A rendering of Exelon's Baltimore headquarters is pictured. (Handout photo )
Among the many advantages Constellation Energy's headquarters gives Baltimore — Fortune 500 cachet, hundreds of well-paid workers, millions in charity — is this: The building pays sticker price on property taxes — $745,000 a year.
You probably won't be able to say that about its replacement, which Exelon Corp. and developer John Paterakis propose to build at Harbor Point.
Exelon is close to a deal to buy Constellation, which owns Baltimore Gas and Electric Co. Sensitive about seizing a Maryland corporate heirloom, Chicago-based Exelon promised to put the green energy and retail marketing divisions of the combined company in a new Baltimore building.
Like many recent downtown projects, it'll be really cool, with 22 stories, a football field-size trading floor and a windmill generating electricity. Also like recent downtown projects, it is unlikely to deliver its potential in tax revenue to a city general fund that badly needs it.
Harbor Point is a state-designated enterprise zone, which means the project is eligible for an 80 percent property tax discount for its first five years of operation and decreasing discounts for the next five years.
The building owner would still pay some property tax. And the state will compensate Baltimore for some of the lost money.
But those funds probably aren't destined for the city's treasury, either. Rather, they'll likely end up paying interest and principal on tax increment financing bonds that will fund improvements to nearby roads and other infrastructure.
This is standard fare for urban improvement. Developers always say they need tax breaks because the "economics" of the project wouldn't work without them. But that proposition is rarely tested. Cities and states always cave in. And the books are rarely thrown open to reveal the most interesting economics — how tax incentives feather developers' profits.
But Exelon is a special case. Usually, companies pretend they won't even look at your town without large tax cuts and other welfare. Exelon, however, pledged from the start to build in Baltimore, throwing away its negotiating leverage. Yet it'll probably benefit from tax breaks anyway. Generally in these situations, a building's owner passes some of the tax discounts on to the tenant — in this case Exelon — in the form of lower rent.
True, the Harbor Point low-tax zone was there long before Exelon came calling. Enterprise zones are supposedly blighted areas whose tax benefits are intended to lure businesses. If you buy the enterprise-zone concept, it may not be a stretch to admit Harbor Point, site of a former AlliedSignal chromium plant, into the club.
"Anyone in an enterprise zone is entitled to that credit" with only minor paperwork, says M.J. "Jay" Brodie, president of the Baltimore Development Corp., the city's quasi-public economic development agency.
But it's instructive to see how enterprise zones potentially lower tax revenues all over the city. Stephen Gorn, owner of the former McCormick & Co. tract on the west side of the Inner Harbor, apparently thought he couldn't compete for the Exelon project without his own tax breaks. He sought a "payment in lieu of tax" deal from the city for the McCormick site.
So every time the City Council grants a new tax discount, it's bidding against itself.
While Harbor Point is eligible for tax increment financing, details need to be hashed out. A TIF deal is probably needed to pay for grafting the Harbor Point peninsula onto the living city via roads and a bridge. Also, roads on the site itself will have to be built more carefully and expensively than normal to avoid disturbing a cap over chromium-polluted soil, Brodie said.
But the City Council and the public need to pay close attention as the TIF details are negotiated. In particular, the city should not be liable if the project's taxes fail to pay off the bonds in the future. And no incentives besides those already available by law — income-tax credits for potential job creation, for example — should be granted.
"We have not been approached about incentives, so not knowing the particulars of the project, we cannot speculate on what the project would qualify for," said Karen Glenn Hood, spokeswoman for the state Department of Business and Economic Development.
If the Public Service Commission approves Exelon's purchase of Constellation — I predict it will — you'll hear a lot from the TIF and Enterprise Zone songbook. The project will be a proud new asset for the harbor front, backers will say. It'll generate income taxes, personal-property taxes and other revenue to partly make up for the property-tax discounts.
Maybe. But somehow, office buildings go up all the time in the suburbs without receiving distress discounts on their property taxes.