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What Rawlings-Blake and O'Malley with City Hall are doing is privatizing all that is public. The do that so public employee unions are busted and pay is lowered to poverty. This is what happened as MTA is privatized with VEOLA and it is what is being tried with longshoreman unions at the Port of Baltimore. It is all union-busting and impoverishing of labor.
The US Constitution protects equal opportunity and access in housing and education. What Baltimore is doing is illegal because they not only ignore equal access, they try to pass laws that say 'we will accept Federal funding for development but not honor equal access and opportunity laws'. They pretend they can do this and they cannot. It is public malfeasance.
Equally important for citizens of Baltimore is the fact that Baltimore HUD is probably the most corrupt of all corrupt agencies in Baltimore and as such all kinds of red flags will go up with these public properties. Keeping this property in city central that will become valuable as development occurs is the only thing to do in public interest. We could build multi-income housing, parks, public community centers with this public land.
Since Baltimore HUD is corrupt, they will hand it off undeveloped for cheap to a connected investor who will make tons of money on this property when development of this area is finished. See why it is public malfeasance.
The second part to this is the workers who represent a dying middle-class in Baltimore with the attack of middle-class jobs and leaving Baltimore families desperate and poor. Extended families depend on these strong jobs and it is this policy of killing Living Wage jobs that give us Baltimore's high crime and violence culture as people turn to drug dealing et al to survive. All for no good reason.
The City of Baltimore loses billions of dollars to fraud and corruption and rebuilding public justice in the city would fill the city's coffers and allow for a healthy public sector. Handing all that is public to private ownership or public private partnerships is what fuels all the fraud and corruption. We will need to investigate these sales to assure this is not yet another example of public malfeasance.
Workers nervous about layoffs as Baltimore Housing Authority sells off buildings Residents say they want protections from private developers in writing
By Yvonne Wenger, The Baltimore Sun 9:39 p.m. EST, March 6, 2014
Union officials warned Thursday that as many as 200 maintenance workers and building monitors at Baltimore's public housing properties could lose their jobs under a plan intended to infuse the buildings with private money.
Employees such as maintenance mechanic Lucky Crosby Sr., who has worked for the Housing Authority of Baltimore City for a decade, say they took the jobs with the understanding that the pay was relatively low, but the work was secure.
"By working for the Housing Authority, we joined the credit union so we could buy homes that we have to finance," said Crosby, 46, of Sandtown-Winchester. "We bought cars that we have to finance."
Housing Commissioner Paul T. Graziano acknowledged that some jobs might be lost as 22 of the agency's 28 properties are sold to developers over the next two years. He said the Housing Authority is keeping some positions vacant and filling others with temporary workers to reduce the potential number of layoffs.
Graziano said the agency is encouraging the developers to hire some of the workers, and to keep them apprised of the latest information as soon as it's available.
"This is a very large change, a massive change in the way we're doing business, and I understand change does create anxiety," Graziano said. "We're trying to provide whatever assurances we can."
The Housing Authority has identified 11 developers to buy the buildings. Several of them declined to comment Thursday.
The federal government is offering tax credits to developers who buy and renovate public housing.
Officials say the effort is intended to improve the lives of low-income Americans. But in the case of the maintenance workers, Anthony Coates said, it's doing just the opposite.
Coates, president of AFSCME Local 647, said members who lose their jobs could lose their homes.
"We're the working poor," he said.
The maintenance workers, who earn between about $15 and $20 an hour under their most recent contract, want the Housing Authority to tell them how many workers face layoffs, Coates said.
He said knowing the scope of the layoffs is especially important for the older maintenance workers on staff, who may find it harder to get new jobs.
Coates accused the agency of stalling contract negotiations. Senior housing officials rejected the accusation, and said a meeting is scheduled for next week. They said inclement weather forced them to postpone some meetings.
Anthony Scott, executive director of the Housing Authority, said the federal program has unfolded rapidly. The Housing Authority began preparing its application to the U.S. Department of Housing and Urban Development over the summer, submitted it in October and found out it had been approved in December.
"We informed our employees as quickly as we could," Scott said.
Graziano said the agency already has a "significant number of vacancies," but declined to say how many.
It's "a moving target," he said.
On top of that, he said, at least 10 percent turnover is expected each year.
He said Housing Authority workers would be attractive employees for the developers.
Below is an excellent report written in 2002 looking at the Baltimore Development history from the 1980s through 2000. It does a good job following the public money, identifying the promises, and the failure to meet goals tied to gains to the citizens of Baltimore in jobs and wages/wealth.
I want to remind people that in Baltimore, when Mayor Schaeffer died......he started these deals in the 1980s....the media hailed him as a savior and as loving the residents of Baltimore. He is the one who started these quasi-governmental agencies that hide transactions and keep the public from participating and he is the one who started mortgaging the city's future with tax breaks that have now starved the city to the max.
THESE POLICIES ARE AUTOCRATIC AND HAVE LED TO SUCH A LEVEL OF FRAUD AND CORRUPTION FROM A LACK OF TRANSPARENCY AND CENTRAL EXECUTIVE POWER THAT IT IS NOT FIRST WORLD...IT IS NOT DEMOCRATIC....AND IT ONLY ENRICHES A FEW!
So why is he hailed as a hero in the media? The media is captured and crony as is the city!
It will take some time to format this page so look online at this report with all the charts because these people did a lot of good work!
Subsidizing the Low Road:Economic Development in Baltimore
by Good Jobs First
Kate Davis and Chauna Brocht withPhil Mattera and Greg LeRoySeptember 2002©
Copyright 2002 Good Jobs First. All Rights Reserved. ii
Good Jobs First
1311 L Street NWWashington, DC 20005202-626-3780
Good Jobs First is a national non-profit resource center promoting best practices in state and local economic development. It was founded in 1998 by Greg LeRoy, author of No More Candy Store: States and Cities Making Job Subsidies Accountable.
