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State Senator Seeks To Unearth Hidden Costs Of Developer Tax Breaks

Above photo: Baltimore’s Inner Harbor by Taya Graham.

State Senator Jill P. Carter has introduced legislation to convene a task force to penetrate the city’s opaque accounting of who benefits and how much the subsidies cost.

For decades, Baltimore has doled out tax breaks intended to spur development. But the increasing use of incentives has not been matched by scrutiny of how much they cost the city, and who is benefiting.

State Senator Jill Carter intends to correct that imbalance with a bill she has introduced to study a variety of tax breaks in-depth, with the purpose of determining if their use is both equitable and cost effective.

“I think it’s important that people pay attention to how much money is thrown out to wealthy developers with no accountability,” Carter said.

The bill would authorize a task force to gather data and recommend processes to increase transparency and accountability for how tax breaks are used. It would also seek ways to measure how effective the subsidies are and if they deliver equitable—or even quantifiable—outcomes.

Carter said an in-depth study of the city’s reliance on subsidies is long overdue.

“We don’t really know what the outcomes are going to be and how they are benefiting the community,” Carter added.

“We just take for granted that when a tax break is awarded it’s for an area where it’s needed. And it follows that good things are going to happen for the people, but we don’t see the results—we can’t even begin to truly measure their impact.”

The incentives in question include a variety of tax breaks with innocuous sounding acronyms like TIF and PILOT. TIFs (Tax Increment Finance) allow developers to invest up to 30 years of future property taxes into construction costs and infrastructure rather than these taxes being paid to the city. PILOTs (Payment In Lieu of Taxes) phase in taxes over time, offering a discounted rate for anywhere between 10 to 25 years.

Both are responsible for incentivizing the bulk of new development in Baltimore.

But the city also must, in part, pay for breaks tied to an array of state programs. Among  those are the Brownfields Revitalization credit, which offers incentives to rehabilitate environmentally degraded property, and Enterprise Zone credits, which award breaks to businesses that add jobs and build in impoverished neighborhoods.

Maryland currently has a site that lists the credits awarded through state-authorized programs. However, it does not break down the costs or benefits by specific locality, nor does it measure outcomes—an area the task force legislation plans to address. A report on the effectiveness of Maryland’s transparency laws by Good Jobs First, an organization that advocates for improving disclosure regarding tax subsidies and incentives, noted the lack of outcome-based reporting.

“Disclosure of subsidy recipients and performance metrics makes it possible for researchers and advocates to determine whether subsidized companies are doing what they promised to do in exchange for public support,” the report concluded.

But the policies themselves have been controversial—particularly the use of TIFs.

The city’s reliance on tax incentives has been blamed on Baltimore’s uniquely high tax rate, which is roughly double that of the surrounding counties. City officials also point to Baltimore’s declining population and the desire to convert vacant office buildings into residential apartments.

In 2016, shortly after the uprising in the wake of the death of Freddie Gray in police custody, the city approved a TIF of approximately $600 million to Under Armour founder Kevin Plank to build a massive development on a waterfront property known as Port Covington. Activists decried the move—promising investment in a new residential and business community but not to help alleviate the entrenched poverty plaguing neighborhoods like the one in which Gray was arrested—as tone deaf and ill-designed.

But, since then, the scope of the project has been substantially scaled back and developers have struggled to lease office space. The project has also been rebranded from Port Covington to Baltimore Peninsula.

City officials have argued TIFs are necessary to finance infrastructure costs that often accompany projects built on undeveloped land. However, the value of the TIF, which determines how much money a specific project receives, is calculated by estimating future tax revenues from the property—not how much infrastructure a developer is required to build.

As of 2022, the city’s treasury department estimates the city has committed roughly $580 million in future property tax revenues to finance a variety of TIFS. That includes $240 million for interest on the bonds alone.

A consultant study commissioned by the city in 2021 found that an array of property tax breaks cost the city treasury roughly $128 million in 2020. The study did not include TIFS. It also tallied subsidies like the homestead tax credit that caps the property tax increase for an owner-occupied property if its assessed value rises.

Last year, City Comptroller Bill Henry pushed a bill through the city’s finance board to require additional reporting on a variety of metrics pertaining to TIFs. City Councilwoman Odette Ramos has also requested more data on outcomes related to TIFs and other tax incentives through a series of investigative hearings.

The data she is seeking includes how much of the city’s public safety budget is consumed by TIF districts which do not pay into the general fund. She has also requested data on jobs generated and affordable housing constructed as the result of development tax incentives.

“Any efforts for transparency about the impacts of the TIFs is really important,” Ramos said of Carter’s legislation. “I asked for a variety of data from the city and they have said they are willing to share it.”

The push for more transparency comes after The Real News Network released the investigative documentary Tax Broke. The film, produced by the authors of this article, recounts how federal redlining, racial segregation, and state laws designed to economically and politically isolate Baltimore led to policies of publicly subsidized development.  The documentary revealed that a vast majority of tax breaks have been targeted at majority white neighborhoods that were already wealthy.

Carter points to that history as impetus to examine in detail the justifications for the tax subsidies which Baltimore has relied upon to stimulate growth.

“Every time we want to do a tax break for the average citizen it’s always a problem,” Carter said.

“But, without hesitation, TIFs and PILOTs are just used routinely under the guise that they’re benefiting the community. We need to know why.”

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