In middle school, some of my classmates insisted I had a crush on a girl named Tiffany. Though this Tiffany was indeed cute, I did not have a crush on her. One could say I was in the initial throws of falling in love –as much as someone 13 years old or younger can– with someone else.
Some twenty-five or more years later, someone has indeed fallen in love with Tiff. Or rather, TIFs. That someone is the very City of Baltimore.
Tax increment financing. What is a TIF? How do TIFs work?
Back in the Land of Pleasant Living, the most recent TIF, as I alluded to in my last post, has gone to Michael Beatty’s Harbor Point development. In a nutshell, the City floated $107M in bonds to pay for infrastructure improvements at Harbor Point, which, among other things, is the new home for Exelon, the owner of the local electrical utility.
Beatty himself bought a bunch of the bonds, therefore he’s benefiting from the interest paid on said bonds. So the City is, in a sense, taking out a loan to pay for infrastructure from his project, and by purchasing some of the bonds, Beatty has become one of the loaners of this money. Baltimore will be paying him back with interest for infrastructure the City has paid and will be paying for, on this project.
Well, not all. Baltimore Sun and Baltimore Brew are reporting that there have been even more payments made from the City to this project. $29M worth of cost overruns. And the talk among those in charge is that the City will have to dip into General Funds, or in other words, straight up taxpayer dollars, to cover shortfalls in the TIF.
I say straight up taxpayer dollars because ultimately, the property taxes generated by the Harbor Point development are supposed to cover the principal and interest payments on the bonds themselves. But until and unless enough property taxes are generated, somebody has to be on the hook to bondholders and it is the issuer of the bonds. The City of Baltimore. Or, more bluntly, the taxpayers of the City of Baltimore.
And again, Beatty is a bondholder.
Imagine that Baltimore is instead playing stocks or options. It’s low on cash (or so it says). So, it buys some stock or options on margin, betting that sometime in the future (in the case of this TIF, by 20 years out) the value of the stock or options will go up and they’ll make money for the whole city.
That’s the expectation. They’re borrowing now with the belief that the future ship will come and cover the floated bonds and eventually, contribute money to the City for the usual other things that the City pays for. But if they’re wrong; if they don’t take in as much as they’re expecting, they still owe the brokers, the bondholders. And in this case, Beatty is one of the brokers.
They also baked in some language to demand that the project pay for some general civic improvements that don’t necessarily benefit the project, but we’ll see how that goes.
Still, the project was sold on the premise and promise that no taxpayer dollars would be used. That’s certainly true, if the future property tax projections pan out.
That was, until the cost overruns and while it’s appalling (yet not surprising) that they’re talking about dipping into general funds, they’ve now assumed so much risk that they can’t turn back. They’re in too deep. The City needs the project to work because it has an expectation that somehow, dollars will come in to cover the initial outlay paid for by the bond generation. In a sense, the City has become a partner with no equity, just a need for everything to work out and hopefully go as smoothly as it can in the future with minimal additional cost overruns.
We’ll see about that.
Here’s the crazy bit. They want to do it again.
The Port Covington TIF. Just like the Harbor Point TIF, but on the proverbial steroids, because this one weighs in at a hefty $535M. As the Sun reported, with interest, all told, it could cost over $2B. And in this case, Sagamore Development, the development arm of Under Armour founder Kevin Plank, would buy some of the bonds itself and thereby benefit from the interest on said bonds.
The vote is up to City Council at this point. The Mayor supports it. The quasi-governmental Baltimore Development Corporation supports it. Of course BDC would certainly put its stamp of approval on the TIF. They’re not elected, so they’re not responsible to the taxpayers and voters of Baltimore. If things don’t pan out with the property taxes on Port Covington and the City is on the hook and has to cover parts of bond repayments (because who else is supposed to? The state? That’s funny), nobody at BDC has to go into districts and neighborhoods one day and explain why there’s no money for parks or rec centers.
Again, they plan to bake language into the TIF so that there will be public benefit. And yes, the renderings look amazing, but looking at recent history with Harbor Point, it looks like the City is going in way over its head. It looks like the City is about to partner again with no equity. And if cost overruns occur this time, will the City have to dip back into general funds to cover?
Plank has sold this project on, among other things, the number of jobs it’ll bring to Baltimore (and specifically to Baltimore residents) as well as on improving Baltimore’s image. The price tag on Baltimore’s image is listed above.
To put it into perspective, in 2014 dollars, the City and Baltimore County pledged $280M ($230 and $50 respectively) towards the building of the since-cancelled Red Line light rail project (with Maryland and the Feds picking up the rest of the nearly $3B project). So the City is willing is thus-far willing to float bonds in excess of double that amount for a project in one section of the city.
Sure, Sagamore is floating jobs projections now, but other cities like Denver are realizing actual development gains from the increased mobility. I’m not saying the Red Line was cancelled because of Port Covington (or Harbor Point) because it wasn’t, but if the City is interested in borrowing money they think they’ll be able to pay off with future property taxes, wouldn’t projects like light rail that have had the effect of creating new development and raising the value of pre-existing property, especially in places like Minneapolis, be more preferable to ones like the ones they’re financing?
(It’s also not Beatty or Plank’s fault that such an idea would never get off the ground because of the classism and racism through which public transit is viewed in the Baltimore area, making new projects hard to support. Look at the amount the County was willing to contribute to the Red Line. Shows exactly the degree to which their citizens value mass transit. Also Google “baltimore loot rail” if you really don’t believe me.)
People around the City government like to throw around the name Freddie Gray, but when will the economic conditions that created the overall situation he lived and died in, be reasonably addressed? When will the people of Freddie Gray’s neighborhood see the benefits from Harbor Point or Port Covington? 20, 40 years from now? Ever?
It’s not all doom and gloom, though.
I enjoyed the article in City Paper concerning the idea of developing a City-owned retirement fund for people, using interest paid on some of the Port Covington bonds. Start a special benefits corporation, buy the bonds, collect the interest.
I like the idea.
I like the idea of regular Baltimoreans who can afford to do so, buying the bonds. If the City is going to float them regardless of the will of the citizens, the only thing left is to buy them and receive whatever benefits you can. Which, even though they’re running ads everywhere, seems like it’s going to be the case.
Relatively not that many would be able to take part, but what else is there, if you’re not an “insider”?
I was 14 when I really first fell in love. I didn’t get the girl, but I got the lessons. Those were free. I loved again, several times over.
I hope Baltimore gets their proverbial girl in the form of property taxes sometime 20-40 years from now. I’ll be nearly 80 towards the end of the Port Covington TIF, so hopefully they’ll put some old folks stuff up with the money.
If the City doesn’t, the lessons will be infinitely more painful. A much lowered bond rating. The City on the hook for whatever amounts of money. And the things that were supposed to be paid for, not there. Maybe they’re thinking they’ll do some development in Sandtown with the money one day. Will they be able to? (And we won’t even talk about the supposed “game-changer,” the Horseshoe Casino and the money that was supposed to contribute to Baltimore. I’ll admit to not doing my part, since I haven’t gone there and played video poker, yet. They have that in there, right?)
If it doesn’t work out, what will the City do to recover? What lessons will it learn? What do they say when the next developer wanting a TIF shows up to 100 North Holliday? Will it fall in love with someone other than TIF if TIF doesn’t work out?
Well, someone other than PILOT . Been there, done that.