Table of Contents
Revitalizing Downtown: A History of Economic Development in Baltimore............
The State of Economic Development Today..................................................
How Baltimore Finances Economic Development..........................................
The Economic Development Decision-Making Process in Baltimore...................
An Evaluation of Baltimore’s Economic Development Strategy.........................
Case Study: The Baltimore Waterfront Marriott..........................................
Case Study: Additional Payments in Lieu of Taxes (PILOT) Deals......................
Case Study: The Orioles and Ravens Deals.................................................
Case Study: East Baltimore Biotechnology Park...........................................
We wish to thank the Rockefeller Foundation for its financial support that enabled this project. This publication was also supported in part by a grant from the Community Fellowship Program of the Open Society Institute-Baltimore.Thanks also to Dr. Dale Thomson of Wayne State University and Dr. Marc Levine of the University of Wisconsin-Milwaukee for their assistance. We are also grateful to the members of the Baltimore Strategic Partnership for their guidance and helpful comments on the report. Finally, we wish to thank Andrew Frank of the Baltimore Development Corporation and Buzz Murphy of the Baltimore City Council for providing interviews and related materials. Although we have drawn on many sources, all conclusions, and any errors, are our own.
An analysis of Baltimore’s economic development efforts reveals a recurring history of high costs, low benefits, and a lack of safeguards to ensure that taxpayer investments really pay off in family-wage jobs and an enhanced tax base. Unlike most states and many big cities, Baltimore has no job quality standards, or laws requiring subsidized companies to pay a certain wage or to provide healthcare. The pattern is especially troubling today, as the city increasingly employs local tax expenditures –foregone future revenues – instead of federal or state dollars to finance development deals. The analysis also finds pervasive process problems. Baltimore’s privatized system for initiating deals – through the Baltimore Development Corporation (BDC) – affords taxpayers little opportunity for input as deals are shaped, and often only perfunctory chances to analyze or comment before they are formally authorized by the Board of Estimates or the City Council. The BDC’s records are secret, exempted from the Maryland Public Information Act. More broadly, citizen organizations have few meaningful ways to engage in and influence long-term priority-setting. Citizen participation is also discouraged by budget reporting systems that make the city’s economic development spending difficult to discern. In past decades as Baltimore City’s manufacturing base eroded, it aggressively promoted tourism and the redevelopment of the central business district. In the 1970s and 1980s, Baltimore successfully transformed the Inner Harbor into a popular tourist destination. However, the city neglected to enact standards to ensure that the new tourism jobs were of high quality. As a result, low wages and part-time hours are so prevalent that all but three of the city’s non-managerial tourism job titles pay less than the federal poverty line for a family of four; many pay far less. The need to ensure that tourism subsidies create public benefits is critical because the costs are so high. Government bodies have spent $2 billion in building and maintaining the city’s tourist facilities since the 1970s, and hundreds of millions more in subsidies to tourism-related businesses. Costs will remain high, because to remain competitive as a destination, Baltimore, like other places, will have to make big investments to constantly reinvent itself. The Maryland Stadium Authority (MSA) built two sports stadiums in Baltimore in the 1990s, for the Orioles baseball team and the Ravens football team. Consistent with a large body of literature that finds such facilities are poor deals, academic studies find that Baltimore’s stadiums are not breaking even fiscally. A study by the Brookings Institution estimates that Camden Yards generates approximately $3 million for viMaryland in revenue but costs the state’s taxpayers is $14 million a year. On the other hand, the owners of the two sports franchises have benefited substantially from the taxpayer-subsidized facilities. The city continues to focus its economic development resources downtown and along the waterfront, including luxury apartments and retail in the West Side, office space and parking garages downtown, and the conversion of abandoned factories into high-tech office space. In 2002, the city budgeted more than $150 million to support economic development projects; of this, $40 million was appropriated for tourism and almost $30 million was set aside to build parking lots downtown.Baltimore is also planning around $200 million in public subsidies for a 25-acre biotechnology park north of the Johns Hopkins University Medical Center that would dislocate many homeowners, tenants and small businesses. However, many of the assumptions behind that project’s public-benefit projections seem overly optimistic; the industry is still highly speculative and dependent on venture capital, and many other cities also have “cluster” site-location advantages. Only if research succeeds and creates commercialized drugs can the park create production jobs that are most likely to benefit current Baltimore residents; most such jobs are 10 to 20 years away, and there is no guarantee production will occur in the city. Nor is there any guarantee the companies will stay once they succeed. The city’s development efforts are increasingly reliant on local tax expenditures.Within the past five years, the state legislature has passed legislation allowing the city to use both property tax abatements (called payments in lieu of taxes or PILOTs) and tax increment financing (TIF, a diversion of property taxes) for development projects. The city's first PILOT was awarded to the Waterfront Marriott hotel in 1999; it will cause the city to forego $2.3 million in uncollected property taxes in 2002 and approximately $30 million over the next 25 years.1 The city recently authorized its first TIF project; it will divert more than $8 million in tax revenues to finance waterfront infrastructure. Despite the high costs of PILOTs, the city does not attach any kind of job quality standards – such as wage or healthcare requirements – to them, even though the program is targeted to hotel and retail developments, two industries that pay very low wages and benefits and use high rates of part-time labor. Driving the use of these costly new subsidies is the Baltimore Development Corporation (BDC), the city’s dominant economic development agency. The BDC is effectively controlled by the mayor, who appoints the BDC board; neither the City Council nor the Board of Estimates has any statutory influence over BDC personnel, although the Council, Board and Planning Commission do review various types or parts viiof packages. The BDC evaluates