June 16, 2020
Honorable President Brandon Scott and Members of the Board of Estimates c/o Clerk, Board of Estimates 204 City Hall 100 N. Holliday Street Baltimore, MD 21202
Protest RE: BDC – Port Covington TIF Financing Agreements
Dear President Scott and Members of the Board of Estimates:
I write on behalf of the ACLU of Maryland, and its approximately 4,300 members who reside in the City of Baltimore, as well as other undersigned organizations, to protest the inclusion of the Funding Agreement, and other documents related to issuance of the first tranche of Tax Increment Finance (TIF) bonds, for the Port Covington project on the routine agenda of the Board of Estimates (BOE) for June 16, 2020. We believe the Port Covington project and TIF financing is neither fiscally responsible nor consistent with the City’s race equity policies, and urge you to postpone consideration of this item.
Our protest rests on both procedural and substantive grounds.
Lack of public notice and engagement: It has been nearly four years since legislation authorizing the very controversial Port Covington TIF was rushed through the City Council over the opposition of many Baltimore residents and a coalition of labor and community groups, of which our organizations were a part. Today, less than one week after the 2020 primary election, in the midst of an unprecedented crisis, and without any public disclosures, hearings, or conversation, the Port Covington project Funding Agreement has suddenly appeared on the Board of Estimates agenda for this Wednesday, June 17, 2020.
Lack of transparency regarding the status of the project and TIF:
Throughout this period since 2016, there has been little or no transparency regarding this project. Despite the rush in 2016 to authorize the bonds, the project has been stalled and no bonds have actually been issued.1 The Funding Agreement, and related documents, that are on the agenda for BOE approval, have not been made available to the public. Yet, their approval will clear the way for MEDCO, a state agency, to issue the first tranche of $148 million in TIF bonds and pledges the taxpayers of Baltimore, as well as the incoming Administration and new City Council members, to fund debt service on the bonds for the next forty years.
Lack of up to date financial analysis and risk assessment despite dramatically changed conditions:
In the four years that have passed since the City Council first authorized the TIF, its financial viability has become shakier and shakier, but neither the Baltimore Development Corporation (BDC) nor the Finance Department have done an updated risk assessment to consider e.g. the impact of the cancellation of the Under Armour headquarters expansion on the market for the TIF district.
Both the project and its external environment have changed fundamentally since the representations that were made to secure City Council authorization of the TIF district in 2016.2 To summarize the most salient:
● Under Armour has halted, and likely permanently abandoned, its plans for a headquarters campus at Port Covington and is instead making major cuts to its headquarters staff. While not part of the TIF district, the Under Armour campus was the catalyst undergirding the anticipated jobs, occupants and market demand for the Port Covington TIF district. Now that the Under Armour expansion campus is effectively dead, the plan for Port Covington is unrealistic.
● Kevin Plank is no longer the CEO of Under Armour or a major investor in the project. His personal involvement and financial commitment are not indicated in the Dec. 2019 document. It is not clear whether he still intends to purchase all of the bonds, which the City Council was told would mitigate risk to the City.
● Sagamore Development is also no longer the lead developer in the project, replaced by Weller Development Co., a small company formerly based in the DC metro area that has never developed a project of this magnitude.
1 The general public, as well as some of the major mayoral candidates in the recent election, are not aware that the bonds were never issued. 2 Most of what is known about the current structure of the Port Covington deal is as a result of a single December 18, 2019 document titled simply “Port Covington Tax Increment Financing 2020 Series Bonds” that appears to be a market study or appraisal. It was produced by the Finance Department only in response to a Maryland Public Information Act (MPIA) request filed by SEIU. The appraisal/market study is careful to note that it is based on certain assumptions given to them by the Developer. (The scope of work with embedded assumptions was not provided in response to the PIA request, and a follow up with the Finance Department resulted in a response saying this is all they have).
● The ownership entity is now Baltimore Urban Revitalization LLC, comprised of two equity investors, one the Community Reinvestment Act arm of Goldman Sachs and the other an investment entity that may be connected to Kevin Plank or Sagamore but is not identified. There is no indication that Goldman Sachs will back stop any losses beyond its initial CRA investment.
