Baltimore's efforts to rebuild its faltering economy have been hurt by the very agency whose job it is to help retain businesses and lure new ones to the city, according to dozens of business executives and economic development officials.
The Baltimore Development Corp. (BDC), a $3 million-a-year quasi-public agency, is widely viewed as ineffective and suffering from a lack of credibility and leadership.
"The leadership over there is seriously wanting. There is no one who senses a business' need to get things done in a reasonable time frame, no one who has an understanding of how to piece a deal together, no one who gives you the feeling she or he has the authority and expertise to deal with you, no one who takes the initiative to make things happen," said E. B. Hutton Jr., president and chief operating officer of Waverly Inc., a century-old, Baltimore-based publishing house. The company spent nearly two years negotiating with BDC for a new location.
Mr. Hutton's comments were reinforced by business executives and leaders ranging from James Crystal, president of L-U-I Corp., to Gov. William Donald Schaefer.
But the Schmoke administration and BDC officials disagreed:
"I think I provide the kind of leadership that BDC needs. A Baltimore going into the 1990s needs the kind of creativity that BDC provides," said Honora M. Freeman, whom Mayor Kurt L. Schmoke appointed president of the agency in 1991.
BDC officials say that many businesses are pleased with the results the agency produces for them -- even if negotiations are sometimes protracted and difficult.
The mayor was out of town late last week and could not be interviewed.
But Clinton R. Coleman, the mayor's press secretary, said Mr. Schmoke "supports Honora Freeman 100 percent and feels that she's doing a great job."
Yet interviews with more than 30 business executives who have dealt with the agency, senior officials of key civic and economic development organizations, and current and former BDC staff members, indicated that BDC:
* Has lost the close partnership with the business community that was central to Baltimore's downtown redevelopment of the past four decades and the city's rapid jobs growth during the 1980s.
* Often fails to comprehend what businesses need to keep the companies -- and the jobs they provide -- in the city.
* Seldom shows a sense of urgency when businesses seek assistance and is painfully slow to close deals -- sometimes so slow that business executives drop the negotiations or turn elsewhere for help.
* Is unresponsive, often leaving telephone calls and correspondence from business executives and civic leaders unanswered.
BDC's problems come at a time when Baltimore desperately needs top-flight performance to fight one of the steepest economic declines in the city's history.
Job losses climbing
After peaking at 476,000 jobs in 1989, Baltimore has lost jobs by the tens of thousands. By July 1994, the U.S. Bureau of Labor Statistics estimated that the city had about 416,000 jobs -- a loss of 60,000 in less than five years.
The decline has eaten away not only big chunks of the city's manufacturing and financial core, but about 19,000 jobs in retail alone -- 30 percent of the sector's 1989 total.
Because federal funds for cities have declined steadily since the 1970s, it is urgent that cities such as Baltimore get the most out of every dollar available to fight for private-sector jobs, according to business and economic development officials.
But the Schmoke administration has used the bulk of the city's Community Development Block Grants -- the prime remaining form of federal urban aid -- mainly for projects such as housing rehabilitation and recreational centers and for street improvements. The reason, according to an Abell Foundation study published in August, is "to assure that community activists feel that the city is addressing their needs and demands."
The mayor's priorities "do not address what should be the highest priorities of the city -- creating new growth businesses that can offer job opportunities for residents," the study found.
"Baltimore is facing the same powerful international competitive forces that so many older East Coast cities confront, forces that are driving many companies to seek cheaper locations in the suburbs or even in other states," said Charles McMillion, president of MBG Information Services, a Washington-based consultancy that tracks the Maryland economy.
"The higher costs of parking downtown, the higher taxes cities have to levy to provide services to their heavy concentrations of poor people -- all are competitive disadvantages that fewer and fewer companies can afford," he said. "In these circumstances, it is vitally, vitally important that cities get the maximum impact from the funds they spend on economic development agencies."
But the city does not appear to be getting that impact from Baltimore Development Corp. In fact, many complain that the opposite is true.
A simple land swap?
Mr. Crystal, the L-U-I Corp. president, is one of them.
He remembers when bulldozers arrived unannounced one day in April and started biting into his company's East Lombard Street land.
The appearance of the giant earth-movers was only the latest shock in a sequence of events that has spanned seven years and has been marked by unanswered telephone calls and letters, a failure to settle on deals, a lack of urgency and an incomprehension of businesses' needs.
