Divine capitalism

Faith-based investing: As churches engage in community development, tax issues arise for city.

January 20, 2002

WHEN ARNOLD Williams last week became the first African-American to chair the Baltimore Development Corp., his well-wishers at City Hall included some unusual investors - four leading pastors. They were there as the vanguard of divine capitalism, an emerging phenomenon that holds great promise for the city but may also lead to complicated political and tax problems.

One of Mr. Williams' great challenges will be to balance the two - to harness the religious community's tremendous resources for the overall betterment of the city, but avoid the pitfalls that often come from mixing God with Mammon.

New Psalmist Baptist Church is a prime example of that challenge.

Under the 27-year leadership of the Rev. Walter Scott Thomas, New Psalmist has grown from a 200-member congregation to a 7,000-member mega-church. It and its development corporation now own some 50 acres near the city's western border, including a mostly undeveloped former plantation acquired 18 months ago.

But wait, there's more.

New Psalmist entities are gearing up to acquire additional acreage, mostly aging or rundown apartment complexes, around the core property. If that happens, New Psalmist would become a veritable principality within the city, with a campus stretching from Edmondson Village to Ten Hills, between Frederick Road and Edmondson Avenue.

"Our whole master plan is to improve the community through faith," explains Edward Smith Jr., a lawyer who heads the church's Sankofa Community Development Corp.

The planned Sankofa Village would include regular and senior citizen apartments, a 600-student school and a gymnasium. The business model would mix nonprofit and taxable operations.

That's where the challenge comes in. The developments would have questionable benefits for cash-strapped Baltimore if tax-exempt church entities solely acquire huge areas of developable land and take them off the city's shrinking tax base.

If the BDC aids this kind of tax-free empire building, it will simply be aggravating the municipal government's fiscal problems.

Cities and counties around the nation are grappling with these issues as churches and hospitals keep acquiring pivotal real estate that is then removed from tax rolls. In Pittsburgh, the growth of tax-exempt institutions became an issue in last year's mayoral primary.

New Psalmist is not the only Baltimore church moving in this direction, either. All over Baltimore, a growing number of congregations are pursuing similar investment strategies.

Some are mega-churches like the Rev. Harold A. Carter Sr.'s New Shiloh Baptist Church. With the help of the city-operated BDC, its development arm has converted an abandoned West Baltimore dairy near the sanctuary into a base of educational and social activities.

Others are smaller congregations like the Rev. Nathaniel Higgs' Southern Baptist Church. Its development corporation is building 60 homes and a senior center at the long-vacant American Brewery property along Gay Street. When the $12 million project is completed later this year, it will be a rare glimmer of hope in a wasteland of abandoned buildings and addicts looking for a fix.

BDC Chairman Williams, who is Southern Baptist's accountant, sees this mix of religion and development as a potent neighborhood revitalization tool.

"Churches have financial capabilities for taking care of soft costs," he said.

Southern Baptist, for example, advanced $500,000 of its own money toward design, demolition and permits. Without such initial investment, the American Brewery project, which City Hall had unsuccessfully offered to other developers for more than 10 years, could not have been done.

Is Southern Baptist's investment good for Baltimore?

Of course it is. The church is reclaiming an important part of a corridor that never recovered from the destruction of the 1968 riots. There is now a better chance other investors will follow.

But the tax-exemption issue still hovers over all of this as a potential downer. If it is not addressed up front by Mr. Williams and the BDC board, it could become a political hot potato later.

Already, a debate is simmering about taxation inequities. Baltimore homeowners pay Maryland's highest property taxes, partly because one third of city real estate - from park land to religious and nonprofit buildings - is off the tax rolls. Meanwhile, diminished revenues make it difficult for the government to provide public services.

Led by Johns Hopkins, 22 nonprofit organizations last year tried to stave off any further talk of taxation by pledging to pay $20 million in lieu of taxes over the next four years to compensate for such services as fire and police protection.

A City Council intervention - fueled by heavy lobbying on Mayor Martin O'Malley from the Catholic archdiocese - led to an arrangement that specifically exempted religious organizations from such obligations. But that deal will have to be revisited in light of religious organizations' welcome interest in development.

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