Mayor Stephanie Rawlings-Blake says the city has nothing to lose and much to gain by borrowing $107 million to pay for new roads, parks and other infrastructure at Harbor Point, a now-empty tract envisioned as a glittering mini-city on Baltimore's waterfront.
Under the city's plan, the money would be repaid from property taxes generated at the site, with the developer responsible for any shortfall. And if the $1 billion project takes off — as a place for thousands to live, work and shop — the city eventually expects to take in an average of $20 million a year in new taxes, even after paying off the bonds and for services such as fire and police.
But some question whether the taxpayer help is needed, especially with Harbor Point already in line for $113 million in tax breaks. The state's former planning director, meanwhile, says the potential impact is much larger than many realize, because tens of millions of dollars in tax revenue would be diverted to pay bond interest.
In addition, projections hailed by the mayor are based on assumptions that might or might not pan out. For example, because a long-range analysis of city revenue is based on an outdated tax rate, estimates are several million dollars too high. And the forecast does not account for the economic hit to the central business district, which is set to lose a major employer to Harbor Point.
This week the spotlight will be back on Harbor Point, as a City Council committee holds a hearing to review the plan to sell bonds to pay for the infrastructure. It's a high-stakes debate over the future of the city's largest open swath of waterfront property — and on what role city incentives should play in fostering development.
The committee's chairman, Carl Stokes, has doubts about the financing plan. He wonders whether it would be better for the city to pay directly for less expensive infrastructure without tying up tax dollars for decades.
Stokes said he's not concerned that the city could wind up having to pay back the bonds if the developer were to run out of cash. If all else fails, he thinks the investors or lenders would step in to avoid losing control of the project.
But he takes issue with a key finding of an analysis done for the city. The report said the $107 million in city borrowing is critical because it would boost the profit for Harbor Point's developer from 10.7 percent to 14 percent, attracting institutional investors and large lenders to finance the deal.
"That's not the taxpayers' role, to increase profits to the developer," Stokes said. He has also criticized Harbor Point's planned use of $88 million in enterprise zone tax credits — a program designed to lift economically depressed areas.
Wednesday's hearing is the newest chapter in the debate over the 27-acre peninsula, which was once the site of an Allied Signal chromium plant and is largely capped to keep buried contamination from spreading. Developing the property would complete the link between historic Fells Point and booming Harbor East.
The $107 million would be borrowed through tax increment financing, or TIF, so called because incremental taxes generated by a project are used to repay bond holders.
The method dates back more than 60 years but picked up steam in the 1970s and '80s, spreading east from California as cities looked for ways to make up for shrinking federal funding. Proponents say it lets new development pay for its own infrastructure through the growth in property taxes on site.
But cities such as Rockford and Park Ridge, Ill., have had to dip into their general funds to make bond payments after anticipated taxes fell short. And TIF revenue dropped 3 percent last year across suburban Cook County, in the Chicago area, even as the number of such districts grew.
California pulled the plug on such financing in 2011 after critics said local governments were shortchanging schools and other vital public services by overloading on debt.
Baltimore, which has financed about a dozen developments through tax increment financing, says the method protects taxpayers from having to make up the difference if the project underperforms. Officials point to the four projects, including Mondawmin Mall, that have fallen short in recent years; in each case, the city assessed a "special tax" to cover the gap, and the project owners paid.
The problem, skeptics say, is that taxpayers can take a hit even when general funds are not tapped. In a study of the Chicago area, two University of Illinois professors found that the practice simply displaced development, with tax base growth in TIF areas offset by declines elsewhere.
Good Jobs First, a taxpayer watchdog group, says such displacement seems likely with Harbor Point. It notes that the only new tenant so far is energy giant Exelon Corp., which will put a regional headquarters there and move employees from offices on Pratt Street downtown.
"There will be a decline in property values downtown ... and everybody else will be paying for it," said Thomas Cafcas, a research analyst at Good Jobs First.
Meanwhile, the new taxes produced by the 23-story Exelon building at Harbor Point would not go into the city's general fund — where it could be spent on police, parks or other needs — because it would be diverted to pay off the bonds, said Greg LeRoy, the nonprofit's executive director.
Robert C. Embry Jr., president of the Abell Foundation, said he generally supports tax increment financing. But he has concerns about Harbor Point. He notes that when Maryland regulators approved Exelon's acquisition of Constellation Energy, they required the company to build a regional headquarters in Baltimore.