The staff of the Baltimore Development Corp. (BDC) this morning recommended a $107 million tax break to finance infrastructure improvements for Harbor Point, the future home of Exelon’s regional headquarters and by far the largest private development proposed in the city.
Pushed by the developer since last summer, the measure is expected to be submitted to Mayor Stephanie Rawlings-Blake and the City Council, both of whom supported an earlier TIF plan for the waterfront site south of Harbor East.
The $107 million TIF (tax increment financing) would not be a direct subsidy for the $1.5 billion development headed by Michael S. Beatty and financed in part by H&S Bakery mogul John Paterakis. (Beatty recently spun off from Paterakis to form his own company, Harbor Point Development Group LLC.)
Property Tax Used to Pay Bonds
Instead, under a TIF the city issues bonds on behalf of a private project, and the developer pays off the bonds with revenues that would otherwise be paid in property taxes to the city.
“In theory, it shouldn’t cost the city any current dollars,” Darrell Doan, director of real estate development, told the BDC board today.
He said the city would greatly benefit from the expenditure because the funds would be used to finance a waterfront promenade as well as 9.5 acres of public parklands.
Beatty originally proposed a TIF allocation of $154 million, but came back last summer with a plan for about $100 million. Doan stressed that point to the BDC board, saying the agency’s tough negotiating stance had helped “drive the costs down to the city.”
The “EZ” Tax Break
Last summer, a spokesman for the Beatty group told The Brew it was seeking a reduced TIF from the city to lower the overall interest it would have to pay for financing.
The spokesman, Marco Greenberg, said the group was willing to pay more upfront rather than face the prospect of dipping into its own pocket to pay off any shortfall of property-tax revenues designated for TIF bonds.
Another factor was that Harbor Point was recently awarded a substantial tax break. Last fall, the City Council supported the BDC’s recommendation to reinstate the Harbor Point property to the city’s list of eligible Enterprise (“EZ”) Zones.
While appearing to be an arcane matter, the EZ reinstatement will save the Beatty group tens of millions of dollars over time. That’s because EZ inclusion makes the Harbor Point site eligible for a 50% reduction of property taxes for five years (with reduced levels of tax breaks over the following five years).
The Beatty group argued that without the credits available in an EZ zone – a program set up to stimulate private investment in neighborhoods with high levels of unemployment and vacant housing – they would be unable to lease office space to potential tenants.
Beatty said the tax credits would flow directly in reduced rents to prospective tenants, thus is not really a subsidy to his company.
Patterned After Harbor East
Harbor Point is located between Harbor East and Fells Point – areas that include some of the most expensive housing in the city.
The new development will be anchored by the Exelon tower and feature upscale apartments, Class A office space and posh retail outlets patterned after Harbor East, the development Beatty has successfully led since 1995.
In addition to TIF bonds for the project, the city is currently spending more than $30 million to make improvements to Central Avenue.
The roadway is set to cross a small inlet of the harbor with a new four-lane bridge to connect the Exelon and other proposed Harbor Point sites, which are now reachable only by Caroline Street from the north.