A Harbor East development that will become Legg Mason's new corporate headquarters appears on the verge of getting millions of dollars in city tax breaks.
The City Council's Taxation and Finance Committee approved a bill yesterday that would forgive $33 million in taxes for H&S; Properties Development Corp., owned by bakery magnate John Paterakis Sr., to construct a waterfront tower and an underground parking garage.
Though the $581 million project also includes another tower for a Four Seasons Hotel and condominiums, the tax break, among the largest granted by the city, applies only to the office portion and the garage.
Baltimore Development Corp. officials, who negotiated the deal, say that without the incentives the office would not be built, depriving Baltimore of 500 new jobs and the ability to keep the leading money management firm's 600 current jobs in town.
Even with the $33 million tax abatement, BDC President M.J. "Jay" Brodie said the twin towers would bring in $162.3 million in taxes -- including income, property and hotel taxes.
"Yes, the [tax break] totals roughly $33 million, but in the same period the city collects $162 million," he said. "That's basic arithmetic, that's basic economic development."
City Councilwomen Helen L. Holton, Rochelle "Rikki" Spector and Agnes Welch voted in favor of the bill while City Councilman Keiffer J. Mitchell Jr., a mayoral candidate who said last month that the incentive "didn't pass the smell test," abstained from the vote. He said afterward that he wanted to avoid a conflict because one of his campaign workers helped broker the deal.
Legg Mason announced in February that it planned to leave its signature skyscraper at 100 Light Street, the tallest building in the city, for Harbor East. Legg Mason expects to move nearly all of its Baltimore-area employees to the new building by 2009.
The City Council is considering a two-part tax break. One would last 25 years and apply to the $40 million, 1,200-space, below-ground parking garage to be shared by the office tower and the Four Seasons. Twenty-five years is the maximum length for a tax break of this type allowed by state law.
The other phase of the incentive, to run concurrently, would last 15 years and apply to the office space.
While the tax break is in effect, the developer would pay the full tax on the land, but only 5 percent of the tax it would normally pay on the buildings.
H&S; Properties also asked for a tax break to support construction of the Four Seasons hotel and condominiums, but BDC declined because that part of the project would not produce that many jobs, Brodie said.
Michael S. Beatty, president of H&S; Properties, told the committee yesterday that with building rents stagnant and construction costs rising, developers require assistance. He added that he thinks this particular incentives package is modest.
"The majority of this project is not subsidized," he said. "It's a very small assistance package in our mind."
Brodie said that in exchange for the incentive, the city would place a number of conditions on the developer -- requiring, for instance, that there be a minority equity partner, that Legg Mason occupy at least 325,000 square feet in the tower and that the developer share a certain percentage of the profits with the city.
"This is not in any remote sense a blank check," Brodie said.
Additionally, the city's transportation department is negotiating with H&S; on steps that the developer would be required to take to soften the project's impact on area traffic.
Among other things, city officials would like H&S; to consider reducing the size of the parking garage and shuttling people in from an off-site lot, paying to make President Street south of Fleet Street one-way southbound and paying to eliminate the mid- block signals along Broadway, Eastern Avenue, Fleet Street and Aliceanna Street.
A year ago, the city awarded the developer a $3.5 million tax break for the $201 million project rising at 800 Aliceanna St. Officials said H&S; needed the subsidy to lower rents for its anchor office tenant, Laureate Education Inc., which had threatened to leave town.
In 2004, the city approved a $13.6 million break for Harbor East's Spinnaker Bay apartments. And years ago, the developer won $20 million in subsidies to build the Marriott Waterfront hotel.
The city did refuse tax breaks for a building that houses the Whole Foods and a Courtyard by Marriott.
At the 90-minute hearing yesterday, no one spoke in opposition.The full council will consider the bill Aug. 13, Holton said.