Baltimore seeks Assembly approval for bonds not needing voters' OK

City would finance projects to be paid from expected tax gain

Municipal finance

January 19, 2000|By Timothy B. Wheeler | Timothy B. Wheeler,SUN STAFF

Cash-strapped Baltimore officials are seeking legislative approval of a new technique for financing development projects that would let the city borrow money without having to get municipal voters' approval.

City officials told the Senate Budget and Taxation Committee in Annapolis yesterday that Baltimore would like to join other big cities in the country in using "tax-increment financing" to pay for streets, sidewalks and other public works needed to complete commercial or residential projects.

"It's a terrific economic development tool," said M. J. "Jay" Brodie, president of the Baltimore Development Corp. Such cities as Chicago and Philadelphia have used the financing technique to revitalize their downtowns and aging neighborhoods, he said, and Washington has just approved it.

Tax-increment financing enables local governments to finance public improvements needed for development projects by issuing bonds -- with the increased tax revenue expected from those developments earmarked to repay the bonds.

State law has allowed this financing technique in every county and municipality except Baltimore since 1980. Three counties -- Anne Arundel, Frederick and Prince George's -- have used it to pay for roads, parking garages and water and sewer lines serving office parks and other new developments.

City officials originally did not want tax-increment financing because they feared it might stunt citywide redevelopment efforts and could pit neighborhoods against each other. Now they've changed their minds.

Four-year wait

But Baltimore is required by the Maryland Constitution to obtain approval from the General Assembly and from its voters before incurring any debt.

City officials say that in trying to put together development deals, they cannot afford to wait as long as four years for voter approval of bond issues. They have drafted legislation that would get around the constitutional requirement by letting the City Council issue special bonds, to be repaid in installments that must be approved annually.

The City Council still would have to review and approve any municipal borrowing to help developers. The council would establish a "tax-increment financing" district, and would designate the increased tax revenue expected from that area to repay the bonds.

Unlike general obligation bonds, the city would not legally guarantee repayment of the bonds, however. The city would have to pay a higher interest rate because the risk of default is higher, but Brodie assured legislators that investors would still be willing to purchase them. He noted that the city borrowed $50 million to finance the expansion of the Convention Center several years ago with similar bonds.

For use anywhere

Brodie said tax-increment financing could be used anywhere in the city, from the ambitious plans for redeveloping the west side of downtown to renovating a rundown neighborhood shopping center. Unlike payments-in-lieu-of-taxes agreements -- another economic development tool approved for the city last year by the legislature -- this technique is not limited to downtown.

It would not be used to benefit already affluent communities at the expense of poorer areas, Brodie vowed. "We wouldn't declare Roland Park, Guilford or Homeland as tax-increment financing districts," he said.

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