaders promised they would not allow the project to cost Baltimore schools millions of dollars in state aid.

House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller, both Democrats, assured city officials at the time that they were committed to fixing the state's education funding formulas.

“It is a very beneficial provision for the city,” Ferguson said of the legislation. “But it’s not just the city. It affects all disparity jurisdictions. It’s a policy statement that we shouldn’t be punishing jurisdictions for taking steps that have the potential for increasing their wealth. This should be a win for everybody.”

In recent years, Baltimore schools have lost millions of dollars in state funding because the city offered special tax deals and an array of tax credits and breaks to support new development, according to investigations by The Baltimore Sun in 2015 and 2016.

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The city’s economy has been growing faster than that of any other jurisdiction in Maryland, thanks in part to tax subsidies used to spur development. But that growth has contributed to Baltimore schools losing $50 million in state funding the past few years under a formula that provides more money for poorer school systems, The Sun reported.

Doug Mayer, a spokesman for Gov. Larry Hogan, said the administration is closely following the issue. Mayer said the Republican governor has repeatedly authorized additional funding for Baltimore schools when funding formulas shorted them due to tax deals.

“The governor has provided additional funding for Baltimore City schools several years in a row,” Mayer said.

The massive project proposed by Plank’s Sagamore Development Corp. would include a new headquarters for Under Armour, restaurants, shops, housing and a manufacturing plant, among other features. Port Covington is home to The Baltimore Sun’s printing plant, for which the company has a long-term lease with an affiliate of Sagamore Development.

The $660 million financing deal that Sagamore received is the largest of its kind in city history. The city would issue the bonds, which would be repaid by future taxes paid by the developer.

A financial analysis of the deal said it could cost city schools $315 million in state aid over 40 years. But critics say the city’s cost estimate is much too low. They say the project could cost the schools more than $1.5 billion.

The General Assembly previously approved a temporary fix by tweaking state education formulas so that Baltimore wouldn’t be penalized by new tax-increment-financing deals for the next three years. But the sunset provision meant that the largest project in city history — the Port Covington deal — would not be completed before the law expired.

Cluster said the original legislation was temporary to buy the city time until a state panel studying school funding formulas could devise a new method.

“The sunset clause was in there for a reason,” he said.

Lawmakers had hoped the state panel evaluating how Maryland pays for schools, called the Kirwan Commission, would have completed its work and recommended a long-term solution by this year.

Currently, state education funding formulas award money to local school systems based on the size of their student populations and their relative wealth, among other factors. But the commission is not likely to make any recommendations until after November’s election.

“In Kirwan, there has not been any mention of addressing this at all,” McIntosh said of tax-increment-financing deals.

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Of the bill just passed, she said, “I believe it’s going to stand the test of time.”

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