In 1987, Mr. Crystal was contacted by BDC's predecessor -- the Baltimore Economic Development Corp. (BEDCo) -- and informed that the city needed some of his land to build a new on-off ramp to Interstate 95. Mr. Crystal, who had built his 100-employee office-furniture plant in 1984 with help from the then-economic development corporation, agreed to a swap. The city would get the 1.5 acres it needed for the ramp and, in exchange, would give him 2 acres of city-owned land on the other side of his plant for an expansion he was considering.
For the next 18 months, Mr. Crystal called the development agency every five or six weeks, asking for a written memo confirming the deal. Some time in 1988, still with no memo, he stopped calling.
But in December 1991, with the recession biting into office-furniture sales, he wrote to the economic development agency's successor, Baltimore Development Corp., asking for a nine-month deferral of a payment on a 1984 loan. He also informed the agency that he no longer needed land to expand and instead wanted cash for the I-95 right of way.
By mid-January the following year, Mr. Crystal had received no response. So he wrote to Ms. Freeman expressing his concern that his requests for help "may be overlooked," and asking for her assistance in getting a reply to his proposals.
"To this day, I do not have any response from Honora Freeman to that letter," Mr. Crystal said. He pointed out out that he has waited two years and 10 months for a reply.
Possible 'errors of omission'
"There could have been some errors of omission," Ms. Freeman said when told of Mr. Crystal's unanswered letter.
In 1993, with his business benefiting from the economic recovery, Mr. Crystal borrowed $2 million from his bank, paid off the 1984 loan and thought that BDC was, at last, out of his life.
But on April 12 of this year, he looked out his office window and saw two bulldozers stripping away the surface of his company's land, preparing to build the expressway ramp.
When Mr. Crystal protested that the bulldozers were on L-U-I land, the foreman unrolled maps showing that the land was city-owned. But the maps were dated 1982 -- before L-U-I's plant was even built, Mr. Crystal said.
The city thus was caught between a contractor who had a right to sue if the work did not go ahead and a landowner who had a right to sue if it did. Within days, a BDC official came to Mr. Crystal's office.
The official "allowed that now they were ready to do the land swap we had been wanting," Mr. Crystal said. "I told him . . . BDC had my 1991 letter showing that we now wanted a cash settlement, and in any case, the city had never put any deal into the form of so much as a memo despite all my phone calls."
The meeting, he said, "quickly became confrontational . . . and we ended up dealing through lawyers."
The city took the land by condemnation. Now, more than seven years after what started as a simple land swap, lawyers for L-U-I and the city are still haggling over the price.
BDC officials did not contest Mr. Crystal's account. But they stressed the importance of the on-off ramp, which is now approaching completion near his plant.
"With regard to L-U-I, there certainly seems to be a communication issue," said Robert L. Hannon, a BDC executive vice president, "but you do have to understand that this was a very important interchange because of the Bayview Campus [of the Johns Hopkins Medical Institutions] and the biotechnology commitment the state is making in that area, as well as the older East Baltimore industrial companies that the interchange will serve."
Mr. Crystal doesn't doubt the importance of the interchange, but he does question whether he wants to work with BDC again.
"Everything I see of Mayor Schmoke suggests that he wants good relations with businesses, but he has not surrounded himself with people who know how to do that," he said. "It's
become the kind of agency you try to have no dealings with."
Two crucial decisions
Baltimore Development Corp.'s problems, according to many business executives and economic development experts, can be traced to two decisions the mayor made in 1991.
The first was creating BDC by merging two agencies that had quite different functions. One was the Baltimore Economic Development Corp., which had been responsible for the nitty-gritty "smokestack-chasing" work, keeping Baltimore businesses here and luring others to come. The other was the Charles Center-Inner Harbor Management Corp., which had been responsible for pushing the two giant redevelopment projects ever farther into the downtown.
Charles Center-Inner Harbor was created as a "rifle-shot" agency to rebuild downtown Baltimore, while BEDCo was to take "a scattershot approach," keeping businesses all over the city happy to stay and trying to lure new ones, said William H. Boucher III, former executive director of the Greater Baltimore Committee. "You cannot expect two entities that are so different in purpose, methods and personnel to fit together and work well as one," he said.
Governor Schaefer, who made the two agencies centerpieces of his administration when he was mayor, agreed.
'A total disaster'
"I try not to tell the mayor what to do, but that decision to merge those two agencies was a total disaster. I have very strongly urged that they be separated again, and if you don't do that, the center of the city and the city's economy are going to continue to deteriorate," Mr. Schaefer said.
