Bill to help city development OK'd

`Tax-increment financing' allows repair, building on an expedited basis

March 30, 2000|By Timothy B. Wheeler | Timothy B. Wheeler,SUN STAFF

Baltimore will get a powerful new tool for redeveloping its downtown and blighted neighborhoods under a bill that won final General Assembly approval yesterday.

The Senate unanimously approved a city-sponsored measure that will allow "tax-increment financing" to build or repair streets and make other public improvements without having to get voters' approval to borrow money.

The bill had cleared the House of Delegates, and the governor is expected to sign it into law.

The financing technique, widely used by cities such as Chicago and Philadelphia, was a priority of the O'Malley administration.

"It will certainly help the city sell downtown development," said Sen. Barbara A. Hoffman, a Baltimore Democrat. "We have to be very innovative because we don't have vast tracts of land to be developed."

Tax-increment financing enables local governments to pay for the infrastructure needed for development projects by issuing bonds -- with the increased tax revenue expected from those developments designated to repay the bonds.

Every other county and city in the state has had legal authority for such financing since 1980. City officials opposed it then, fearing that neighborhoods could be pitted against each other unless all projects were subject to citywide bond referendums.

Now, officials say they can't afford to wait up to four years for voter approval to put together development deals.

City officials said they hope to use tax-increment financing in the $350 million plan to revitalize the west side of downtown and to extend commercial development around Inner Harbor East. It also could be used for refurbishing a dilapidated shopping center or neighborhood business district, they say.

The legislation was welcomed by Mayor Martin O'Malley, who said it would take the guesswork out of how much in tax breaks developers need. Those tax breaks have been an issue, with neighborhood activists complaining that city homeowners are subsidizing developers.

The city gives some developers multiyear property tax exemptions, called Payments in Lieu of Taxes, or PILOTs. Instead of granting exemptions for 20 or 25 years, as PILOTs do, a developer's tax payments under the new financing method would go toward development costs.

O'Malley said that someone getting a 20-year tax break might be able to pay off development loans in 15 years, thus earning a five-year windfall. Under tax-increment financing, the breaks stop when the bonds are paid off, he said.

"This takes the windfall out of it," O'Malley said.

Hoffman predicted that tax-increment financing would be more popular among city voters than PILOTs, which she helped push through the Assembly last year. But she defended the tax breaks, saying they also are needed to make some projects possible.

"I don't think any urban jurisdiction can accomplish development without a whole array of tools," she said.

Although the borrowing would not be subject to referendum, the City Council would have to review and approve any spending to help developers.

The council would establish tax-increment financing districts and designate the increased tax revenue expected from the development to repay the bonds.

Unlike with general obligation bonds, the city would not guarantee repayment. The city would have to pay a higher interest rate because the risk of default is greater.

Sun staff writer Gerard Shields contributed to this article.

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