New scrutiny for Columbia tax financing deal

Developer Howard Hughes Corp. is building the headquarter building for MedStar Health System in downtown Columbia as county officials are deciding whether to approve a tax-increment financing deal to help with the future development of the downtown area.
Developer Howard Hughes Corp. is building the headquarter building for MedStar Health System in downtown Columbia as county officials are deciding whether to approve a tax-increment financing deal to help with the future development of the downtown area. (Kenneth K. Lam / Baltimore Sun)

A historic deal to pay for the redevelopment of downtown Columbia using tax increment financing is under increased scrutiny as the master developer, Howard Hughes Corp., continues its plans to overhaul the area into a high-density, walkable urban core.

The proposed $90 million deal, which would fund a garage, public roadways, water and sewer lines, and stormwater management, and which is under consideration by the Howard County Council, has pitted the Dallas-based developer against a group of local development and real estate companies.


During the council's work session Tuesday, Cathy Ward, a representative of Corporate Office Properties Trust, a Maryland-based company that is part of the nonofficial group, said using public finds for a garage that would be used by surrounding office tenants was unprecedented.

"We have never seen anything like that," Ward said.

Ward raised the group's concerns in a Sept. 30 letter to the council.

In the letter, the six companies in the group called on the council to delay a possible Nov. 7 vote on the financing tool — which is known as a TIF — because the deal unfairly benefits a private developer by funding a $51 million county-owned parking garage to be used for public and private uses.

The group opposing the deal includes Corporate Office Properties Trust, St. John Properties Inc., Knott Realty Group, Merritt Properties, Greenebaum Enterprises and Abrams Development Group.

Tax increment financing is a public financing tool that earmarks future tax revenues generated from the development to pay back bonds and other costs associated with the deal.

Howard County Executive Allan Kittleman is proposing to issue up to $170 million in bonds over three to four years to encourage the proposed downtown development.

Howard Hughes plans to invest roughly $618 million in the Crescent, a 60-acre parcel of land between Merriweather Post Pavilion and Broken Land Parkway, to build a high-density development. The 2,545-space proposed parking garage would primarily be used by patrons of Merriweather Post Pavilion, a popular outdoor amphitheater, and the tenants of surrounding commercial buildings.


The opposition group has concerns that the deal would boost Howard Hughes' competitive advantage providing "significant private benefit to one real estate" company by charging below market prices for office rentals, forcing developers of other commercial and retail projects across the county to compete on an uneven playing field, according to the Sept. 30 letter.

Howard Hughes Corp. fired back against the group's opposition in an Oct. 4 letter to the Howard County Council.

John DeWolf III, senior vice president of the development firm, wrote in the letter that the group's concerns are based on "inaccurate assumptions" and rejected the group's assertion the developer could charge lower rents that would then drive vacancies in other parts of the county. Office rents in downtown are already higher than other commercial developments in the county, DeWolf wrote.

Also, viewing the parking garage in isolation of the company's private investment of $2.2 billion in the overall downtown development effort is "simply inaccurate," DeWolf wrote.

The scrutiny comes as TischlerBise, an independent consulting firm hired by the County Council, found that the county needed a stronger justification to approve the TIF and found gaps in revenue projections and economic impact analyses by MuniCap, a consulting firm, also working on the deal, among others, for the county administration.

"The bottom line is the council needs to feel comfortable moving forward," said Carson Bise, president of TischlerBise.


Although TischlerBise found using the TIF was appropriate and the county would gain net revenue from the deal, TischlerBise also called for a more detailed analysis of the developer's pro forma — a detailed financial statement including proprietary and confidential information — to justify the need for the TIF.

MuniCap defended its financial analysis of the TIF, citing the firm has reviewed financial documents for hundreds of proposed TIFs.

County estimates show the downtown development will provide enough tax revenue to bring in more than $400 million in net revenue over the next 35 years.

Howard Hughes Corp. has begun meeting with council members to review details of the pro forma in response to pressure from council members last week who worried they had insufficient information to make a decision on the deal, county officials said.

"I want to move this forward, but I want to do it responsibly… it's not easy to do if we're not getting the information," Councilman Greg Fox said last week.

Howard Hughes Corp. has provided the financial documents to TischlerBise, MuniCap and the county's auditor, an already "uncommonly high level of disclosure" subject to nondisclosure agreements, said Greg Fitchitt, Howard Hughes Corp.'s vice president of development.

Carl DeLorenzo, director of policy and programming for the county, defended funding the garage with a TIF, which he emphasized is public and county-owned.

"Do we want to lose tenants by not creating the downtown environment?" DeLorenzo asked.

The downtown Columbia master plan, which establishes a framework for the area's development and guides Howard Hughes' development plan, calls for building parking garages that developers cannot shoulder the cost of alone, he said. The county will pay for roughly 25 percent of structured parking spaces in the area.

Keenan Rice, president of MuniCap, said the amount of structured parking in downtown Columbia — nearly 97 percent of all parking in the area — is highly unprecedented for a development.

County estimates show each parking space in the garage would costs about $20,000 — a figure that Fox said may inflate the costs of parking.

The TIF does not pay for the costs to operate and maintain the garage. Detailed plans on how the garage would be shared have not been finalized.

An earlier version of this story was unclear on the total size of the Cresent property.