Ms. Freeman and other BDC officials discount the criticism and insist that the two functions belong under the same roof because they are "intertwined."
"I don't think it's any longer possible to look at pure bricks-and-mortar redevelopment, and pure business attraction and retention as two separate, pure operations any more. . . . The development end has to marry with the business attraction end," said Michele L. Whelley, also a BDC executive vice president.
"Mayor Schmoke believes that there were good and sound policy reasons to merge the two agencies," said Mr. Coleman, his press secretary, "but even without the policy reasons, there is so much less federal money available today that the city cannot hope to support the two separately."
The problems were compounded by the second decision, when the mayor appointed Ms. Freeman to head the agency, business executives and development experts said.
Under mayors dating back to the mid-1960s, all previous directors of the city's economic development agencies had been chosen for their expertise in either business or economic development.
By contrast, Ms. Freeman's background was political.
She had worked as a lawyer at Shapiro & Olander, the firm that is the home base of Ronald Shapiro and Larry S. Gibson, the chief architects of Mayor Schmoke's political career.
Her appointment gave the newly merged BDC a leader who had neither the technical skills of previous heads of BEDCo nor the clout within the business community that had always been Charles Center-Inner Harbor's trademark, business and civic leaders said.
"It's not fair to a person with Honora Freeman's background to put her in that kind of job unless you also can see to it that there is a very strong, prominent civic leader from the business community working alongside to help get the job done," Mr. Boucher said.
"Somewhere at the top of those structures, you have to have someone who knows what resources each company in town has, someone who has the respect of all the chief executives in town," he said. That person must know who is who on every corporate board, Mr. Boucher said, and must be able to marshal a community's resources, and finally, must have the stature to speak out publicly with a voice that will be heard.
Stresses Schmoke link
Ms. Freeman argued that her political connection to Mayor Schmoke is both an asset and a necessity.
"I should have deep and strong political connections to the mayor, and if I don't, I shouldn't be here," she said. "We have staff with very strong professional credentials."
But Ms. Freeman's appointment has resulted in the loss of the close government-business ties that were central to the city's past successes, executives and civic leaders say.
Those ties were a key to the city's past development triumphs, said Michael A. Conte, director of regional economic studies at the University of Baltimore.
"Without that kind of partnership," he said, "an agency like BDC cannot be much more than a show-and-tell place to let people see the nifty 3-D models and put on your slide shows."
In fact, Ms. Freeman inherited a key figure of that longtime partnership, in the person of Walter Sondheim, 86, who had been a Charles Center-Inner Harbor board member and a participant in many of the downtown's biggest deals of the past three decades.
Mr. Sondheim stayed on as a member of the new board after BEDCo and the Inner Harbor agencies were merged.
But in June, Mr. Sondheim quietly resigned from the BDC board. A man long known for avoiding publicity and controversy, he never made his resignation public.
Neither he nor Ms. Freeman would discuss his resignation, but Mr. Sondheim has let many colleagues know that he is distressed by what he considers a serious deterioration in BDC's relations with the business community in recent years.
Ms. Freeman sees BDC's partnership with the business community from a different perspective. She says it is flourishing.
She pointed to "a tremendous outpouring of support from all parts of the business community" for Baltimore's application to become one of the cities that will receive $100 million federal "empowerment zone" grants from the Clinton administration.
The grants, which could be decided as soon as this month, are intended to finance a broad range of urban development activities in the cities that get them.
"The empowerment zone is a huge opportunity, and the job of preparing it could have gone anywhere, but the mayor chose to entrust it to BDC, and his Business Advisory Council concurred in that assignment, which tells you what people think of BDC," said BDC's Mr. Hannon.
But the application also has been so immense that it has contributed to BDC's reputation for delays and inattention to local businesses, Mr. Hannon said.
"This kind of effort comes at a price, and we've taken the best half of BDC's staff and put them on that project for six months, so you bet there are going to be delays during that time," he said.
While that project awaits an outcome, so does another major one: retaining the headquarters of investment house Alex. Brown & Sons.
The search for new space for the firm will determine whether the city -- after decades of losing big local names, including McCormick & Co., the spice giant, and Baltimore Life Insurance -- will retain a company that dates back 194 years. Alex. Brown now employs 2,200 people -- 800 of them in the city -- and has assets of $1.2 billion.
In the business community, the Alex. Brown negotiations are drawing added attention because of widespread concern about how BDC will cope with A. B. "Buzzy" Krongard, CEO of Alex. Brown and widely known as a prickly, bottom-line-oriented negotiator.
