The first phase of the State Center project in Baltimore represents a $127 million giveaway of taxpayer dollars, with hundreds of millions of dollars more likely to be handed out, according to a recent report from the Maryland Public Policy Institute and the Maryland Tax Education Foundation.
The $1.5 billion project would provide some 2 million square feet of office space – most of it for state government agencies – spread over eight city blocks. A parking garage, retail stores, 1,400 homes, and a grocery store are also planned.
But downtown Baltimore businesses and property owners are trying to block the measure in court. They have filed suit claiming procurement laws were violated and challenging the costs to taxpayers. Because of the lawsuit, the project is on hold.
The MPPI/MTEF study, released in July, focuses on the project’s cost to taxpayers. The first of five phases of the multi-year project would have taxpayers subsidizing $127 million in development costs, according to the analysis.
High Rents, Debts, TIF
The study examines costs from rents that state offices would pay private developers, bonds for the parking garage, lost rent on the land where the complex is located, federal tax credits, and tax-increment financing bonds. According to the study:
- Office space rents would cost approximately $38 a square foot — substantially more than the state currently pays to rent space in the area. The estimate includes annual rent increases of 3 percent, which is standard for Baltimore. Total cost: $66 million.
- $33 million in bonds have been approved by the Board of Public Works to pay for a proposed 928-space parking garage.
- If the state were to charge $500,000 rent for each acre, it could bring in $11 million for the State Center parcel.
- Developers would receive a $2 million federal tax credit for constructing low-income housing.
- $15 million in tax-increment financing would be spent. TIF diverts future increases in property taxes that result from development and price inflation to pay for property improvements. Because the State Center project is on state property, the additional tax burden would fall on the state’s taxpayers.
Though phase two is years in the future, the study estimates taxpayers would be forced to throw in another $273 million for that part of the project.
“When the state’s competitive bidding laws are skirted, taxpayers pay more and get less,” said the Coalition to Save Downtown Baltimore, which is suing to stop the project, in a statement. “That lesson is driven home by the MPPI assessment. This is particularly troublesome when over 2 million square feet of vacant office space is already available in the downtown business district at considerably lower cost. It’s hard to understand this project from any perspective.”
Officials Hit Back
One day after the study’s release, state officials pushed back against it, demanding in a letter the Maryland Public Policy Institute “withdraw your recently issued report.”
“The MPPI report’s analysis overstates the cost of the project to the public while excluding all of the revenues and benefits that would be generated by the project,” wrote Michael A. Gaines, Sr. of the Maryland Department of General Services and Christopher Patusky, State Center Project Director in the Maryland Department of Transportation.
They argued the development will generate $81 million in taxes, ground rents and parking fees and will be a “world class transit-oriented development” that will create “thousands of jobs.”
They also took issue with a MPPI recommendation for the state to move agencies into existing office buildings, writing “such a relocation would turn State Center into a vacant 28-acre blight” and raise government costs by scattering state facilities instead of grouping them together. Using existing buildings also would not generate the jobs, revenues or private investment the state expects to come with the project.
Columnist Raises Doubts
In a July 11 newspaper column, Baltimore Sun writer Jay Hancock noted, “The rents the state has agreed to pay seem substantially above the going rate. The developers want the city to approve an expensive tax-increment financing deal. The Department of Legislative Services, the General Assembly’s nonpartisan research wing, found that the project ‘is not in the best interests of the state’ and that the projected property-tax assessments appear ‘unrealistically high.'”
In a column a few days earlier he also noted, “The process of awarding the project was irregular. The composition of the development team changed afterward. The project could create a Baltimore office supply glut, suck tenants from downtown and add to a vacancy problem on the harborfront. And it’s very expensive for taxpayers.”
‘Asking for Level Playing Field’
“It’s outlandish,” said Dave Johnson, a local real estate manager, in an interview with Fox 45 News. He said the market rate for real estate in the city is about $20 a square foot. For State Center, taxpayers would spend more than $36 a square foot.
“We’re asking for a level playing field,” Johnson said. “We don’t mind leasing office space. That’s what we do. It’s competitive to do that in Baltimore, or anywhere for that matter. But when we’re competing against state-supported development for the benefit of a few, that’s just plain wrong.”
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.