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July 8, 2011

127 million reasons to oppose State Center project

There were already plenty of reasons to question the redevelopment of State Center as currently envisioned. The process of awarding the project was irregular. The composition of the development team changed afterward. The project could create an Baltimore office supply glut, suck tenants from downtown and add to a vacancy problem on the harborfront. And it's very expensive for taxpayers. How expensive?

The Maryland Public Policy Institute has published an excellent analysis by Jeff Hooke and Gabriel Michael. It's one of the best things they've put out, and anybody interested in the project should read the whole thing. It's less than five pages. Aside from the financial analysis the report is a good scorecard of players and events so far. The headline is that State Center as now structured would cost taxpayers $127 million when you count all the giveaways -- tax credits, free land, free parking garage, inflated rent etc.

Some other highlights:

To promote the first phase, the state has, among other items, (1) agreed to pay an above-market rental rate— about $10 per square foot extra—on its new office space, (2) construct a parking
garage financed by $33 million in sState bonds, and (3) rent the land to the developer for a nominal amount. Additionally, Baltimore City will contribute infrastructure, (4) including about $15 million worth of construction supported by tax increment financing (TIF) bonds.

Because the private developers are so
thinly capitalized, the state must pay rent even if Phase I’s
completion is delayed. Otherwise, commercial debt financing
is unavailable according to project-related documents.
This analysis assumes no cost overruns, although cost overruns
are not unusual in a project of this size.

We anticipate the private developers will invest little
of their own money. Apart from the estimated subsidies,
most of Phase 1 will be financed through commercial loans
backed by the state’s long-term office space lease.

Posted by Jay Hancock at 8:03 AM | | Comments (9)
Categories: Corporate welfare
        

Comments

Thanks for the coverage on this one, Jay! Glad to have you spreading the word that this is NOT the way to help Baltimore -- or to solve our government's spending problem.

This is an investment in the future. This will ensure that the State Agencies remain in Baltimore, will bookend the development on the West Side, and bring needed shopping and services to an improving area. We have invested in the inner city core using these same types of deals - now it's time to improve an area outside of the downtown core. I'm sorry if Mr. Angelos and company feel they have Class B and Class C space to rent; they have gotten enough of the public dollar. Time to move development outward from the city core.

This is exactly not the time to expand outward from the city core, as that would only undercut what few business remain there and undermine attempts to revitalize it. We need to coalesce in downtown, not further away, as has been done with Harbor East and the like. State Center is not a good location for shopping, it's out of the way and hard to find. And that's not going to change unless you're on the Metro. If developers wanted to add shopping and services they would have done so by now. If you can't get the empty lots and storefronts on Charles St filled, you sure as hell won't get it in State Center. The state agencies need to stay, but now is not the time for this expensive deal.

I'm really flabbergasted about the whole "expanding core" mentality. Looking at the facts, does that make any sense when there's a 20-25% vacancy rate? If so, you're following the BDC's MO of "build absolutely anything, anywhere, at anytime, so as we build something--and the deeper pocketed the developer or landholder--the better". Wake up and smell the coffee. This is not how cities grow and thrive.

Dear Jay:

I am the State Center project director for the Maryland Department of Transportation. The report by the partisan Maryland Public Policy Institute is replete with factual and analytical errors and so it is no surprise that it comes to wrong conclusions.

Please note that the authors, like the plaintiffs in the lawsuit, never contacted the state to obtain or confirm the facts. We ask that the media put in a good faith effort to get the facts and analysis right as the Sun did in its editorial in favor of the project which effectively rebutted the questions raised in the report.

Please note that the analysis overstates the costs while not including any of the new taxes, ground rents (which are not nominal as the report would have you believe but greatly exceed the value of the property), or garage revenues from the project. It also does not consider the thousands of jobs that will be created by the project and its positive impact on the surrounding area. When properly analyzed and accounted for, the project represents the best fiscal and economic alternative for redeveloping the site from the taxpayer's perspective.

Moreover, the report's recommended alternative of vacating the State Center site would bring no new revenues to the state or city, almost no new jobs, and would leave a blighting influence on the area. This would depress city and state revenues, harm Bolton Hill, Mid-town, the other adjacent communities, Maryland General Hospital, the Symphony, MICA, and UB, while denying all the surrounding communities the benefits of a world-class transit oriented development that was named as one of the seven best urban redevelopment projects in the world by the Congress for New Urbanism in 2010.

The State has been transparent on this project for the past six years, since the time that the previous administration rightly chose in 2005 not to vacate the site and to do a competitive RFQ and public/private partnership (and not an RFP), to the current administration's implementation of that vision.

We welcome questions on the project. Please note there is a transparent website at www.statecenter.org that has been posted for several years that has extensive information on the project..

Christopher Patusky
State Center Project Director
Maryland Department of Transportation

Provided it is not a hole that is repeatedly being dug and re-filled, or a large pyramid shaped mausoleum, virtually any publicly funded project will have some degree of public benefit. The question is are those benefits primarily public, such as a school, library, or public park? Or are they primarily private in nature, such as that of private property?

The world started to shift away from thinking that the government must subsidize the production of private property in 1776.

It's hard to justify the new construction of anything with as many vacancies as there are, but ultimately that is a decision for many regular individuals to make, not a small group of the politically connected.

Finally some sanity. As a Bolton Hill resident, I am against this because of the traffic and possible issues with all the new apartments. The potential harm is great. As a taxpayer, I find it appalling. You can understand why the developers are fighting for such a sweet deal. All of the positive comments are always from connected people.

I wonder who is funding this supposed study. It does not rise to the level of excellent analysis that Mr. Hancock suggests. The matter is before the courts and we are awaiting the judge's decision. This project has been on the table of public review and debate for over 7 years. It has withstood rigorous scrutiny and at the final hour monies interest wish to derail it. I believe in the system of justice and therefore, we should all stand at the bar of justice for the court to rule. Once that ruling comes in, those opposed to State Center should not appeal to slow down a project that in a tangible way provides a sense of hope and a real opportunity for the residents of West Baltimore.

Sorry Chris but the neighborhoods around State Center would be better off with a first class shopping center - anchored by Giant or Harris Teeter - than this office complex. The neighboorhoods need amenities to support living there not jobs where people parachute in each day and escape at night. This land should be used for a true neighborhood shopping center and the rest can be given to University of Baltimore for fields, dorms or other university based needs. The more this part of the city can become a "college town" the better. Also private developers of shopping centers and student housing don't need tax breaks. These office uses belong in the city between Light Street and MLK above Lombard. These State uses can forever anchor the west side of the city. It is time to do the right thing and end this ridiculous project.

Jay has been Baltimore's long-lasting financial bloodhound and there is good reason to heed his call. Real estate is a risky business and the old formulas need to be replaced with perhaps less ambitious but more realistic and creative approaches to the new economic realities. Face the facts - retail is dead in Baltimore except for food. The consumption society is shrinking. Culture and education on the other hand are thriving. The government has to work somewhere, that's a given. Built on our strengths. If we don't get this right, Baltimore will suffer.

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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