City's new subsidy of choice

Urban Chronicle

Revenue: Baltimore is poised to approve its fourth TIF bond, which pledges expected tax funds to pay off debt, in seven months.

November 13, 2003|By Eric Siegel | Eric Siegel,SUN STAFF

MOVE over, PILOTs. Make way for TIFs.

In the acronymic world of Baltimore's economic development, tax increment financing bonds are supplanting payments in lieu of taxes as a subsidy of choice.

The city is poised to approve its fourth TIF bond - which pledges expected additional property tax revenues from a specific project, not current tax dollars, to pay off the debt - in seven months.

This one is to fund $5.5 million worth of improvements to spur the conversion of the mostly vacant 19th-century factory Clipper Mill site in Woodberry in North Baltimore into a $55 million residential and office community.

Several more TIFs are in the works.

In contrast, this year the city has approved one PILOT, a schedule of payments less than what property taxes would have been for a certain period - for a 200-unit apartment building and parking garage just west of downtown.

"Fewer PILOTs and more TIFs are a reflection of how useful the tools are," said M.J. "Jay" Brodie, head of Baltimore Development Corp., the city's economic development agency.

One key difference is that PILOTs are limited to designated urban renewal areas and have been used mostly in and around downtown; TIFs can be used anywhere.

Of the first three TIFs approved for the city, which was granted authority by the state to issue the bonds two years ago, only the first was for downtown.

That was for $5 million of pier and bulkhead improvements for 88 HarborView townhouses.

The others were for $3.9 million for a 170-unit Frankford Estates housing development on the east side and for $2 million for the Belvedere Square market in Northeast.

Another difference between TIFs and PILOTs is that if the income from a TIF district exceeds projections, any excess goes to the city; under a PILOT, the city gets a preset payment no matter how well the project does.

To be sure, TIF bonds have restrictions of their own.

Under Maryland law, they can be used for only infrastructure such as sidewalks, streets and utilities. Though undeniably a benefit to developers, and a loss to city funds, that's one reason TIFs have less a feel of a handout than PILOTs. After all, the streets will belong to the people.

As Irene E. Van Sant, project analysis director for Baltimore Development Corp., told a City Council hearing last week, in past years such improvements probably would have been paid for from state motor vehicle funds or citywide bonds. "Those funds are very scarce today," she said.

Still, the agency says it scrutinizes TIFs as carefully as it does PILOTs to make sure they are necessary for development deals to go forward, mindful that they are siphoning future funds that could be used for city services. The danger is that a less-than-discriminating use of TIFs could mortgage the city's future.

Judging from last week's hearing, TIFs are not engendering much controversy - or political interest.

No one opposed legislation to authorize the Clipper Mill deal; Keiffer J. Mitchell Jr., chairman of the taxation committee and who plans to bring the legislation for a preliminary vote Monday, was the only council member there.

Last year, a study of Iowa TIFs concluded that they have "become a de facto entitlement for new industry and housing development ... with little to no evidence of overall public benefit."

But a report this year on Ohio TIFs argued that the alternative was to "use general tax revenues or have no improvements at all."

And Chicago says TIFs have enabled the city to create jobs and improve neighborhoods - "without raising local property taxes."

According to BDC documents, the city won't be left holding the bag if the Clipper Mill project doesn't generate enough taxes to cover the debt on the TIF bond. Instead, an extra tax would be levied on property owners in the district. Whether that will discourage potential home-buyers - or whether the city will be able to avoid the temptation to bail out the project if more money is needed - remains to be seen.

The documents also highlight the potential return to the city from the Clipper Mill TIF.

The 17-acre site is assessed at $827,000, which generates $19,000 in city property taxes. The BDC forecasts that that assessment will increase 50-fold. During the 30-year life of the bond, the agency estimates, the project will generate for the city $6.6 million in revenue in today's dollars beyond what is needed to pay off the TIF.

At last week's hearing, prominent developer C. William Struever, who is creating Clipper Mill and is involved in Belvedere Square and Frankford Estates, called TIFs an "incredible tool that harnesses market-driven interest in our cities."

Afterward, Struever said his recently completed tenure as a city school board member made him "fully understand the need to increase" city tax revenues that TIFs borrow against.

He also acknowledged a "huge suspicion of any public support of economic development." TIFs, he argued, are different. "This is really a community development tool," he said. "It's a self-funded way to stimulate investment in the city."

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