The transformation of a vacant, 12-story eyesore into a gleaming office building has brought workers, shoppers and diners to the northern edge of downtown Towson — thanks in part to a public financing package that waived repayment of millions of dollars in loans to a developer.
The county makes so-called conditional loans that do not require repayment if certain conditions, such as job creation, are met. The $3.5 million in conditional loans to Caves Valley Partners for the Towson project would rank as the largest ever forgiven; others have provided $300,000 to demolish vacant Pikesville buildings and $40,000 to renovate a bank branch in Randallstown.
While backers say such loans help spur development, some lawmakers and business owners are raising questions about the county government's lending strategy because it lacks written guidelines and isn't advertised, so few businesses know about it. Critics also say the loans are a waste of public funds and unfairly favor some businesses over others.
"I think it's corporate welfare," said state Sen. Jim Brochin, a Towson Democrat. He questioned the value of the Caves Valley deal for taxpayers as well as one for the renovation of the Greene Turtle restaurant in Towson. He said such loans amount to the government selecting which businesses should succeed.
"Are they [giving] any of the profits back to the government? Of course not," he said. "Then why are we picking and choosing?"
To get the $27 million Towson City Center project off the ground, Baltimore County offered the developer a $7.5 million financing package. Of that, $2 million was described as a conditional loan for an advance on tax breaks the project was scheduled to receive. Another $500,000, which has been forgiven, covered improvement costs. For retaining 260 jobs by 2017, the county will forgive another $1 million.
The county has provided nearly $15 million in loans to businesses and organizations over the past five years — and has forgiven or has offered to forgive about $4 million, according a review of county records by The Baltimore Sun.
Rick Bielski, an owner of the Charles Village Pub in Towson, said he did not know the county forgives loans until he learned about a conditional loan given to the Greene Turtle. The loan was part of a financing arrangement thatprompted questions from the state comptroller and stoked a debate about whether it was the government's role to make — and then forgive — loans to select businesses.
"I've been up in the Towson area for 24 years, and I've never been given an opportunity to have any type of a loan that could be forgiven," Bielski said."I was actually very, very surprised and shocked, with the state of the economy, that that would even be an option."
He received a $60,000 low-interest loan from the county to fix the pub's exterior, and said he is paying back "every nickel of it. I would love to have that forgiven at some point."
The state Board of Public Works approved a financing package in August for the renovation of the Greene Turtle. The county, meanwhile, made a $90,000 conditional loan and $175,000 repayable loan for the project.
The state, which describes its conditional loan program online through its development agency, doled out $13 million in such loans last year. Under the program, local governments whose businesses receive them must put up smaller, matching loans.
Supporters say county loans — including the conditional loans — are good investments for taxpayers, helping to spur economic development and job creation, especially by small businesses. They note that the loans often boost property values, leading to higher tax revenues.
Baltimore County Planning Director Andrea Van Arsdale said such businesses "at times can have difficulty in obtaining financing, especially in the recession. … Without this help, many of these projects would not go forward."
A lawyer for one of the principals in Caves Valley Partners said the firm had no comment on the loan, and the company did not respond to repeated requests for comment.
Conditional loans have characteristics that are not found in standard business loans. In some conditional loans, Baltimore County sets goals such as creating jobs and investing in construction, and awards the money once those goals are met. The county has also crafted conditional loans that provide money up front, with principal and interest payments deferred for a set period; if goals are met, the payments are forgiven.
In addition to the conditional loans, the developer of the Towson City Center project, which renovated the 1960s-era Investment Building, received a $2 million, 10-year conventional loan with a 2 percent interest rate as part of the county financing package. The county also passed through a $2 million state loan to the developer.
If a government does not have a large amount of cash to offer as a low-interest loan, a smaller, conditional loan can be an incentive for a business, said Greg Cole, who as head of the finance office at the Maryland Department of Business and Economic Development works with local development agencies. Cole said Baltimore County is unusual in Maryland because it offers some conditional loans independent of the state.
"The whole purpose is to compete on the national level to attract and retain companies in Maryland while using a minimum level of cash to do it," Cole said.
In Harford County, County Councilman Jim McMahan proposed last year ending the practice of giving matching conditional loans when projects get state financing; the proposal failed. This spring, he spoke out against a conditional loan of up to $160,000 for HP White Laboratory, a ballistics lab in Street.
McMahan said recently that the practice of forgiving loans "has become a gross misuse of local taxpayer money."
"I don't like the county being in the banking business," said McMahan, a Republican. "But I would much rather help businesses by giving them a very low-interest loan but get my money back. … That is taxpayer money."
Most of the more than 80 loans granted by Baltimore County — and approved by the County Council — over the past five years must be repaid. Officials with County Executive Kevin Kamenetz's administration say such deals are carefully chosen to help improve communities. The county's Planning and Economic Development departments make loans; the Department of Economic Development provided the Towson City Center loan.
The county has also made grants from its loan funds to help nonprofits. For instance, in 2008, North County Preservation received $10,000 for a study on improving the profitability of the county's agricultural industry. The Catonsville Chamber of Commerce received the same amount the following year to study the redevelopment of portions of Frederick Road.
Fronda Cohen, a county economic development spokeswoman, acknowledged that there are no written guidelines for determining when the county makes conditional loans and that the offer is not advertised on the county website or in marketing materials.
