Tax break meant to keep Legg Mason

City Council to weigh $33 million subsidy for Harbor East project

June 02, 2007|By John Fritze and Jill Rosen | John Fritze and Jill Rosen,Sun reporters

A leading Baltimore developer would receive more than $33 million in city tax breaks to build a landmark headquarters for Legg Mason at an exclusive waterfront address, officials close to the proposed deal confirmed yesterday.

Under the terms of bill to be introduced in the City Council on Monday, H&S Properties Development Corp., owned by bakery magnate John Paterakis, would get the incentives to subsidize the cost of its $550 million Harbor East project, the officials said. The development includes another tower housing a Four Seasons hotel and condominiums.

M.J. "Jay" Brodie, president of the Baltimore Development Corp., which negotiated the deal, said the tax break - among the largest granted by the city - will retain 600 jobs at Legg Mason, a leading money management firm, and bring 500 more into one of the fastest-growing development corridors along the Inner Harbor.

"We believe, but for these additional pieces of assistance, the project would not be built," he said. "The message of having a new Legg Mason ... is a terrific message that we are expanding Baltimore's base of financial services."

The use of the tax abatement drew immediate criticism from a political opponent of Mayor Sheila Dixon - whose administration supports the measure - and from leaders of watchdog groups who question the city's use of tax breaks, especially in strong neighborhoods.

"It just doesn't pass the smell test," said City Councilman and mayoral candidate Keiffer J. Mitchell Jr. "Is there really a need for [it] in that area?"

As Paterakis developed Harbor East over the past decade, he benefited from tax breaks on nearly every phase of the project. The development transformed what was once an industrial no man's land to one of Baltimore's trendiest areas, with a Whole Foods market, expensive boutiques and exclusive apartments and condos.

Just a year ago, the city awarded the developer a $3.5 million tax break for the $201 million project rising at 800 Aliceanna St. Officials said H&S needed the subsidy to lower rents for its anchor office tenant, Laureate Education Inc., which had threatened to leave town.

In 2004, the city approved a $13.6 million break for Harbor East's Spinnaker Bay apartments. And years ago, the developer won $20 million in subsidies to build the Marriott Waterfront hotel.

The city did refuse tax breaks for a building that houses the Whole Foods and a Courtyard by Marriott.

For the Legg Mason tower, documents obtained by The Sun show that the City Council will consider a two-part tax break. One lasts 25 years and applies to a 1,200-space, below-ground parking garage to be shared by both towers. The other, running concurrently, will last 15 years and applies to the company's office space.

While the tax break is in effect, the developer would pay the full tax on the land, but only 5 percent of the tax it would normally pay on the buildings.

The developers are entitled to a separate state tax break for building in an enterprise zone. Brodie could not say yesterday how much that would be worth.

After H&S requested incentives late last year, Brodie said the BDC board met for three months - largely behind closed doors - to consider the request.

Even with the $33 million tax abatement, Brodie said, the twin towers would bring in $162.3 million in taxes - including income and property taxes.

The legislation will be introduced in the City Council Monday night and assigned to the taxation and finance committee, where it is likely to receive a hearing. City Councilwoman Helen L. Holton, who chairs that committee, said she hopes Legg Mason will consider giving back to the community - including by offering summer jobs to city youths.

"Sometimes, you have to look at the bigger picture of what it means. Is it worth losing a major employer by not offering the break?" she said. "An employer like this can make contributions - whether it's upgrading a computer in the school or having their employees volunteer some time."

Legg Mason announced in Feburary that it planned to leave its signature skyscraper at 100 Light St., the tallest building in the city, for the new Harbor East digs. Legg expects to move nearly all of its Baltimore-area employees to the new building by 2009, creating a significant vacancy in its former home in downtown's core.

Carolyn Boitnott, who leads the Waterfront Coalition, an organization that fought earlier Harbor East tax breaks, wonders about the city's rationale for continuing to subsidize the same developer.

She also worries that the city is encouraging a development that's hurting the traditional downtown.

"Giving them tax breaks and then moving businesses from downtown to the waterfront when downtown is still struggling is something I find personally discouraging," Boitnott said.

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