proposals, sometimes using outside consultants, and does monitor its loan and grant agreements, including following up on whether recipients have achieved job targets. The BDC does not employ clawbacks, or contractual recapture provisions, to recoup monies if a company fails to meet job requirements. A recent BDC review of 29 deals indicates positive job creation and finds that about half of new jobs go to city residents, but gives no deal-specific information on the range of wages paid or whether healthcare benefits are provided. Policy Options for More Effective Economic DevelopmentTo address the shortcomings found in our analysis, we offer policy options:•Enhance Public Participation –by reducing the Board of Estimates to its three elected officials; by requiring 30-day advance public hearings on each proposed subsidy with full disclosure of the deals’ scope, costs and benefits; and by giving notice of such hearings to anyone who signs up as an interested party. •Institutionalize More Community Input – byincluding more representatives from community and labor organizations on the boards of city economic development agencies. •Track and Report Outcomes – by requiring every subsidized company to submit an annual report on the number and quality of jobs created, including the wages paid, whether the jobs are full-time or part-time and any benefits provided (especially health care); by verifying job and wage data against unemployment insurance records; by making these reports readily available to the public; and by having the Baltimore City Comptroller do a performance audit of the BDC with particular attention to wages and benefits.•Publish a Unified Economic Development Budget – from the mayor's office annually to both break out and aggregate data on all costs of each type of subsidy awarded by the city and agencies, including the BDC, including on-budget spending, such as loans, grants, and infrastructure, as well as off-budget spending, such as PILOTs and tax credits, as well as outcomes such as jobs created and wages and benefits paid. •End the BDC's Privilege of Secrecy – by making the records of the Baltimore Development Corporation subject to Maryland's Public Information Act.viii•Adopt Job Quality Standards – via anordinance covering all development subsidies. Wage standards could be pegged to the city's existing living wage law; however, market-based standards (i.e., average city wages or average industry wages) with a poverty floor would be more consistent with the intent of economic development. A mandate for healthcare insurance would avoid the hidden taxpayer costs of employees at subsidized companies relying on Medicaid.•Adopt Clawbacks– or recapture requirements that call for pro-rated refunds if a company misses job creation or wage requirements after two years. •Cap TIF and PILOT Property-Tax Costs – by limiting the share of the city’s property tax base that can be captured by either program to one or two percent. This would shield education and ensure that the city balances its goals of economic growth and quality service provision.1 1. Revitalizing Downtown: A History of Economic Development in BaltimoreEconomic development efforts in downtown Baltimore began as early as the mid-1950s, when Baltimore City started to lose its position as the metropolitan area’s population and employment center. Baltimore’s population peaked at 950,000 in 1950, when it was the sixth largest city in the country. At that time, 70% of the region’s population was located in the city.2 By 2000, Baltimore’s population had declined to 651,000, with just 26% of the region’s total population.3 Along with the shrinkage of the city’s overall population, there was a substantial change in its racial composition. Baltimore went from being 24% African-American in 1950 to 60% in 2000.4As the city lost population, it also lost industrial jobs. In 1950, Baltimore was one of the country’s leading industrial centers. Over 34% of the city’s workforce was employed in manufacturing and over 75% of jobs in the region were located in the city.5Between 1950 and 1995, Baltimore lost 75% of its industrial employment.6 Today, only 7.5% of city jobs are in manufacturing. Mid-1950s to 1960s: Laying the groundwork for a downtown-focused strategyBaltimore’s first major economic development projects were undertaken in response to concerns voiced by business leaders, who in the mid-1950s were already detecting signs of softening property values and weakening retail activity in the downtown business district. This was a consequence of the city’s inability to attract much private investment to the downtown district; in fact, no major construction had occurred there since the 1920s.7 The shift of major port activity from the Inner Harbor to deeper waters farther down Chesapeake Bay and to other East Coast docks left more than two million square feet of vacant loft and warehouse space near the center of downtown.8The push for redevelopment came primarily from the city’s leading financial institutions, such as Maryland National Bank, Mercantile Safe Deposit and Trust Company and First National Bank.9 The main concern of the banks was to stimulate commercial real estate development and retailing. Despite the fact that manufacturing employment was already starting to decline, there was much less emphasis from these business leaders on blue-collar jobs. The Baltimore area was home to the headquarters of only one Fortune 500 manufacturing company (Black and Decker).10The main vehicle for these revitalization efforts was the Greater Baltimore Committee (GBC), an organization created in 1954 that was made up of the chief executive officers of Baltimore’s 100 largest businesses, most of which were located downtown. The first downtown project of the GBC was Charles Center: 33 acres of 2offices, apartments and retail businesses. This project, which broke ground in 1959, was completed at a cost of $180 million, including $40 million in public funds.11 The second initiative of the GBC was a 30-year, $270 million plan to develop the Inner Harbor into 240 acres of tourist attractions, offices, retail business and housing. By the mid-1960s, funds were approved for land acquisition and site clearance, which was under way by the end of the decade. Although investor and public skepticism initially slowed the project, the development proceeded after Mayor William Donald Schaefer took office in 1971.12In 1965, at the urging of the Greater Baltimore Committee, the city created the Charles Center-Inner Harbor Management, Inc. (CCIHM) to coordinate activities -- such as planning, marketing, negotiating, and managing public spaces -- related to the two major redevelopment projects. CCIHM, the first of many quasi-public economic development corporations in Baltimore, was given certain powers usually reserved for government agencies, including the allocation of public money and the right of eminent domain. But because CCIHM was still semi-private, it was exempt from many laws and regulations faced by city agencies, such as disclosure and competitive bidding. This allowed CCIHM to engage in contract negotiations that were kept confidential up to the point that formal approval was