Baltimore: East Coast’s Shrinking City

Published October 13, 2011

Poor Baltimore.

For decades, the Maryland city has been plagued by high crime, low student test scores and graduation rates, rising taxes, and a falling population.

Even when it tries to do something right—when its political leaders take what they believe are pro-business steps—results often disappoint.

Consider the inaugural Grand Prix auto race in September, a “game changer” for Baltimore’s ways of doing business, according to Mayor Stephanie Rawlings-Blake (D), who characterized the race as a surefire means of raising city revenues and boosting employment. Maryland Public Policy Institute Senior Fellow Marta Mossburg says it changed virtually nothing.

“Despite predictions by race organizers and the mayor’s office, most jobs related to the Grand Prix are temporary,” Mossburg wrote in a Baltimore Sun column. “And while the event may bump tax receipts for the weekend it runs, visitors will likely not make return visits for non-racing events.”

Baltimore’s Bungles

Baltimore has a long list of political bungles, scandals, and policy failures. The result: The city is the only one of its size on the East Coast to lose population since 2000, according to recent Census Bureau figures. Between 1990 and 2010 Baltimore’s population dropped more than 84,000, to 620,961.

What ails?

“The trajectory in Baltimore has been downward since 1950,” said Steve H. Hanke, professor of applied economics at John Hopkins University in Baltimore. He paints a picture of declining commerce and job opportunities and rising taxes and crime rates. “The property taxes in particular are very high. They’re the highest in the state. They’re double those of the surrounding counties.”

In January of this year, soft drink company Pepsi moved production out of Baltimore, taking with it the tax revenues and approximately 75 jobs it generated. Six months earlier the city had passed a two cents per bottle “sugary drink” tax that could go as high as four cents when it comes before the City Council for possible renewal in three years. Pepsi had warned in the lead-up discussions to the tax’s approval it would not pay the tax.

“The main thing that has to be done is to replace the current business model with something different and something that’s more congenial to business,” Hanke said.

Pay-to-Play Politics

The city’s current “regulatory approach,” as Loyola University Maryland Economics Professor Steve Walters describes it, is not only unsustainable but rife with corruption and political shenanigans.

“Baltimore sets itself up as the middleman on virtually any deal,” Walters said. “They know they’ve got a problem [with the tax burden]. So if they’re going to attract any business, they’ve got to give breaks, discounts . . . You have to pay to play. The political in-crowd has extraordinary power.”

The most recent past mayor plea-bargained her way out of prison, Walters notes, for improper dealings with a real estate developer. Another in-crowd politician on the City Council gave up a committee leadership role over ethics questions, Walters added.

“I’m sure there are [other cities] where similar deals are brokered,” Walters said. “But in Baltimore, the difference is there’s no option. The high property tax makes it so there’s no choice but pay to play.”

Billion Dollar Boondoggle

Christopher B. Summers, president of the Maryland Public Policy Institute, has been tracking what he describes as a real estate development scandal. The city’s State Center, a $1.6 billion downtown redevelopment project aimed at drawing high-paying tenants and boosting tax revenues, is little more than a heavily subsidized “fiscal boondoggle” that has wasted taxpayer dollars, he said.

“The State Center has corruption in Maryland government that has gone up to its highest levels,” Summers said. “The state owns the building, and the idea was to replace [it]. They billed it as a public-private partnership. But there were some procurement laws broken.”

If the project does get built—numerous businesses and property owners in downtown Baltimore are suing to block it—the result could be high vacancy rates, Summers said. Office space rents in the city average between $22 and $23 a square foot. The state government guarantees State Center space will lease for $36 a square foot, with taxpayer subsidies to bridge the difference, Summers said.

Crime Fears

High crime rates are also driving people and businesses out. Earlier this year the FBI reported Baltimore is the fifth-deadliest city in the nation and the seventh most dangerous in terms of overall violent crime.

“The city could improve on the perception of the crime issue and decrease the crime statistics,” said Carl Herber, branch vice president of Coldwell Banker in Green Spring, Maryland, who has been in real estate investment in the city for 10 years. “The school system is also not generally regarded as a great service. I find fewer people willing to compromise to take advantage of a great older neighborhood in the city. Fewer people are willing to pay the price on that.”

He added, “If you buy a house in the city at $500,000, your taxes will be about $12,000 a year. Move out of Baltimore boundaries, and that same house will only cost $5,000 a year in taxes. Many folks look at that and say no [to Baltimore].”

Cheryl K. Chumley ([email protected]) writes from northern Virginia.