Tax-break ruling arouses jitters 'I'm worried,' a developer says after Wyndham jolt

Downtown

November 26, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

City officials and real estate developers worried yesterday that a Baltimore judge's ruling eliminating millions of dollars in tax breaks for the planned Wyndham Inner Harbor East hotel could affect other city-backed projects.

While Circuit Court Judge Richard T. Rombro's decision to negate more than $75 million in tax breaks that the hotel's owners negotiated with the city appears to be limited to the 31-story hotel, other developers said they, too, are concerned.

"Right now, I'm worried," said J. Joseph Clarke, president of J. J. Clarke Enterprises Inc., which is working to build a 35-story skyscraper with office and retail space, a hotel and a garage on the current site of the Southern Hotel downtown.

Clarke and others are worried because, while the judge's ruling does not challenge the legality of "payment in lieu of taxes" (PILOTs) programs -- where developers negotiate with governments to lower taxes for projects deemed to have economic development benefits -- it is unclear whether all PILOTs will be affected.

Attempts to reach Judge Rombro for an interpretation of his opinion in the Wyndham case, and how it might affect other projects, were unsuccessful yesterday.

$6.1 million at stake

Clarke's $120 million project received a city endorsement for a PILOT last month.

Legislation is before the City Council that would save Clarke $6.1 million in tax payments, according to city projections.

Under an existing city ordinance stemming from a state law, PILOTs in Baltimore can be enacted only if they involve city-owned property, and only then for low-income and other housing projects.

One Light Street is not city-owned property.

In the case of the $134 million Wyndham, the land is owned by John Paterakis Sr., co-owner of H&S Bakery Inc. In his ruling, Rombro dismissed arguments by the developers' attorneys that, under an agreement with the city, the project would fall under city ownership for 25 years.

Agreement pinpointed

"I'm told that there is nothing wrong with the city's ordinance, just this particular agreement between the city and the Inner Harbor East developers," said City Councilman Martin O'Malley, who chairs the City Council's Taxation and Finance Committee, which reviews PILOT requests.

In addition to the 750-room Wyndham and the $120 million One Light St. tower that Clarke is proposing, there are two other projects that have received the city's blessing for a tax break but whose PILOTs could be jeopardized by the ruling, O'Malley said.

City officials say the PILOTs are one of the few economic development tools at their disposal, ever since the federal government terminated Urban Development Action Grant money in the 1980s.

'A judgment call'

"We felt the Wyndham PILOT was a good deal," O'Malley said. "We were swapping $75,000 a year in taxes for a parking lot for $1.2 million a year when the hotel was completed, plus $3 million a year in hotel tax and other revenue after the Wyndham is open for four years, plus profit sharing for the city. Ultimately, it's a judgment call."

And for private developers, PILOTs have become an almost necessary part of the equation to finance projects.

"We need the PILOT in order to do the project at One Light," Clarke said. "I just don't know to what extent it affects us at this point, but we have our attorneys checking on it."

But reports of the death of the PILOT programs may be premature. Mayor Kurt L. Schmoke and attorneys representing the Wyndham's developers said Tuesday that they were not concerned with the judge's ruling and planned to revamp the PILOT so that the hotel -- and presumably other projects -- can proceed.

Most notably, Peter G. Angelos is seeking a PILOT to help develop a more than $150 million Grand Hyatt hotel across from the Baltimore Convention Center. Although the land Angelos hopes to build on is city-owned, the 800-room hotel appears to fall outside the parameters of the PILOT program. Neither Angelos nor his representatives could be reached for comment.

The other projects seeking tax reductions through a PILOT are a parking garage to be developed by insurer Zurich Group for its employees at 3910 Keswick Road, and apartments being planned by A&R Development Corp. at 11 S. Eutaw St.

$1 a year

Like the Wyndham, Zurich's $9 million garage would pay only $1 in taxes per year. While it fails the housing test, the garage would be built on city land.

A&R Development's Redwood Towers appears to be the project that will be least affected by the judge's ruling. The 151-unit complex is planned for the top of a city-owned, eight-story garage. A&R Development's deal with the city also would result in tax payments starting at $50,000 per year, escalating to $200,000 a year in 2016.

Whether or not the judge's ruling wipes out all existing PILOT programs, though, it is likely to affect how the City Council approaches drafting bills that offer tax breaks and the level of detail contained in them.

"It's always a debate as to how specific we should be, but we sure as hell will be a lot more detailed in the future, to cover ourselves," O'Malley said. "We're going to have to set the parameters right up front."

Pub Date: 11/26/98

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