sought from the city’s mayoral-dominated Board of Estimates.13 CCIHM reported to the Department of Housing and Community Development, and its funds were approved by the Board of Estimates, giving the mayor a strong role in overseeing its operations.141970s to late 1980s: Schaefer’s “Entrepreneurial Government”After taking office, Mayor Schaefer worked hard to promote the idea of using “public/private partnerships” to pursue economic development. The city bent over backwards to be seen as business-friendly, with Schaefer telling businesses he sought to recruit that “Baltimore wants you so badly, we’ll let you write your own terms.”15Schaefer, who continued to focus on real estate, retailing and tourism sectors rather than manufacturing, sought to create what one academic, Marc Levine, called a “developer’s city,” offering below-market loans, land write-downs, sale lease-back agreements and property tax abatements.16The Inner HarborNowhere was this seen more clearly than in the redevelopment of the Inner Harbor. Schaefer became the leading promoter of the Inner Harbor and arranged for the city to pour public funds and resources into the project. The city acquired and demolished more than 400 structures to provide land. Ninety percent of the first phase of the project (in the 1970s) was funded with public money.17 The U.S. Department of Housing and Urban Development estimates that between 1975 and 31981 Baltimore spent 35% of its $296 million in Urban Development Action Grants, Community Block Development Grants and special grants—all HUD monies—on Inner Harbor-related projects.18These projects included public and non-profit facilities such as the Maryland Science Center, the World Trade Center, the Convention Center, and the National Aquarium as well as private-sector projects such the Hyatt Regency Inner Harbor, which was funded primarily by a $10 million Urban Development Action Grant, with the owners investing only $500,000.19The most controversial Inner Harbor project was Harborplace, built with $22 million in private funds by the Rouse Corporation. The original proposal was to build three pavilions of shops and restaurants on land that contained a city park. Many city residents objected to the loss of public space, while businesses in nearby Little Italy and Market Center were concerned that Harborplace would pirate their customers. A referendum that would have prohibited the Harborplace project was defeated, though community activists did succeed in getting the Rouse Corporation to scale back the project from three to two pavilions.20Harborplace helped to stimulate an Inner Harbor boom in the 1980s. Another reason for the growth were changes in tax policies that allowed accelerated depreciation on commercial real estate. During the 1980s, $1.6 billion was invested in the Inner Harbor on projects such as office buildings, luxury housing and hotels. Ninety percent of this total was private investment, the reverse of the 1970s, when 90% of development funds came from public funds.21Other Development ProjectsIn 1977, the Greater Baltimore Committee proposed a plan to redevelop the city’s historic retail area at Market Center by retaining existing department stores and encouraging new upscale shops to locate in the area. This plan was opposed by small businesses that would be displaced. Despite this opposition, the GBC moved ahead, but it turned out to be difficult to find a private developer.22 The city drew up a more limited plan for redevelopment around a proposed subway stop, but within several years the project expanded once again. By the mid-1980s, the city had renovated Lexington Market and created pedestrian malls in the area. These efforts, however, did not stop the remaining department stores from closing. Thus, by the late 1980s, the redevelopment focus shifted towards residential development.23 The Schaefer Administration created the quasi-public Market Center Development Corporation in 1979 to manage West Side redevelopment. 4Industrial DevelopmentDespite its heavy focus on tourism and retail, Baltimore did not ignore industrial development. It is difficult to assess the city’s industrial development efforts. These initiatives were less glamorous and had less visible results, and as a result have been less studied. Because of these limitations, we focus our analysis on the Baltimore Economic Development Corporation (BEDCO), the economic development corporation in charge of industrial development. BEDCO was a quasi-public agency created in 1975 to manage the city’s $3 million industrial land-banking fund, which packaged land for manufacturing projects throughout the city. This fund had previously been run by the Baltimore Industrial Development Corporation, created in 1965.24Between 1976 and 1986, BEDCO acquired over 500 acres for industrial use, created six city-owned industrial parks (such as Fort Holland Industrial Park and the Seton Business Park), made improvements to older industrial parks and converted vacant factory buildings.25 BEDCO also ran a business retention program that primarily served large and medium businesses, along with other programs for small and minority businesses.26The economic development corporations that focused on the Inner Harbor/downtown area had much bigger budgets than BEDCO (as well, there were economic development projects that took place outside of any economic development corporation’s budget). Our analysis shows that the city appropriated twice as much for tourism, retail or downtown office projects through CCIHM, CCDC or MCDC than it did for BEDCO. From 1976 to 1991, BEDCO projects accounted for one-third of the city’s budgeted capital funds; while two-thirds of capital funds went towards CCIHM, CCDC, and MCDC.27Table 1 shows capital appropriations by economic development agency from 1976 to 1991. The budget includes funds from federal and state sources. Table 1 excludes funding from Industrial Development Revenue Bonds (IDRBs.) IDRBs are federally tax-exempt bonds issued on behalf of private companies. These bonds can be used as capital for expansion, and are a useful source of financing because of the low interest rates. We excluded IDRB bonds from this analysis because they are a private liability, not a public appropriation.5However, a case can be made for including IDRBs in the analysis. Although the city doesn’t pay back the IDRB bonds, the city’s credit secures the bonds. If there were a default on the bonds, the city would most likely intervene to avoid a negative impact on its credit rating. IDRBs are a significant source of assistance to businesses in the form of low interest loans (see Table 2.)Table 1: Capital Budget Dollars Appropriated to Economic Development Corporations Excluding Industrial Development Revenue Bonds (2001 dollars in 000s)Fiscal YearBEDCO(Industrial Development)PercentCCIHM/CCDC/MCDC(Inner Harbor / West Side / Downtown )PercentTotal1976$ 34,74819%$ 145,45281%$ 180,2001977$ 39,51721%$ 149,59879%$ 189,1151978$ 49,258100%$ -0%$ 49,2581979$ 58,59841%$ 84,22559%$ 142,8221980$ 37,81735%$ 71,03665%$ 108,8531981$ 90,68661%$ 57,51939%$ 148,2041982$ 27,53127%$ 75,34873%$ 102,8781983$ 17,03439%$ 26,42461%$ 43,4581984$ 31,32516%$ 168,65784%$ 