Cohen said that when businesses meet with county officials about financing, the county informs of them of repayable loans, conditional loans, training grants and other options.
"It depends on what is appropriate. All of those are part of the conversation," she said.
But Bielski said many businesses were "in the dark" that the county would forgive loans such as the Greene Turtle's.
"Everybody's wondering how this money came about," he said. "How do you go about getting it? Who authorizes it? I think everybody should be on an even playing field."
A business can ask to have aloan forgiven, and county officials decide whether to do that, Cohen said. The county says it reviews construction invoices and lists of jobs to check whether developers have met the goals of conditional loans.
Most of the county's loans are business improvement loans, which are for areas designated for revitalization and help companies make physical improvements to facilities, Van Arsdale said.
The county only lends money to projects that also have private financing, Cohen said. Conditional loans are used mainly when there is "a funding gap" and the project can't be completed without it, she said.
The Pikesville loan, approved in 2010, helped demolish two Reisterstown Road buildings to make way for a new 10,000-square-foot retail and office center anchored by Health-Way, a pharmacy. The borrower, 1114 Reisterstown Road LLC, agreed to invest $1 million in the property. The building must be 75 percent leased by March 2014 or the borrower will have to pay back part of the money, Cohen said.
Representatives for the borrower did not respond to requests for comment about the loan.
The Randallstown loan was used in renovating a vacant building so a Harbor Bank branch could move in. The bank had to relocate because of the new Walmart in Randallstown, and as part of the deal, the developers agreed to keep the bank within the Liberty Road revitalization district, Cohen said.
Ken Hankin of Sienna Corp., the general partner of Liberty Crossing Land LLLP, which received the loan, said the project helped keep jobs in the area and increased the property's value. "We pay real estate taxes on that parcel, and we pay more having a tenant," he said.
The Greene Turtle loan is being used to expand the Towson outlet of the regional chain. State and county officials say the loan was needed to help a business anchor on the York Road corridor at a time when development has been stronger on the fringes of downtown.
Although the state portion of the financing package ran into opposition from Comptroller Peter Franchot, the Board of Public Works voted 2-1 to approve it. While $175,000 of the county loan to the property owner must be repaid, an additional $90,000 to the restaurant will be forgiven if it creates or retains 47 jobs and completes the project within nine months.
In the case of Towson City Center, officials say the project needed incentives. In 2002, hundreds of state and county workers relocated from the building — which was not owned at the time by Caves Valley Partners — out of concerns that it was causing respiratory problems.
"This building sat absolutely vacant with no interest whatsoever from the development community, from tenants," Cohen said, adding that nearby businesses lost customers.
In 2010, under the administration of County Executive James T. Smith Jr., the county provided the loan package for Caves Valley Partners to completely renovate the building — stripping it down to its steel framework.
The fully leased building now serves as the headquarters of the MileOne auto dealership company, as well as the site of a health center, the Towson University radio station and other businesses. About 600 people work in Towson City Center, which opened last year, according to the county.
The revitalized office tower has "had a profound impact on downtown Towson," said Councilman David Marks, a Perry Hall Republican whose district includes Towson. "It was certainly in the taxpayers' best interest to do whatever it needed to do to jump-start that project," said Marks, who was not on the council when the loan was approved.
Marks said he does not believe the conditional loans raise questions of favoritism because the projects funded in his district were critical to improving downtown Towson. "I don't have a problem with the county showing flexibility in certain cases to make sure that the whole project comes to fruition," he said.
Still, he said, "my strong preference is for loans to be paid back, even if it's over a longer period of time. I think that's the better approach."
Council Chairman Tom Quirk said conditional loans merit scrutiny.
"The county needs to be very judicious in how we use conditional or forgivable loans. Ultimately, the government isn't meant to be a bank," the Catonsville Democrat said, adding that questions about the fairness of conditional loans should be directed to the Kamenetz administration.
Caves Valley Partners is continuing redevelopment efforts in Towson. In June, it unveiled plans for Towson Row, a $300 million mixed-unit development to be built on five acres off York Road.
Jennifer Bevan-Dangel, executive director of the watchdog group Common Cause Maryland, said the Towson City Center loan — which was provided to developers who are campaign contributors — raises questions about fairness.
The deal, she said, "raises the burden on the council to show that competitive bidding was done. Without that kind of transparent chain of decision-making, it does raise the question of 'Why these people?'"
Caves Valley Partners has made campaign contributions to past and current councilmen and county executives totaling $11,750 since 2007. The individual partners have contributed another $14,000.
Kamenetz was a councilman running for county executive when the Towson City Center loan was approved. The individual partners in Caves Valley have given at least $6,500 to his campaign committee over the years.
Kamenetz declined to comment about the contributions.
Former County Councilman Joe Bartenfelder, who lost to Kamenetz in the Democratic county executive primary, said many county politicians get contributions from developers. The loan for Towson City Center had broad support from the business community there, he added.
"Towson is the county seat, so it's important to retain its vitality," he said.
Smith, who is now the state transportation secretary, said campaign donations had no effect on his decision to back the Towson City Center loan when he was county executive. He said there was no other way to close the deal and pointed out that county property tax revenues have gone from $45,000 a year when the building was vacant to $377,000 this year.
Smith added, "It stimulated a lot of redevelopment in downtown Towson."