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Tax breaks come back to bite Baltimore

Property tax base grows, but Baltimore still coming up short of funds

Back during the first wave of Big John absurdity — huge property tax breaks for politically influential developers of commercial real estate in Baltimore — I made jokes about it. I thought it was ridiculously funny. It was also outrageous. But one had to laugh or one's head would explode.

Big John refers to John Paterakis, the multimillionaire bakery king and developer of Harbor East who, in the 1990s, convinced City Hall to give him a $25 million tax break so he could build a convention hotel a mile from the Baltimore Convention Center.

Paterakis also went to Annapolis to make sure his servants in the General Assembly granted Baltimore full authority to negotiate payment-in-lieu-of-tax deals, or PILOTs.

It was the first time most of us heard of PILOTs on a Big John kind of scale. Some of these deals would relieve developers of hotels and office buildings, stores and housing of up to 95 percent of their property taxes for up to 25 years.

Many Baltimore taxpayers complained about these deals.

Really, we asked city officials? Baltimore has such a severe inferiority complex that we have to basically pay millionaires to build here? You're telling us Big John doesn't have enough dough from baking millions of buns and muffins for McDonald's to finance his own hotel and pay the taxes on it?

Then there was the location issue: The state had financed an expansion to the convention center; to make it work, the city really needed a convention hotel attached to it — not a mile away, on the other side of the harbor.

But politics and Paterakis prevailed.

Following approval by its taxation and finance committee — chaired by the ambitious Martin O'Malley — the City Council voted to give Big John what he wanted: a 25-year tax break, plus a $5 million loan and $5.5 million in grants.

Who says Democrats aren't pro-business?

I made jokes at the time, suggesting in a column that conventioneers who stayed at the Big John Hotel (officially, the Baltimore Marriott Waterfront Hotel) get rides to the convention center in H&S Bakery trucks, with breakfast served onboard.

I don't find this funny anymore. (I didn't really then, but, you know, I didn't want my head to explode.) And some of us thought the Paterakis PILOT would be a one-and-done deal.

But there have been plenty of other deals on big commercial real estate — including another innovation called a TIF, tax increment financing — and these deals have cost the city millions in badly needed revenue.

Harbor East buildings, among other properties on or near the waterfront, have benefited from an unnecessarily generous City Hall. Taxpayer assistance for another development, Harbor Point, adjacent to Harbor East, is about $107 million, though one credible estimate for full public support of that project over time was six times that.

Of course, a person could step from a fine restaurant, hotel or boutique onto Aliceanna Street on a big night — say, Valentine's night — and wonder why anyone would beef about this stuff when the result is so fabulous: new buildings, new people, a city within a city, and rising property values on an impressive scale. Obviously, growing numbers of businesses and the young professionals they employ want to be here. Baltimore's waterfront, in particular, is a highly desirable place to live, work and play.

The city's assessable base increased by $1.3 billion last year, so what's wrong with this picture?

What's wrong is this: Baltimore's growing wealth could cost it $14 million in state funding for our public schools.

Here's a quote from a 2011 task force report on the city's public-private finance deals:

"The current analysis for TIF and PILOT projections does not recognize that 70 percent of state aid is tied to wealth-based formulas. ... The initial TIFs have already led to a reduction of $1.7 million in aid for education. PILOTs account for an even larger reduction in state aid and additional planned or proposed TIFs are more than double those already developed."

Translation: The state gives the city money each year for public schools. The amount of aid is based on a formula. The formula is based on the assessed value of property. If, as in Baltimore's case, the assessable base grows, the city is presumably a bit wealthier and, therefore, should not need as much money from the state. Which seems logical except for one thing: the big tax breaks.

Rising property values are good. An expanding tax base is good. But not if the owners of large commercial properties are excused from paying up to 95 percent of their property taxes.

It means the city looks great on paper while the real ledger — the one at City Hall, not at the state assessor's office — shows a Baltimore still struggling to make ends meet, still trying to better the lives of thousands of low-income kids in its schools while a spineless and easily-snookered City Council approves tax breaks to millionaires. Definitely not funny.

drodricks@baltsun.com

Dan Rodricks' column appears each Tuesday, Thursday and Sunday. He is the host of "Midday" on WYPR-FM.

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