199,9821985$ 23,35821%$ 88,06379%$ 111,4211986$ 15,49312%$ 117,38588%$ 132,8781987$ 42,77142%$ 59,73558%$ 102,5061988$ 50,82646%$ 58,62454%$ 109,4501989$ 31,00935%$ 58,11765%$ 89,1261990$ 23,70041%$ 34,50159%$ 58,2001991$ 19,33360%$ 12,81740%$ 32,149Total$ 593,00233%$ 1,207,50167%$ 1,800,503Source: Author’s analysis of data provided by Dale Thomson, Wayne State University6The Trustees ProgramThe most controversial quasi-public agency was the Baltimore City Trustees Loan and Guarantee Program (Trustees), which was created in 1976 and operated by two trustees appointed by the mayor. Its purpose was to package public funds into low-interest loans for redevelopment. The Trustees program primarily provided gap financing when all other sources of public and private funds were exhausted. The program dispersed or guaranteed $426 million for 239 projects between 1976-1986. Forty percent of these funds went towards downtown redevelopment, with most of the remainder going towards middle-class or upscale housing.28 The program operated with a low public profile until the early 1980s, when it was criticized for poor accounting practices, lack of public disclosure, inadequate oversight, and lack of control by the city council (the mayor had virtually complete control).29Table 2: Industrial Development Revenue Bonds Issued for Economic Development Corporations (2001 dollars in thousands)Fiscal YearIDRBs Issued for BEDCO (Industrial Development)IDRBs Issued for CCIHM/CCDC/MCDC (for Inner Harbor / West Side / Downtown)1976$ 73,831$ -1977$ 2,245$ -1978$ 1,707$ -1979$ 79,479$ 158,5601980$ 120,087$ 78,0721981$ 565,440$ 4,1181982$ 641,073$ 231,4841983$ 147,498$ 17,4261984$ 111,640$ 58,9641985$ 162,432$ 27,0091986$ 321,720$ 3,7031987$ 29,175$ -1988$ 19,973$ 3,1181989$ 101,724$ -1990$ 46,716$ -1991$ 5,420$ 14,738Total$ 2,430,162$ 597,193Source: Author’s analysis of data provided by Dale Thomson, Wayne State University7In 1986, Mayor Schaefer disbanded the Trustees before launching his campaign for governor, claiming that the program was no longer needed because the city was able to attract private capital. Many commentators speculated, however, that Schaefer wanted to avoid scrutiny during his election campaign.30Late 1980s to late 1990s: The real estate bubble bursts, but more redevelopment downtownKurt L. Schmoke was elected Mayor in 1987 and served until 1999. Early in his administration, Schmoke consolidated three agencies -- Charles Center-Inner Harbor Management, Market Center Development Corporation and Baltimore Economic Development Corporation -- into the Baltimore Development Corporation (BDC).31 Like its predecessors, the BDC is heavily controlled by the mayor and its board is led by private-sector appointees. In contrast to past economic development efforts, the BDC under Mayor Schmoke was criticized for being more reactive than proactive. However, not all of the blame can be placed on Schmoke’s leadership; part of the problem was that the development climate had changed. By the late 1980s, the real estate bubble burst. Federal tax reform in 1986 eliminated many real estate tax shelters, and most cities experienced a glut of downtown office space.32 By the mid-1990s, Baltimore’s downtown office vacancy rate soared to 25%, and the value of downtown property declined 40% from its 1980 peak.33 Moreover, by the early 1990s, far less federal and state funding was available for redevelopment.34 The supply of land available for redevelopment had also diminished significantly as a result of earlier development efforts.35During the 1990s, public sector funds again came to dominate Inner Harbor development. Other major redevelopment projects from 1987 to 1999 included: •Oriole Park at Camden Yards, built in 1992 and financed with more than $200 million in public funds (see Chapter 8); •Raven’s Stadium, built in 1998 and financed with more than $200 million in public funds (see Chapter 8); •the expansion of the Convention Center in the mid-1990s at a cost of $151 million; and •Columbus Center, a combination tourist attraction/marine biotechnology center built in 1995 at a cost of $147 million to the public.368In 1999, the city also provided more than $40 million in loans, grants, and tax abatements for the construction of the Marriott Waterfront Hotel (see Chapter 6 for more details). This project continued the city’s pattern of providing an average of a 30% subsidy to every downtown hotel built since the late 1970s.3792. The State of Economic Development TodayMany of Baltimore's economic development projects are still clustered around the waterfront and the downtown area. Current initiatives include further development of tourism in the Inner Harbor, apartments in the West Side, and a technology cluster in the "Digital Harbor.” The city has budgeted more than $150 million to support economic development in 2002.Tourism. Tourism continues to be at the forefront of Baltimore's economic development strategy. Over the past decade, and with assistance from the state, the city has continued to finance big-ticket tourist attractions along the waterfront. This year the city has budgeted more than $40 million to build, promote, and operate tourist attractions.38Inner Harbor East. In addition to creating more tourist attractions, the city continues to subsidize office, retail, and hotel development in the Inner Harbor. The focus now is on the east side of the Harbor. The area, which has been described as "one of the best tracts of undeveloped urban waterfront on the East Coast,” is eligible for both federal empowerment zone and Maryland enterprise zone benefits39 (see Chapter 3 for a description of how these programs work.)Recently completed projects in Inner Harbor East include two Marriott hotels, the headquarters of Sylvan Learning Systems and a Fresh Fields gourmet grocery store. The city has offered tax abatements to the Waterfront Marriott and Lockwood Place, a mixed-use project. The city has budgeted $21 million this year to build a parking lot for Sylvan Ventures, a division of Sylvan Learning Systems.40West Side Revitalization. The city has repeatedly attempted to redevelop the West Side, a neighborhood situated between the Inner Harbor, the central business district and the University of Maryland's Baltimore campus. In the 1970s, the Market Center Development Corporation tried to redevelop the area to retain some of the large department stores along Howard Street. Now, the focus is on transforming the area into a residential neighborhood for university students, professors and young urban professionals.The most recent iteration of the West Side Revitalization Plan was initiated by the Weinberg Foundation, a non-profit organization that inherited significant amounts of property in the neighborhood from the late developer Harry Weinberg. (During his lifetime, Weinberg repeatedly blocked the city's redevelopment plans by refusing to invest in his properties or cooperate in the redevelopment efforts.) In 1998, the Foundation, along with Orioles' owner Peter Angelos, the University of Maryland, and the BDC, drew up an aggressive action plan to redevelop the West Side. At the top of 10the agenda was the city's acquisition and demolition of