Enterprise zone tax breaks flow to Baltimore waterfront, other prosperous neighborhoods

Schaefer launched program 30 years ago to aid poor areas

August 24, 2013|By Scott Calvert and Jamie Smith Hopkins, The Baltimore Sun

In 1982, Mayor William Donald Schaefer persuaded state lawmakers to try a different approach to urban revitalization. To lure companies to poorer parts of Baltimore and elsewhere in Maryland, the government would dangle a 10-year property tax discount and hiring rebates.

Baltimore's first so-called Enterprise Zone was carved from a depressed section of Lower Park Heights called Park Circle, where a sausage plant and other businesses opened their doors.

Thirty years later, Baltimore has greatly expanded its program, offering multimillion-dollar tax breaks to developers in many of the city's most desirable neighborhoods.

Nearly two-thirds of this year's $17.2 million in enterprise zone property tax credits citywide went to projects downtown, in upscale Harbor East and in established waterfront neighborhoods from Canton to Locust Point, according to a Baltimore Sun analysis of city tax records.

A quarter of the total, $4.4 million, was claimed by just two Harbor East sites: complexes housing the headquarters of the investment firm Legg Mason and the high-end Four Seasons Hotel.

Current and former city officials say the discounts have been a huge help to Baltimore by spurring major development, which has generated jobs and revenue through an array of taxes. And they say the subsidies have been necessary, given the city's high property tax rate and the dearth of federal money for urban renewal.

"My philosophy was, Baltimore City needs all the incentive help it can get," said M.J. "Jay" Brodie, who retired last year after 16 years as head of the Baltimore Development Corp., the city's economic development arm.

But some lawmakers say The Sun's analysis shows that the enterprise zone program in Baltimore has strayed from its purpose of aiding impoverished areas and become another subsidy for developers in thriving districts near the waterfront.

"I believe we have to look for a new approach in terms of how the enterprise zones are drawn and go back to what it was originally intended to do — help spur development in areas that wouldn't normally see development," said Del. Keiffer J. Mitchell Jr., a Baltimore Democrat.

The program's expansion has had an impact on taxpayers, not just in the city but across Maryland, because the state reimburses local governments for half the cost of the property tax breaks.

As credits have flowed to high-dollar projects in Baltimore, the state's costs for the city's enterprise zone program have increased from $2.7 million seven years ago to more than $8 million this year. And the city's share of state payments to all jurisdictions has risen to about 60 percent from 27 percent.

Baltimore's oddly contoured enterprise zone looks like the product of "gerrymandering" to Daphne A. Kenyon, a visiting fellow at the Lincoln Institute of Land Policy in Cambridge, Mass. She said such zones should be targeted to distressed areas. But politicians face pressure to expand them because developers, often reliable political contributors, want the benefits in more places, she said.

"If these things are spread too broadly, then the advantage that you create in one area is canceled by the advantage you give in another area," Kenyon said. "You're trying to level the playing field, but if ... the better-off areas also get a boost, then the harder-off area is relatively no better off."

Todd Dolbin, who coordinates the enterprise zone at the BDC, disagrees. "We're looking to create jobs for the entire city and attracting development and businesses for the city as a whole," he said. Projects at Harbor East, downtown and in waterfront neighborhoods have done that, he said.

From 2009 to 2011, he said, businesses in the zone projected that they would add 7,000 jobs as a result of the credit. He said last year's projection and final figures are not available.

Because the program isn't capped, Harbor East projects do not keep tax credits from going to eligible businesses elsewhere in Baltimore or, for that matter, the state. Dolbin pointed out that in struggling parts of the city, the program has enabled mom-and-pop stores and other small businesses to renovate or expand.

Baltimore's zone covers more than 13,000 acres, spanning much of the city and the socioeconomic spectrum. The 276 discounts on this year's property tax bills range from $3 million for the Legg Mason tower to barely $2 for a corner store in Southwest Baltimore. Most are worth less than $7,000.

The credit reduces a company's local property taxes on the value added by new construction or improvements to an existing building. The break wipes out the tax on 80 percent of that added value for five years. Then the credit diminishes until reaching 30 percent in year 10.

Businesses can also get a state income tax credit for each new hire. The state won't say who gets those credits, citing confidentiality laws, but officials say the cost is far lower than for property tax breaks.

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