Baltimore's Big Bond Problem
The largest TIF in the city's history is full of red flags.
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The city of Baltimore on Wednesday approved the sale of $148 million in bonds to help support a new TIF district — the acronym stands for tax increment financing, a subsidy tactic I’ve covered before. It’s the largest TIF subsidy in the city’s history, and had to be run through the state’s economic development agency because the city’s own TIF authorities are tapped out.
The bonds will go to support infrastructure around a new office and apartment development in the Port Covington district, where ground has already been broken; taxes raised within the district will, instead of going into the city’s coffers to pay for services, go toward repaying the bonds.
However, there are several big red flags about the project, which means it may not raise as much revenue as anticipated. That would leave Baltimore stuck tapping other reserves to make bond payments for as long as 40 years.
Approving the deal during a pandemic that renders the entire Port Covington project economically questionable makes everything worse.
The original plan to float these bonds was adopted by the Baltimore city council back in 2016, a very different time for both the city and the country’s economic picture. As both the Baltimore Brew and the ACLU of Maryland pointed out, the development was based on the premise that Under Armour would move its headquarters there from its current location a few miles away, thus attracting other big companies to the area.
Fast forward to today, when the bonds are actually being issued: The pandemic has put Under Armour under severe stress, the CEO who was leading the company back then has since been demoted, and the HQ move is on hold. The lead developer on the Port Covington project has also changed. Very little of the office space available at the site has been leased, and there aren’t a whole lot of people moving to new apartments when there’s so much economic uncertainty.
Put it all together, and there’s real reason to question whether sufficient tax revenue will be raised to cover the city’s bond payments. Already, the TIF district’s taxes don’t cover the full amount for those payments even under the best-case scenario, so some other tax already needed to be raised elsewhere, a problem which the city is currently yadda-yaddaing past.
There’s one more problem worth highlighting: It’s no sure thing that all the “end of the office as we know it” predictions will come true once the pandemic subsides — but they might! That will mean demand for space in the district will be depressed, perhaps permanently. Older TIF districts are probably already in trouble, too, due to depressed sales at retail outlets and rent moratoriums.
Cities simply still aren’t coming to grips with the fact that the pandemic could change everything from the stores we shop in to the places we work to the ways we get around. Betting on the economy going back to normal is just that, a bet that might not pay off.
And again, if enough revenue can’t be raised from the Port Covington district to cover bond payments, the city is going to have to find that money elsewhere.
According to its 2019 disclosure, Baltimore lost more than $28 million due to corporate subsidy programs. There are plenty of reasons to think that number will go up thanks to this big, bad bond issue.
One more thing: The first paper I worked on at the American Economic Liberties Project came out recently. It’s called “Ending Our Click-Bait Culture: Why Progressives Must Break the Power of Facebook and Google,” and it’s about, well, that. Check it out here.
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— Pat Garofalo