more than 100 buildings. This plan drew sharp criticism from both small neighborhood businesses and preservationists. The city quickly changed its plans, scaling down the number of structures to be put on the chopping block and creating a fund to compensate dislocated businesses.Proponents of the West Side plan want to encourage the development of market-rate apartments for middle-to-high income residents. The proposed gentrification of the West Side is part of a larger city strategy to lure suburbanites back to the city. Major elements include the $56 million conversion of the Hippodrome Theatre into a performing arts center, the renovation of Lexington Market, and the construction of Centerpoint, an apartment and retail complex. In addition, the city plans to create more open space and improve public transit in the neighborhood. The revised West Side Strategic Plan calls for more than $100 million in public investment for infrastructure and large-scale projects.41 This estimate does not include the tax incentives the city plans to offer developers. The plan estimates the city could lose more than $8 million annually in tax abatements (also known as payments in lieu of taxes or PILOTs.)42 The Board of Estimates recently authorized a PILOT for Centerpoint, a luxury apartment building in the West Side. This city will forego an estimated $11.4 million in property tax revenue during the 20-year duration of the PILOT.43 For more on how PILOTs work, see Chapter 3. The Digital Harbor. This initiative aims to develop a technology cluster in the city, capitalizing on the strength of the area's universities and research centers. The city plans to lure tech companies into Baltimore by encouraging developers to create "cool, affordable" office space for tech firms by investing in open space and infrastructure along the waterfront, and by creating a tech-friendly workforce through investments in education.44 In November 2000, Mayor Martin O'Malley issued a $300 million ($60 million a year over five years) state funding request to support Digital Harbor projects. The request included:•$34 million to acquire and renovate properties in the West Side; •$60 million to shore up bulkheads in the harbor and extend the waterfront promenade; and •$124 million for street and utility improvements targeted around I-95, the West Side, Fells Point, Locust Point, and the Inner Harbor.45The plan received a chilly response from the state legislature, which approved only $18 million for the first year of the initiative.4611Biotechnology Park. In early 2001, the city announced plans to create a biotechnology park in the area north of the Johns Hopkins University Medical campus in East Baltimore. The proposed biotechnology park includes more than 25 acres of office space (the total project, including new and renovated housing, is expected to cover 800 acres). Johns Hopkins has committed to lease at least 30% of the available space. Altogether, the project is projected to cost $800 million; $600 million from private investment, $70-80 million from tax increment financing, $40-50 million from state funds, with the remainder coming from federal funds or foundation funding. (See Chapter 9 for more details.)Industrial development. Manufacturing projects are the minority of projects currently funded by the BDC. According to the BDC's 2000 annual report, only 7 out of 76 projects were manufacturing related. If distribution centers and port related projects are included, the number of industrial projects increases to 23.47Recently, the BDC has been focusing on industrial areas in the Fairfield area of South Baltimore, the Carroll/Camden Industrial Park (just south of the Raven’s stadium) and the Canton area. The city invested $13 million for infrastructure improvements in the Fairfield area,48 which it reports has attracted $100 million in private investment.49In the Carroll/Camden industrial area, the major project was the conversion of the Montgomery Ward building into an office park (with a minor industrial component). The BDC is involved in the Canton industrial area, although the area is doing well without much public investment.50Parking. In 1997, the Downtown Partnership released a report that identified a parking shortage as one of the major impediments to doing business in Baltimore City. The report argued that a lack of parking was forcing companies to relocate to the suburbs. Since that time, the city has committed significant resources to build parking lots downtown. In 1999, the state authorized the city to offer tax abatements for parking lot development. The city has also financed lot construction with parking revenue bonds. In 2000, the city agreed to build a $15.5 million parking lot for Citifinancial as part of a retention deal.51 (The city also provided $1 million in loans to help the company renovate its offices.)52 This year the city has budgeted $29 million for parking lot construction.53Empowerment Zone. In 1994 Baltimore was one of six cities chosen to receive funds under the federal Empowerment Zone program. The program operates in three areas of Baltimore: East Baltimore, including Inner Harbor East, Fells Point, and the areas surrounding the Johns Hopkins Medical Center; West Baltimore neighborhoods including Harlem Park, Sandtown-Winchester, Washington Village and Pigtown; and the Fairfield area of South Baltimore. The program is administered by the Empower 12Baltimore Management Corporation (EBMC), a quasi-public agency. As of June 2000, EBMC had spent $34 million of the $100 million cash grant.54The four goals of the Empowerment Zone are business development for job creation, workforce development, improving quality of life, and community capacity building.55 The program seeks to balance the goals of business development, neighborhood development and social programs. However, since there is $250 million budgeted for tax credits for business development, in addition to business-oriented programs paid out of the $100 million cash grant, Empowerment Zone spending leans towards business development.One business development program is a federal tax credit of up to $3,000 per employee for businesses that hire zone residents. The EMBC also has several loan funds, including a small business loan fund and a Brownfields loan fund. EMBC also provides support and networking opportunities for zone businesses. The EMBC claims to have created 4,800 jobs through its business development programs.56 EMBC officials admit that although they have succeeded in helping residents find low-paying jobs, they need to do more to get residents into higher-paying jobs.57Workforce development programs include job training, job readiness, literacy and other educational programs. Support services such as transportation or drug treatment programs are also provided for residents. Workforce development programs are required to place workers in jobs paying at least $6.50 an hour.58Quality of life programs include community policing, extended day schools and homeownership programs. The EMBC reports that the homeownership program, which provides grants of up to $5,000 for low- and moderate-income residents, has helped 711 residents become new homeowners.59A