A group of residents and their union backers filed a lawsuit against the city yesterday, charging that officials are breaking their own rules to hand out millions of dollars in taxpayer subsidies to a hotel developer.
The developer, Donald J. Urgo and Associates, plans to build a Marriott Residence Inn downtown on Light Street, and the city is close to approving a $3.2 million, 10-year tax break called a PILOT, or payment in lieu of taxes, to support the project. But the lawsuit charges that the developer will not hire enough workers or invest enough money to meet city and state thresholds for public subsidy.
The suit is another setback for the developer, who two years ago successfully battled preservationists wielding a late-night injunction to stop the destruction of historic buildings to make way for the proposed 176-room hotel.
The suit is the second legal challenge to the modern PILOT program for commercial development, which was created in 1996 to induce developers to build in targeted urban areas by relieving them of some property taxes once their projects open. A significantly larger PILOT for the Baltimore Marriott Waterfront Hotel, which opened last year, was also contested in court but ultimately was approved.
"What the city did was illegal, and we want the court to stop it," said Mark Hanna, attorney for the residents and the Hotel Employees & Restaurant Employees union in the current suit. "[City officials] cannot pick and choose what they like in the law."
The suit, filed in the city Circuit Court, seeks to stop the PILOT because the project would create 70 jobs instead of the 100 required under state law. The developer also intends to invest about $28 million, which violates a city requirement that investment reach $50 million, the suit alleges.
City officials deny the charges and insist they are legally supporting a project that will expand the tax base and add jobs and hotel rooms downtown, where luring developers has proved difficult.
"The City Council used proper procedure here," said City Solicitor Thurman W. Zollicoffer Jr. "We had proper legislation, and it was amended."
Roxie Herbekian, international trustee for the union Local 7, which is financing the lawsuit, said the union supports economic development that provides jobs for residents. There is only one hotel in the city where workers are unionized.
She said the hotel industry has historically paid low wages and that is burden enough on taxpayers who often have to foot the bills for health care and other benefits for workers who cannot make ends meet.
"We're concerned about pay and health insurance," she said during a morning news conference to announce the lawsuit. "But the lawsuit doesn't address the quality of the jobs, it addresses the law."
The suit follows a report by a separate group, Good Jobs First, that studied subsidies to other downtown projects. The report concluded that the process involves limited public involvement and that the city hands out millions of dollars in incentives to developers without their promises of certain wages or benefits. There are no provisions to reclaim subsidies if the developers fail to live up to their hiring pledges, the report said.
The union had been seeking information specifically about the Urgo deal from the Baltimore Development Corp., or BDC, which negotiated the deal for the city, but the union members said the details were kept secret until the project came before the City Council. The BDC is exempt from certain open government requirements partly as a means of expediting negotiations with developers.
The developer had not initially sought government aid. Marriott signed a deal with Urgo to build the hotel in 1999 on the sites of the Sun Life building at 109 E. Redwood St. and the Merchants and Miners building next door at 17 Light St. The economy was strong then, financing was in place and the developer obtained a building permit - the last step before breaking ground.
The developer did not return phone calls. But Urgo has previously said the fight with preservationists delayed the development so long that financing was lost. When business and leisure travel suffered after the terrorist attacks last year, many hotel lenders became more cautious.
M.J. "Jay" Brodie, BDC president, who would not comment on the lawsuit, said the city considers subsidizing only projects that could not otherwise be built in the city.
While he faces no requirement to consider worker wages or benefits, all elements of the project are factored into the decision, he said. The BDC has supported only about a half-dozen commercial PILOTs. None has been rejected by the City Council, though it has amended PILOTs to require, for example, that a percentage of the developments are owned and built by women and minorities. "We spend an agonizing amount of time convincing ourselves that these projects wouldn't otherwise get built," Brodie said.
Zollicoffer said two laws on the state's books enable the city to offer PILOTs, one with job and investment requirements and another with only a requirement that the city own the land.
The city used the latter and plans to buy the land from Urgo. It had used the same PILOT for the Baltimore Marriott Waterfront Hotel.
A city law that requires hotel developers to invest $50 million was amended by the City Council to allow a $20 million investment in the Urgo Marriott.
"They are an elected legislative body, and they are allowed to make their own laws," said Zollicoffer.
Council President Sheila Dixon said she was comfortable with the Urgo project because she believes Marriott provides good jobs.
"I've been working with [the union] on job issues, but I know the track record of Marriott and they offer a lot of benefits."
BDC said jobs at the Urgo Marriott typically would pay about $20,000 and provide health insurance.
The city has 30 days to respond to the lawsuit.