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Digital Harbor: Will it float?

THE BALTIMORE SUN

California has Silicon Valley. Austin has the Digital Downtown. San Diego has dubbed itself the first city of the 21st century. Even Buffalo has hopped on the bandwagon by adopting the unofficial slogan, "Moving into the New Millennium."

Now, Baltimore is trying to become a "Digital Harbor" - a multimillion-dollar effort to create a technology hub, where the city helps start-ups get off the ground and recruits and clusters other high-tech firms.

No one can be sure, though, whether the effort will be a huge success or just another virtual reality.

The leading proponents of the Digital Harbor - mainly politicians and businessmen in the city - say the effort could bring tens of thousands of jobs to the region.

But industry experts caution that the city is coming late to the game, and its effort to capture a niche that is so minute and that so many other cities crave might be futile.

"I think starting from the bottom on that would be a very difficult row to hoe," said David L. Birch, president of Cognetics Inc., an economic research firm in Waltham, Mass.

There are about 350,000 rapidly growing companies in the United States, only 2 percent of which are high-tech, according to a Cognetics study. But the tech companies that make up that 2 percent are fiercely sought after, and a tremendous concentration of them are in several other cities, Birch said.

"If you're going after growing companies," he said, "why ignore 98 percent of them to go after the 2 percent, particularly when all the rest of the world is focusing on the 2 percent?"

And at a time when several tech companies are struggling financially and cutting back, the task of luring and creating technology companies becomes more daunting. Compounding the problem, experts say, is the city's image as a place hampered by crime and poor public services, such as troubled schools.

"You've got the killer combination of high taxes and poor services," said Fred Siegel, a New York-based senior fellow with the Progressive Policy Institute of Washington.

Proponents are gambling that the Digital Harbor will work, and they're betting with taxpayer dollars.

The city has outlined a plan that calls for $300 million in state funding over five years to pay for a variety of projects, from building and repairing roads and piers to improving public transportation, according to the Baltimore Development Corp., the city's economic development arm and a supporter of the Digital Harbor.

Gov. Parris N. Glendening has committed to spending $50 million over five years, including $7 million this year, to fund a handful of community improvement programs in the city, one of which is the Digital Harbor, said Mike Morrill, a spokesman for the governor.

Glendening has also agreed to fund additional infrastructure projects, including road repairs, promenades and other projects being negotiated, Morrill said.

The state and the city are offering other incentives: money for employee training, tax breaks to companies and money against down payments on homes to encourage companies to expand into the city.

Del. Howard P. Rawlings, chairman of the state House Appropriations Committee, has described the $300 million plan as "ambitious" but said it is comprehensive and focused.

"I think if the city shows annual progress in attracting firms and increasing employment in this arena that they'll be supported," Rawlings said. "But once that's not the case, then I'll be leading the list to cut this project back."

Though proponents say the concept is regional in scope, all the projects outlined in the $300 million plan are in the city.

Newt Fowler, head of the technology group at the law firm of Venable, Baetjer and Howard, said the money would benefit tech workers who live in Baltimore and commute to other counties.

He added, "You've got to have a healthy city to have a healthy region."

But large technology companies - such as fiber-optics giants Corvis Corp. in Columbia and Ciena Corp. in Linthicum - tend to choose suburbs over cities.

So, creating a tech hub in Baltimore that incorporates the entire region might be tricky, said Jason Spicer, associate director of research and analysis for the New York-based commercial real estate services company Cushman and Wakefield. "In terms of reality," Spicer said, "the types of tech companies that are going to go to Columbia are not the types of tech companies that are going to locate on Pratt Street."

Initially, Mayor Martin O'Malley said, there was apprehension that the Digital Harbor was just a city strategy, excluding anything not located on the water. He argues that's not true, saying the Digital Harbor is "the whole Baltimore metropolitan region, the center of which is this great old city and the port [on] which it grew."

"When people around the country think of the Corvises and the Cienas and the other big companies, they think Baltimore," O'Malley said. "They have visions of the city of Baltimore."

The mayor and others say that, over time, the Digital Harbor will revitalize neighborhoods, be able to tap schools that focus on work force development, and create a biotechnology hub near the Johns Hopkins medical complex.

The plan, according to projections by the Baltimore Development Corp., will create 57,000 jobs, including 8,400 technology jobs, during the next decade, with most of the job growth occurring in the next five years, and generate $144 million in annual state tax revenue and $71 million for the city.

