Community activists are expected to testify Wednesday against legislation that would allow Baltimore to grant millions of dollars in property tax breaks to developers in the name of economic development.
"You can't go to the Internal Revenue Service and negotiate your taxes," said John Murphy, a Baltimore attorney who represents a group of activists who have filed three lawsuits to block a 750-room Wyndham International Hotel that would receive $75 million in tax breaks if Senate bill 352 passes.
"You can't go to the state comptroller and tell him what you feel like paying," Murphy added. "It's ridiculous."
City officials moved to introduce the bill -- as emergency legislation on the final day that bills could be put in for consideration this General Assembly session -- after a city Circuit Court judge eliminated "payment in lieu of taxes" (PILOT) programs in November.
Most damaging to the city's interests, Baltimore Circuit Judge Richard T. Rombro's ruling eliminated a PILOT for the 31-story Wyndham being constructed east of the Inner Harbor. The ruling is being appealed.
The Wyndham's developers -- led by politically active, multimillionaire baking mogul John Paterakis Sr. -- maintain that PILOT is critical for the project to proceed. City officials say that without the hotel the success of the $151 million expansion to the Baltimore Convention Center will be jeopardized.
PILOTs allow real estate developers to negotiate their projects' property taxes with the city. In some cases, developers receiving a PILOT have substantially slashed -- or virtually eliminated -- the property taxes they have to pay. Under the Wyndham's PILOT, the hotel would pay property taxes of $1 per year for a quarter-century.
City officials assert that the legislation would be critical to creating jobs and providing incentives to foster construction, and that taxes from new employment would more than offset property tax losses.
'Projects will not get built'
In the case of the Wyndham Inner Harbor East Hotel, city economic development officials contend that the $3 million a year that the hotel would not have to pay would more than be covered by increased hotel, amusement, income, personal property and other taxes, as well as money spent by hotel employees and guests.
"We need this for two reasons: One, without it, projects will not get built," said M. J. "Jay" Brodie, president of the Baltimore Development Corp., the city's economic development agency. "Also, in the case of the Wyndham, without the ability to enact a PILOT, the hotel won't be able to keep its room rates low enough to help the marketing of the convention center."
Brodie said that One Light Street, a 35-story, $120 million mixed-use skyscraper being planned at Baltimore and Light streets downtown, would pay more than $3 million a year in taxes, even with a PILOT.
Opponents of the bill believe it would weaken the city's property tax base and hurt any chance of stemming Baltimore's population losses.
"It's a giveaway to developers who will benefit to the harm and detriment of city homeowners," said Karen Footner, a Homeland resident and president of the Baltimore Homeowners' Coalition, a decade-old lobbying group. "If this is enacted, our chance of getting any future property tax relief will be destroyed."
The debate over the bill comes at a pivotal juncture for the city, which is struggling to balance economic development efforts against the need to stem property tax losses. Between 1993 and 1998, the assessed value of real property in Baltimore shrunk 4.2 percent, to $6.8 billion.
By comparison, Baltimore County's real property tax base grew by 30 percent to $17.2 billion, and Montgomery County's by 25.5 percent to $31 billion during the same period.
Further property tax losses are projected for the city, which has witnessed a 10 percent decline in population to 653,000 between 1993 and 1998.
At the same time, cities like Philadelphia -- which is subsidizing a half-dozen major hotels under construction to support its expanded convention center -- are providing ample economic incentives to stimulate development.
Without a PILOT, city officials fear Baltimore will lag further behind its competitors, especially since federal dollars that underwrote improvement projects such as Harborplace and Charles Center have disappeared.
Criteria proposed
The Senate bill would provide PILOTs for projects in 10 areas of the city, ranging from Camden Station to Inner Harbor East. Charles Center, the city's financial district, Market Center and Municipal Center also would be eligible.
Like legislation on the books enabling PILOTs, the Senate bill stipulates projects must meet a number of criteria before they could apply for the tax breaks. Hotels hoping to receive a PILOT would need a value of more than $20 million and create at least 100 full-time jobs.
Of the eight hotels proposed to be constructed in and around downtown, almost all would be eligible for a PILOT under those requirements.
Similar criteria exist for office buildings, retail centers, mixed-use projects, parking garages and apartment buildings angling to get a PILOT. Eligible projects also must receive the blessing of the Board of Estimates, and provide an economic analysis, financing sources, a detailed budget, and cash-flow and return projections for a number of years.
Developers must also demonstrate "financial necessity" before receiving a PILOT, according to the legislation.
Recent amendments to the Senate bill submitted early this month would raise the amount required by a project to qualify. Originally, the bill set the value of eligible projects at $10 million.
Developers seeking a PILOT would have to demonstrate their projects' public benefit, how they would encourage economic development and promote the city. The legislation also calls for annual reporting to the General Assembly of what projects received PILOTs and how many jobs they created.
'A little too vague'
Sen. Barbara A. Hoffman, who chairs the Senate Budget & Taxation Committee before which the hearing will take place, said she intends to add amendments to maintain payments on property taxes for land, and may attempt to stipulate minimum property tax payments and equity requirements for projects receiving PILOTs.
"The bill is a little too vague at this point," Hoffman said. "It has to be clear that there is a process in place, and that in particular that the process is and is perceived to be fair."
Despite the added oversight and Hoffman's efforts to remove politics from the process, the homeowners' group fears PILOTs would be given as political favors and be offered as political paybacks because the bill would extend to projects on privately held property.
The current PILOT law allows for tax breaks only for projects on city-owned land.
Opponents of the Wyndham contend that its developers won city financial support because of Paterakis' close ties to Mayor Kurt L. Schmoke.
'How well-connected you are'
As evidence, opponents point to the support the Wyndham won from Baltimore Development Corp.'s board of directors -- including a promise of a $10 million grant to develop the $134 million hotel -- despite its staff report that recommended the Baltimore Convention Center would be best served by another hotel, a 600-room project planned for 300 E. Pratt St.
"Unfortunately, it's going to depend on how well-connected you are as to whether you get a PILOT or not," said David Rudow, a Baltimore attorney and member of the homeowners' coalition. "This administration has shown a willingness to make deals privately and arbitrarily."
If the homeowners' coalition is unable to garner support to kill the bill, it hopes to introduce a number of amendments to remove politics from the PILOT process, including granting an automatic property tax exemption for projects that meet the necessary criteria. Under the present system, the city decides which projects are eligible for tax breaks.
The Baltimore Homeowners' Coalition is proposing PILOTs be offered citywide and the tax exemption last only five years. The bill being considered would exempt projects from taxes for five times as long.
"To all the people who think this is a blank check, I would point out that recipients have to show financial necessity," Brodie said. "And they have to get approval from the city's Board of Estimates, the City Council, and there will be oversight from the General Assembly. So there are sufficient checks and balances in place. People aren't just going to walk in and get a PILOT automatically."