BDC's early handling of Alex. Brown has not inspired confidence among business figures who know some of the details.
At one point the city publicly offered Mr. Krongard "exclusive negotiating rights" to the Power Plant, one of the last remaining major waterside sites at the Inner Harbor.
Mr. Krongard promptly said he did not want exclusive negotiating rights, though he also did not rule out eventually settling on the site for part or all of Alex. Brown's operations.
That exchange left business executives and development officials shaking their heads. In 40 years and hundreds of negotiations that have gone into Baltimore's downtown redevelopment, it was the first time anyone could remember the city publicly offering exclusive negotiating rights without first making sure the party wanted them.
Even before that, however, there was concern about the way the BDC was dealing with Alex. Brown.
Mr. Krongard has told business associates that before his first meeting with BDC officials, he received a telephone call from a junior BDC staff member seeking the most basic information: How long has the company been in the city? What is its business? How many people does it employ?
"With Alex. Brown, you almost have to admit up front that there were some awkward moments in the early discussions," Mr. Hannon said. "If we let a phone call like that happen, shame on us -- that was a bad move on our part.
"But when we met with them, we let them know that we do know their company and we do know that its name and reputation and presence are good for us.
"We're going to do everything possible to keep that company here."
'Amateur Hour'
Mr. Krongard declined to discuss his firm's negotiations with the city. But he is known to have made comparisons with "Ted Mack's Original Amateur Hour" when describing his early BDC contacts to colleagues.
Another company whose executives have serious doubts about BDC is Waverly Inc., the 100-year-old Baltimore-based scientific publishing house.
A series of street crimes in 1992 involving employees at its East Preston Street headquarters was the factor that persuaded Waverly's executives to search for a new location.
Wanting to stay in the city, the company turned first to Mr. Schmoke to seek help in finding a new location.
"The mayor made all the right moves, but after the issue got passed off to BDC, the things we needed didn't happen," said Mr. Hutton, the company's president.
It quickly became clear that BDC was either unwilling or unable to deal with two key Waverly requirements -- finding a buyer for its Preston Street property and providing parking for its 400 employees at any new location, said Arthur E. Newman, the publisher's executive vice president.
"Their delayed responses to our requests left us believing that they had limited decision authority," Mr. Newman said. "In business, one doesn't want to invest time with someone who can't speak for their organization."
"Parking was going to cost Waverly $1,000 a car, so at 400 cars, that's $400,000. A company our size can't lay out that difference just in order to express its loyalty to the city," said William Passano Jr., the firm's chairman and majority stockholder.
Anne Arundel beckoned
At the same time, Anne Arundel County was offering Waverly a site with free parking and an incentive package that would have effectively recovered the value of the Preston Street building.
After six months of contacts, Ms. Freeman made a proposal, but it resolved neither the parking nor the disposal of the old property, Mr. Newman said.
"At some point, I went back to the mayor, and Bill Passano, our principal stockholder, went to Walter Sondheim. Walter got the mayor's approval to get the Rouse Company involved, and then things began to happen," Mr. Hutton said.
BDC officials say they kept their offer to Waverly limited as part of the negotiating process.
Negotiators have to feel each other out, and "there's a need to know when the entity you're dealing with may be posturing," Mr. Hannon said.
"The city is a kind of landlord in these situations, and if you go to extreme lengths to keep one of your best tenants, all the other tenants in your building are going to know and want the same deal," he said.
"You have to look at the outcome, and in the case of Waverly, the outcome is one that we are all happy with," Ms. Freeman said.
In the end, it was Mr. Sondheim and the Rouse Co. executives who pieced together a deal with the Maryland Stadium Authority that will make Waverly the first big office tenants in the old Baltimore & Ohio Railroad warehouses at Camden Yards.
Part of that deal was a commitment from Mr. Schmoke that the city would buy Waverly's Preston Street property.
The deal-making creativity that Rouse employed to keep the publisher in town is precisely what Waverly executives say has been lost with BDC.
"Creativity in developing alternative solutions to our particular situation was limited," Mr. Newman said. "Initially, BDC did not want to assist us in disposing of our current facilities or to assist us with parking solutions. Their actions lacked a general sense of urgency."
Today, BDC internal documents list the Waverly deal as one of BDC's accomplishments, but Waverly's president, Mr. Hutton, sees it differently.
"If we had been at all ambivalent about staying in the city, if we had not gone back to the mayor or had not had Walter Sondheim's help, it's probable that we would be locating outside the city today," he said.