range of businesses from a variety of industries have benefited from the Empowerment Zone program. EMBC, for example, has worked with the BDC to develop an industrial park in the Fairfield area, which is a largely underutilized industrial site that contains many brownfield areas. As a result of improvements made by the city, the Fairfield area has attracted $100 million in private investment.60The EMBC also supports small businesses that create relatively good jobs, such as a sign company and an auto body shop. However, Empowerment Zone money also goes towards the city’s already heavily subsidized tourism industry, with loans for restaurants such as the Bohagers and Charleston restaurants, and tax credits for the Marriott Waterfront Hotel.61In an effort to soften legislative opposition, Modell agreed to reimburse the Stadium Authority $24 million. This agreement was signed into law along with a provision that the MSA transfer $2.4 million per year for ten years into a school construction fund. Under the law, the team had thirty years to make the $24 million payment. Over time, however, the real value of that payment will decrease dramatically with inflation. Hence, the stadium authority agreed that the teamwould pay only $10 million upfront and $2 million during the remaining thirty-year period.Once construction began, the stadium's construction budget got squeezed by cost overruns and lottery shortfalls. To make up for these losses, the Authority sold the naming rights of the stadium to the Ravens for $10 million in 1997. This deal enabled the MSA to avoid going back to a hostile legislature to ask for more money. The team was able to sell the name rights to PSInet for $79.5 million.191Construction was completed in 1998 at a cost of $229 million.192 The state also financed a light rail station for the new stadium at a cost of $6 million.193 The Ravens contributed $1 million toward the station and about $12 million to the project through the payment mentioned in the preceding paragraph.Soon after Modell agreed to move his team to Baltimore, the Orioles cried foul. The Orioles had a clause in their lease that guaranteed the team parity with any deal struck between the MSA and a football team. The Orioles claimed that the Ravens had been given a better deal and filed suit against the Stadium Authority. An arbitration panel ruled in favor of the Orioles. Under the ruling, the MSA had to give the team the naming rights to the ballpark and contribute $10 million toward improvements.195Economic and Fiscal ImpactThe impact of the football stadium on the Maryland economy is unclear. In 1998, the Department of Business and Economic Development (DBED) estimated that team and fan spending would create 2,730 new jobs and generate $11.3 million in additional state and local tax revenue.196 An analysis done by the Department of Legislative Services (DLS), however, estimated that team and fan spending would result in only 889 jobs and $7.7 million in state and local tax revenue.197What accounted for this dramatic difference in opinion? The DLS argued that DBED exaggerated the ripple effects of team and fan spending. DLS used lower multipliers to account for the fact that many of the jobs created by the stadium were seasonal and low-paying. Additionally, DLS argued that not all fan spending was necessarily new spending, since some local fans would have spent their money elsewhere in the area had the stadium not been built. Currently, the state is spending approximately $20 million each year to pay off the debt on the two stadiums.198 A look at the Stadium Authority's budget shows that total expenditures on both the football and baseball stadiums exceeded revenues from those venues by $21.3 million in 2001 (see Table 6.)199 The MSA used $22 million in lottery proceeds and the $1 million annual contribution from the City of Baltimore to offset these losses.200 At the end of FY2001, the stadium budget showed a $4.1 million negative balance, down from $5.8 million the previous year.201A close examination of the Baltimore stadium deals demonstrates that the benefits of these projects do not outweigh the costs. More important is the opportunity cost of not investing taxpayer dollars in education, transportation or other programs that could yield more positive economic outcomes. 43Table 6. Maryland Stadium Authority Financing Fund FY 2001Beginning Balance-$5,769,000RevenuesAdmissions Tax$7,075,000Baseball Rent$7,109,000Other Baseball Stadium Income$1,406,000Football Maintenance Payments$6,219,000Other Football Stadium Income$554,000Warehouse and Camden Station Revenue$2,920,000Other Income-$584,000Total Revenues$24,699,000ExpensesMSA Operating Expenses$2,629,000Camden Yards Facilities Operations$15,573,000Equipment Leases$3,534,000Stadium Improvement Fund$400,000Capital Expenditures$1,292,000Debt Service and Financing Costs$20,264,000School Construction Fund Payment$2,400,000Total Uses$46, 092,000Revenues minus Expenses-$21,393,000Additional FinancingCity of Baltimore Payment (for Debt Service)$1,000,000Lottery Proceeds$22,000,000Ending Balance-$4,162,000Source: Department of Legislative Services449. Case Study: East Baltimore Biotechnology ParkIn January 2001, Mayor Martin O’Malley announced that the city was considering building a biotechnology park north of the Johns Hopkins University Medical Center. The city and the Historic East Baltimore Community Action Coalition (HEBCAC), an organization funded by the city, state and Johns Hopkins University, had been attempting for several years to revitalize the East Baltimore neighborhoods north of Hopkins. The city and HEBCAC came to the conclusion that the neighborhood needed a major project to anchor redevelopment efforts. At the same time, the University expressed interest in a new biotechnology facility. With funding from local foundations, the city hired Urban Design Associates to develop a plan for a biotech park and revitalization of surrounding areas. The proposed biotech park will lease space to companies that are developing new products from medical research, such as drugs or medical devices. The tenants of the park will include a mix of start-ups and established biotech companies.202The park is also expected to include firms that provide supplies and services to biotech research companies. It is unclear at this time whether tenants will also include biotech manufacturing facilities.203The biotech park will provide "incubator" services, such as business advice and in kind services, to its tenants. Johns Hopkins Medicine has agreed to provide start-ups with assistance through its Technology Transfer Office and give them access to the Hopkins intranet, library and databases. Hopkins has also agreed to try to recruit start-up companies seeking to develop Hopkins’ technology to locate in the biotech park.204Currently, the proposed biotechnology park is projected to cover 25 acres (the total redevelopment project, including new and renovated housing, is expected to cover 80 to100 acres).205 Assuming a growth rate of 5% for the biotech industry throughout Maryland, the industry will need 3.3 million additional square feet of space in 5 years. The proposed park would meet approximately two-thirds of that demand.206In addition to the biotech park, the project will also involve substantial changes to the neighborhood, including demolition, rehabilitation, new housing construction, and major street-scaping. The plans include 1,000 new and rehabilitated housing units, with apartments renting for $450 to 1,450 a month and houses selling in the range of $115,000 to 225,000.207 The city also plans to provide 7,000 new parking spaces. Public transportation, such as a new Metro or MARC commuter rail stop, is not included in the project’s budget, but is included in other plans by the city and state. 