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Subsidies to developers should be prioritized and better monitored, task force says

Councilman Stokes’ task force says Baltimore’s TIF and PILOT tax breaks give the appearance of being developer-driven

Above: Harbor East’s Marriott Waterfront Hotel was excused from paying $3,374,525 in property taxes last year. (Mark Reutter)

A long-awaited report on Baltimore’s use of tax breaks and other public subsidies to spur private development calls for more transparency, better monitoring and more clearly defined objectives.

The task force, formed by City Councilman Carl Stokes and including businessmen and community leaders, will deliver its report to the council’s Taxation, Finance and Economic Development Committee tomorrow. An advance copy was provided to The Brew.

The report zeros in on two controversial programs, PILOTs (Payments in Lieu of Taxes) and TIFs (Tax Increment Financing), which have been used to underwrite development projects mostly in the downtown and Harbor East.

The report concludes that both programs have value to the city and should be continued.

But the task force said the programs fail to follow “best practices” used in other cities and, worse, give “the appearance that the process is developer-driven” rather than following clear priorities established for the public good.

Another Blow to the BDC

While measured in tone, the report strikes a blow to the practices of the Baltimore Development Corp. (BDC), the quasi-public organization instrumental in awarding tax subsidies that last year saved downtown developers $14.5 million in city property taxes. (Here is a full report on the subsidies.)

In its call for greater transparency, better monitoring and more community involvement – the report echoes the recommendations of the Occupy Baltimore demonstrators who held an open-air meeting with BDC president M.J. “Jay” Brodie on Monday night.

They, too, faulted the BDC for lack of transparency, handing out “blank checks” to developers and failing to ensure a “living wage” for workers employed at publicly-subsidized developments.

The task force was co-chaired by commercial realtor Wendy Blair and businessman Calman “Buddy” Zamoiski and consisted of 13 business, philanthropic and community leaders.

Among them: Robert C. Embry, president of The Abell Foundation; Robert Manekin, a commercial real estate broker; Andy Frank, former deputy mayor and now special adviser to the president of Johns Hopkins University; Orioles owner Peter J. Angelos, Mark Sissman, president of Healthy Neighborhoods; and Joseph T. “Jody” Landers, former executive vice president of the Greater Baltimore Board of Realtors.

The group held its first meeting in January and met through June. It asked for information on the tax-subsidy programs from the BDC and the Department of Housing and Community Development (HCD). The largest number of tax subsidies has been used by HCD.

A member of the task force said that HCD was not forthcoming with information, while more data was supplied by the BDC. The task force also met with the departments of finance and planning, which review aspects of the PILOT and TIF programs.

Specific Recommendations

The task force makes the following recommendations to the City Council and Mayor Stephanie Rawlings-Blake:

• prioritize TIF and PILOT projects rather than wait “passively” for developers to request subsidies.
• consider establishing profit sharing or joint city ownership on projects that receive public subsidies.
• improve communication with community groups and citizens during the process in which tax subsidies are granted.
• set up a publicly accessible information database about TIF and PILOT projects.
• establish an independent advisory body to evaluate and monitor proposed and active TIFs and PILOTs.
• measure the “social returns” promised by developers seeking tax subsidies.
• address the loss of state aid to Baltimore because of the lost revenues from PILOTs and TIFs counted as part of the city’s total assessed property value.
• find ways to use TIFs and PILOTs for community revitalization and other public-improvement projects that will “build a larger middle class.”

The report faulted the BDC for waiting for developers to request a tax subsidy rather than actively developing its own set of criteria for awarding breaks.

It cited tax breaks at Harbor East, Mondawmin Mall, Belvedere Square, Harbor East and Clipper Mill as examples of “reactive” city policy that used the “but for” rule, meaning that a project would not be built “but for” the use of tax incentives.

“The city’s current stated TIF and PILOT policies clearly detail the ‘but for’ test as one of the requirements of approval. However, some in the public perceive that support is not equally available to all projects and developers, and that the financial analysis used to establish the ‘but for’ is not applied uniformly.”

What are TIFs and PILOTs?

TIFs use the increased property taxes that a large project generates to finance the cost of bonds issued by the city on behalf of the project. Thus instead of going to the city, the developer’s property taxes are used to pay off the bonds. In essence, a TIF is a tax-free loan to the developer.

Under a PILOT, a developer pays the original base property tax (usually nominal since the land has been cleared), plus 5% of the assessed value of the improved property, resulting in 95% tax forgiveness.

In the case of the Marriott Waterfront Hotel, the city entered into a 25-year PILOT with a company owned by developer John Paterakis Sr. in 1997. Last year, the Marriott paid $46,566 in property taxes – and was excused of $3,374,525 in taxes – under its PILOT.

Stokes will convene a hearing on the task force report in City Council chambers tomorrow (Thursday) at 11 a.m.

The councilman said yesterday he hopes the report will help the city find ways “to be more strategic in regard to the use of these [tax] incentives to spur growth, create jobs and improve the quality of life for our business community and residents.”

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