"It'll mean a more vibrant economic base for the entire city," said Ross C. DeVol, who did a study of cities in the digital age for the Milken Institute, an economic think tank in California. "It improves the tax base, allows for greater infrastructure investment, so the benefits can be quite broad."

In hopes of achieving such goals, the mayor commissioned a technology task force that is scheduled to finish a technology strategy this summer. "There are a lot of tech companies starting to pop up all around our harbor," O'Malley said. "Canton's on fire."

The idea of attracting technology to Baltimore is not new. Local businessmen and government officials, however, widely credit the O'Malley administration for making the effort come alive. "This was something that was already happening," O'Malley said, "it was just a matter of us putting up enough sail to start catching the wind."

But industry experts warn that creating a technology hub might not be a cruise but rather a voyage against the wind as many tech firms lower financial forecasts, downsize or fold.

In Baltimore, several technology companies at the harbor have downsized, such as Advertising.com and Gr8 LLC. TidePoint Corp., a provider of e-commerce services, filed for bankruptcy protection after laying off two-thirds of its staff.

It is an industrywide problem. Even technology giants have taken hits and are pulling back: Lucent Technologies Inc. said in January that it would cut up to 16,000 jobs, and Cisco Systems Inc. last month said it would trim 8,500 jobs.

Baltimore seems "to be betting so much on a paradigm that doesn't look like it's going to employ anybody," said Stuart W. Leslie, a professor of the history of science, medicine and technology at the Johns Hopkins University.

Leslie said one problem with the way the Digital Harbor is forming is that it's being driven by real estate development, rather than by tech companies that want offices in the city. "It's a very imaginative idea, but the problem is it's trying to do it from the wrong end," he said. "It's not like there are a lot of entrepreneurs looking for space and they can't find it."

Crime will be another of the city's big hurdles, experts say. If workers don't feel safe, they're not going to stick around.

"It can be quite a problem," said DeVol of the Milken Institute. "One of the reasons that Lower Manhattan and Silicon Alley was able to do what it did was because the crime rate went down."

O'Malley says Baltimore is getting safer. Last year, the city had 262 homicides - the first time the murder rate dipped below 300 in more than a decade. There were 305 homicides in 1999.

Not seen as a tech town

Baltimore also has an image problem: It is not perceived as a technology city. In Yahoo! Internet Life magazine's ranking of America's 50 most wired cities, Baltimore fell from No. 20 to 46 during the past year. Also, Newsweek magazine last month listed 10 new tech areas, which included Southern Maryland, Northern Virginia and metropolitan Washington, but not Baltimore.

Yet, some people are taking notice. Hewlett-Packard Co. said Baltimore would become part of its "Digital Village" program, which awards $5 million in money and equipment to each of three underprivileged U.S. neighborhoods.

In addition, several tech companies are starting or growing in the city, including a technology incubator and a handful of small businesses along the waterfront, from Web design firms such as e.magination to wireless companies such as Barcoding.com. But many wonder whether small businesses and incubators are the gateway to a technology city.

"From a management standpoint, I just don't think doing it with a bunch of small, incubator-type companies is the proper way to go about this," said David Oros, chairman and chief executive of Aether Systems Inc.

Oros said the Digital Harbor should be like a diversified portfolio, with manufacturing companies for the telecommunications sector, engineering companies to support technology development and infrastructure companies to support the existing optical companies.

Wise moves

Moves such as bringing in an arm of Verizon Communications Inc. this year are wise because the city needs anchor tenants, Oros said.

Other experts agree. "It's like a mall," said Leslie, the Hopkins professor. "It's really hard to run a mall if you only have boutiques."

Proponents say the Digital Harbor effort is taking hold.

"These new economy businesses, I think, have already changed the face of the region," said Penny Lewandowski, executive director of the Greater Baltimore Technology Council.

Not everyone is an optimist.

"I'm not sure that the focus in technology is worth it," said Birch of the Massachusetts research firm Cognetics. "If you want to focus on growing companies, yes. If you want to focus on Johns Hopkins, yes. If you want to focus on technology, I'm not sure that's a very good use of money based on what I know."

Matt Goddard of G1440, a Web design company whose headquarters is in Columbia with an office along the water in Canton, says Baltimore is well positioned. "We have an opportunity here in Baltimore to build our city," he said, " ... and we have all the tools."

Even skeptics acknowledge that the Digital Harbor has potential for a much brighter future.

"If you're sort of questioning, 'Hey, is this a good idea for Baltimore to try and do this?'" said Spicer of Cushman and Wakefield, "the answer is yes."

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