The Daily Record: What we can learn from the Port Covington deal and TIFs

Editor’s note: The following commentary appeared on TheDailyRecord.org on September 22, 2016.

With the Baltimore City Council’s approval of the public financing package for the proposed Port Covington project, Sagamore Development Co. can move forward with final permitting approvals and activating the engineers, bulldozers and construction crews.

There is still an incredible amount of work to be completed before the project begins to take shape. It will require a lot of heavy lifting.

But having watched the machinations of the legislative approval I would suggest that the City of Baltimore and the city council has some heavy lifting ahead as well – but we’ll come back to that later.

For Sagamore Development it was a long and winding road over several months to reach Monday night’s vote when the council approved a $535 million tax increment financing (TIF) deal that will be used to pay for roads, public parks and other infrastructure.

The TIF funds will be raised through the sale of city-backed municipal bonds and paid back by fees by the developer and the property taxes from the development as the homes, shops, offices and other “vertical” structures are built.

The Port Covington project is visionary and promises to be transformative for the Port Covington area – which hasn’t seen any significant private investment in decades.

It will be transformational for the city, too. Thousands of new jobs and taxes will be created, both of which Baltimore certainly needs. A new global headquarters for Under Armour, where up to 10,000 may one day be employed, will be built on the waterfront property, anchoring the fast-growing and successful company in Baltimore.

All of this underscores many of the upsides Port Covington offers as we now cast our attention on a certain future of this bold $5.5 billion project envisioned by Sagamore, the development venture tied to Under Armour’s founder and President and CEO Kevin Plank.

But it is also a time to reflect and take stock of the public funding process that cleared the way for this once-in-a-generation opportunity for Baltimore.

Maze of approvals

The most discouraging downside was the many unexpected and complicated twists and turns that Sagamore ended up encountering as it navigated the maze of administrative and legislative approvals required to attain final city council approval of the TIF.

Aside from the standard approvals required from the city, Sagamore also faced tough negotiations with a variety of neighborhood leaders, special interest groups, labor unions, city council members and others.

The glare of the local press and media focused on the back-and-forth demands and contentious negotiations between the engaged parties added a level of stress and uncertainty that did not always appeal to the eyes of an interested public.

The Sagamore experience raises the serious question of whether it’s time for the city to comprehensively review and improve its TIF process so that future developers seeking public financing do so with a full and complete appreciation of what’s in store for them before they come to the table.

Granted, any time a private developer is seeking public financing assistance, such as a TIF, it should be expected that elected officials and community groups may request that the developer agree to provisions that will benefit local residents and communities. It is not unreasonable for a private party seeking government financing to provide that type of community benefit.

But in the case of Port Covington, requests came from many directions — often unexpectedly — all while Sagamore was conscientiously and in good faith following the legally required steps to secure TIF approval.

Collectively, these deliberations and negotiations created a level of uncertainty about whether the project would receive a final vote or if Sagamore would elect for business, financial or other reasons to put the project on hold until a later time.

To Sagamore’s credit it “stayed calm and carried on,” to borrow a Winston Churchill phrase. Company officials met with community leaders and others to hammer out a broad set of agreements that provided affordable housing, funding for local neighborhood initiatives, local hiring quotas and other benefits.

Community benefits

The community benefits agreed to are substantial and numerous, totaling about $100 million, and demonstrate an impressive socially responsible approach by Sagamore.
Still, the many twists, turns and speed bumps in the road highlight that the current TIF approval process in Baltimore is overdue for a top-down review.

Improvements are needed that will mitigate the unpredictability in the process so future developers with proposals that would create jobs, provide tax revenue and encourage business growth will have clarity on when community and other requests will be allowed, vetted and negotiated and how those discussions take place.

While the general public may not be all that familiar with TIFs, it is a financing tool used regularly throughout the country to provide public financial support for major development projects that hold the promise of spurring needed economic activity. The use of TIF financing is not unique to Baltimore City.

The Port Covington TIF is without question the largest ever issued in Baltimore — and it may be one of the largest ever approved in the country. The vision for a revitalized Port Covington and its connection to such a well-known and successful figure as Kevin Plank will surely draw positive attention to Baltimore and the potential that our city represents.

The Port Covington deal and the city’s TIF process will be studied by developers, investors, and state and city officials nationwide.

In some ways, the Port Covington TIF has set a precedent for how future deals may be structured when developers seek similar public financing options in Baltimore. It may also end up serving as a model nationwide.

But if we want Baltimore’s TIF process to be a model really worth emulating, the city absolutely needs to bring more transparency and predictability to the process.
Business and the private sector thrive when there is certainty and predictability in government and regulatory processes that must be maneuvered to launch new ventures or expand existing operations.

Not only does business thrive in predictable environments – they are attracted to them.

Likewise, business and the private sector investment stalls if the rules are uncertain or change halfway into the process.

Assess TIF process

With this and the Port Covington TIF experience in mind, the next mayor and city council would serve the city well by reviewing, analyzing and adjusting the city’s TIF process to ensure that the public sector and communities are adequately protected and engaged and that future developers enter a process fully knowing what to expect.

The business sector, with its deep knowledge and insight in efficiency and productivity, stands ready to provide assistance in the form of a task force or other advisory group to bring about this form of improvement. Without question, the public needs to be an equal partner in these deliberations.

Clarity and predictability would make the TIF process not only less contentious and time-consuming, but could serve as a springboard to attract more companies and developers to Baltimore with bold plans that fuel jobs and the economy.

If that dynamic were to happen, the Port Covington project would provide Baltimore with yet another positive legacy worth talking about.

Donald C. Fry is President and CEO of the Greater Baltimore Committee. He is a regular contributor to The Daily Record.

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