● Demand for the project is much weaker than anticipated. According to the Dec. 2019 document, only three small leases for office space, totaling 39,595 square feet have been secured out of a total of 1.1 million planned (Reportedly, they do not have signed leases from these three tenants). There is no indication of interest from retail tenants. This weak market interest underscores the speculative nature of the project.
● It appears that the first phase of the project (Called “1B”) will now include 101 units of “short term rentals,” a significant change. Contrary to the revenue projections in 2016, the people who live temporarily in those units will not likely be City residents paying piggy back income tax to the City. It likely indicates that the developer is not confident that there is sufficient market demand for all of the market rate luxury units.
● Since 2016 there have been no applications submitted to the state for Port Covington affordable units. According to the Dec. 2019 document, only 73 (13.6%) of the 529 apartment units in Phase 1B are set aside as “affordable” and financing has not been secured for those units. Some of the affordable units are for households with incomes up to 80% of AMI, others are LIHTC units for households at or below 50% of AMI. This is less than the 20% affordable required by the City MOU. The Dec. 2019 document gives no information as to how the affordable housing will be developed, or whether there will be additional units off-site, only that they will seek LIHTC as part of the financing.
An updated due diligence is even more important now due to the heightened risks presented by the pandemic and recession.
There is well founded alarm about declining City revenue and its weakening financial position as a result of COVID-19. The commercial real estate market is similarly weakening. Real estate experts predict that many employers will be downsizing and shifting more and more to remote work.
As a result, employers are hesitant to sign leases for large blocks of office space. The market for commercial real estate, including office space and retail/restaurant, is becoming very soft. Around the country many large projects have been halted, as lenders take a harder look at the financial viability of loans for these projects, and the City must do the same. We did not believe the Port Covington project was realistically viable or a good deal for the City from a financial perspective in 2016. But if it ever was viable and an acceptable risk for the City, it is not now.
Much of the first tranche of bonds is going to be used to reimburse Plank/Sagamore for his expenditures to date rather than public infrastructure and open space.
This includes acquisition of the land, engineering, planning, legal and at least some of the development that has already occurred. Included, according to the December 2019 document, is reimbursement to Plank of $433,279 for lobbying expenses incurred during the TIF controversy, identified as “Legal costs associated with securing approval of the TIF ordinances and negotiation of the MOU and related documents.”
Once the bonds are issued, the City, not Plank, will be the party bearing most of the risk. The City could end up in much the same place as in the 1980’s when CDBG and HUD loans were used to put streets into a mostly empty Port Covington, with only the Baltimore Sun plant, Walmart and Nicks Fish House ever built.
Now is not the time to lock the residents of Baltimore into debt service on a project for the next 40 years, especially when there is such a need for investment in the City’s Black neighborhoods.
Our opposition to the Port Covington TIF in 2016 was motivated, first and foremost, on the fact that it will create a luxury enclave, disproportionately occupied and/or employing affluent white people, while Black neighborhoods are starved for basic infrastructure and resources. Even the optimistic job projections of 2016 were that 2/3 of the jobs created would go to non-residents of Baltimore. This was our motivation for opposing the TIF in 2016, and it remains our primary motivation for this protest.
Given the intense public interest and debate about Port Covington, any decision to approve the Port Covington Funding Agreement should be postponed until after the current pandemic emergency, and until after the public has a chance to be fully and accurately informed about what is being done, and a chance to fully participate in the debate and make its views known to the Board. This will also allow time for the current volatile economic picture to become clearer and for City leaders to take a hard look at the TIF, fully informed by proper due diligence, including an updated financial viability and risk analysis.
Thank you for considering our protest.
Barbara Samuels Managing Attorney – Fair Housing ACLU of Maryland
Charly Carter, Executive Director, Step Up to Lead
Marceline White, Executive Director Maryland Consumer Rights Coalition
Matthew C. Hill, Attorney Public Justice Center
Molly Amster, Baltimore Director Jews United for Justice