Changing assumptions

September 15, 2002

BALTIMORE'S WATERFRONT is booming and growing from Federal Hill to Canton, with hotels, apartment buildings and commercial spaces being constructed at an amazing pace. But for some reason, the financially squeezed city is still subsidizing developers in the area. Why?

This timely question is hidden amid 78 pages of facts and figures in a new study by the Johns Hopkins Institute for Policy Studies. The conclusion: The city should phase out a variety of incentives to harbor developers, including payments in lieu of taxes, property tax credits, below-market loans, grants and taxpayer-financed bulkhead, conduit and walkway improvements.

It's about time this matter is brought up for public discussion.

Over the past several decades, the city has given harbor-area developers tens of millions of dollars worth of tax breaks and other subsidies. The standard assumption by a succession of city administrations has been that virtually any developer -- however big, however wealthy -- needs some type of sweetener from taxpayers. As a consequence, public subsidy is the expectation of virtually every development proposal.

By contrast, city homeowners get no comparable breaks. Instead, they are saddled with property taxes twice as high as anywhere else in Maryland. This just isn't right.

Routine public subsidies to developers made sense when the Inner Harbor was still in the early stages of redevelopment and its success was not certain. Such doubts no longer exist. Relief ought to be given only in cases where the public benefit of a project is so compelling that a break is justified and the construction would not go ahead without it.

The Hopkins study on alternative revenue sources for the city, prepared for the Baltimore Efficiency and Economy Foundation, also raises the possibility of development impact fees in the harbor's hot real estate areas. Several rapidly growing suburban counties ask builders to pay such up-front levies as compensation for necessary public facilities and services. Baltimore, which is coping with the problems of a population decline, has never considered impact fees. Perhaps it should, on a selective basis.

The study also discusses the pros and cons of several other possible revenue enhancers. But its greatest value is in raising thorny questions about subsidy assumptions that once were justified but may no longer be so.

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