45Project CostsThe total project costs are currently projected to be $800 million.208 While the private sector is expected to invest $600 million, the project will also require significant public investment. The city plans to use a Tax Increment Financing (TIF) bond to fund $70 to 80 million of the project (Chapter 3 for a description of TIF). Thirty million dollars will come from the value of newly assembled parcels of land owned by the city. The city will use $15 million of funding from HUD’s Section 108 Loan Guarantee Program, and expects to receive $40 to $50 million in state funding. The remainder will come from other federal or private foundation sources. Businesses that locate in the park are also likely to be eligible for other state corporate income tax credits that promote high-tech businesses.209The city is seeking $2.5 million from Baltimore foundations (including Johns Hopkins Medicine) to provide initial operating support for a new non-profit quasi-public economic development corporation that will be responsible for assembling parcels, preparing sites, and recruiting private-sector developers.210 The project will be overseen by the East Baltimore Development Corporation, a non-profit organization. The first eight members of the board have been selected; three were selected by the city, one by the state, two by Hopkins and two by East Baltimore elected officials. These eight members chose the remaining three members. Joseph Haskins, Jr., the chairman and CEO of Harbor Bank of Maryland will chair the corporation.211Approximately 300 homeowners, 500 renters and 100 small businesses will be relocated to accommodate the changes. The area also includes 1,000 vacant buildings and lots. The city owns 290 of the properties included in the area, and Johns Hopkins University owns 96 of the properties.212Project BenefitsOne of the major potential benefits to city residents from the proposed project is the creation of new jobs. The city forecasts that 8,000 new jobs will be created over 10 years.213 This projection is based on the number of workers per square foot for biotechnology office space, assuming 100% occupancy of the park. Based on information from other biotech parks, the city expects that one third of the new jobs will require an advanced degree, one third will require a college degree, and one third will require a high school diploma or GED with additional training.214 The project includes $10 million for job training for people without college degrees. Part of this training will be provided by the Biotechnical Institute of Maryland, an organization that trains laboratory technicians and whose graduates earn from $22,000 to $25,000.21546However, the city may well be overestimating the number of jobs that will be created. First, supporting biotech can be a risky venture, and the park might not achieve the 100% occupancy rate the city projects, thus reducing the number of jobs created. As Johns Hopkins University researchers Feldman and Ronzio note, biotech is “still at an early stage of its development and there are many competing hypotheses about its future.”216 Biotech parks are risky investments for private companies; facilities are expensive to build because they require sophisticated space, and the potential tenants are companies with little or no credit history.217 These inherent risks are why governments step in to finance biotech parks. Second, although Maryland is in a good position to attract biotech companies, Baltimore City has not proven able to compete with other areas in the state. The Mid-Atlantic area encompassing Maryland, Virginia and the District of Columbia has the third largest concentration of biotech companies in the country. Using a narrow definition of biotech, there were 102 such firms in Maryland in 1996, with 2,389 employees.218 Using a more expansive definition that includes biotech suppliers and support services, there were 260 biotech companies with 16,000 employees in Maryland in 2001.219 Baltimore City will have to compete with Montgomery County, where the majority of Maryland's biotech firms are located. In 1996, Baltimore City had 7 biotechnology firms, with 218 employees.220Third, any success Baltimore has in attracting biotech companies may not result in the large number jobs for city residents that the city projects. A recent study, for example, found that less than a third of the workforce of three large Baltimore biotech companies that received city subsidies were city residents.221 In some cases, biotech parks have proven to be a good investment for local residents. The University City Science Center in Philadelphia, one of the oldest and most successful business incubators, has created 7,000 jobs over 30 years, and 75% of the companies have stayed in the city.222 In other cases, however, biotech parks have not benefited city residents. Twenty years after New Haven, Connecticut created its Science Park center, only 400 biotech jobs have located within the city, falling far short of the original goal of 1,809 jobs. Over 700 biotech jobs have left the city, as successful companies have expanded in other locations.223The city is also likely to be over-estimating the number of new jobs that will be filled by workers with a high school diploma or GED and training. Companies in the earlier stages of development, like those expected to be tenants of the park, mostly hire workers with higher levels of education. An executive of one biotech company stated: “You start at the PhD level, then move to bachelor’s level, then to junior college level, and you do on-the-job training. That’s the typical evolutionary pattern of biotech companies.”224 During the incubation phase, when the product is being developed, companies rely on a university’s expertise and hire a small number of well-educated Wage standards could be pegged to that law; however, market-based standards (i.e., average city wages or average industry wages) with a poverty floor would be more consistent with the intent of economic development. A mandate for healthcare insurance would avoid the hidden taxpayer costs of employees at subsidized companies relying on Medicaid. Adopt Clawbacks– or recapture requirements that call for pro-rated refunds if a company misses job creation or wage requirements after two years.Cap TIF and PILOT Property-Tax Costs. To control the harm to education and other public services, the city could set a cap of one or two percent of its property tax base that could be captured by either program. This way the city can balance its goals of economic growth and quality service provision