Who Will Benefit from Port Covington?
Advocates, city leaders, and Under Armour’s real estate arm negotiate a $660 million tax deal and a vision for economic development in Baltimore.
By Daniel Kravetz Posted on October 20, 2016
In December 2014, The Baltimore Sun ran an article about an undisclosed buyer who had paid $46.5 million to buy its printing plant in Port Covington, a peninsula in South Baltimore, two miles south of Inner Harbor. The total purchase included 60 of Port Covington’s 266 mostly-empty acres and was the second land grab there that year: in January, an undisclosed buyer paid $35 million for a 59-acre parcel that held a Walmart and Sam’s Club (both have since closed).
The land rush was not surprising. Although Port Covington is virtually an island, severed from Baltimore by a northward stretch of Interstate 95, it has routinely been a canvas for ambitious development plans due to its open space and proximity to downtown. Nor was it unexpected when The Sun confirmed that the buyer was Sagamore Development, the real estate arm of Under Armour CEO Kevin Plank, who had long wished to build an expansive new campus for his booming Baltimore-based enterprise.
What got Baltimoreans’ attention was the scale of Plank’s plans. Alongside Under Armour’s new headquarters, Sagamore would transform Port Covington into a $5.5 billion city-within-a-city, including 7,500 housing units, 1.5 million square feet of offices, 1.5 million square feet of entertainment and retail space, and over 40 acres of public parks. Sagamore initially expected the project to create almost 60,000 jobs, though that number has fluctuated since.
In a July 2016 feature on “CNN Money,” Plank gave CNN’s Poppy Harlow a tour of the Lighthouse, a new Under Armour manufacturing and design center in the shell of the former Sam’s Club. Plank told Harlow that he had watched on the news as unrest unfolded in the Sandtown area of West Baltimore in April 2015, after Freddie Gray died from a severe spinal injury while in police custody. “I’m sitting there in my waterfront Inner Harbor office,” he said, “and I’m looking out and saying, ‘I don’t see any of this.’”
Turning to Port Covington, Plank spoke not of a sum of amenities, but of a symbol of a thriving new city. “What’s your vision?” Harlow asked. “Route 95,” he replied. “Two hundred and twenty-five thousand cars a day driving through the City of Baltimore. I want them to drive through and say, ‘Wow! There’s something great happening in this city!’”
In April 2016, Baltimore’s Board of Finance approved Sagamore’s request for a 40-year, $535 million tax increment financing (TIF) deal to fund the site’s infrastructure, sending it to the city council to introduce as legislation (the amount has since risen to $660 million). If approved it would be the largest TIF deal Baltimore has ever done. This news set off alarm bells for local activists. “TIFs are already a very hotly debated issue in Baltimore City,” says Charly Carter, executive director of Maryland Working Families. “Over the last few years we’ve handed out over a billion dollars in TIFs, and yet we have neighborhoods that have not seen any investment.”
Carter quickly called together dozens of local housing and labor leaders to seek a delay in the TIF’s approval and to increase its community benefits mandates. They formed the PORT3 Coalition: People Organized for Responsible Transformation, Tax Subsidies, and TIFs. PORT3 then aligned with Build Up Baltimore, another coalition, expanding to 167 members. Separately, Baltimoreans United in Leadership Development (BUILD), an interfaith organization, began engaging and organizing its own members to fight for community benefits, and they and the other advocates soon aligned their demands for local hiring and wages, affordable housing, education funding, and profit sharing.
But beyond its homes and jobs, advocates saw Port Covington as a symbol of something other than Plank’s vision: the “two Baltimores”—one thriving, one sinking, each hyper-segregated—that Gray’s death brought to light. “It’s the imagery,” Carter says. “You have a neighborhood [in Sandtown] that hasn’t seen investment in 40 years, followed by cuts to education, recreation, afterschool programs, followed by ‘Yeah, but we have half a billion dollars we can give to a billionaire.’”
The resistance swelled in a matter of weeks, and by the time the city council’s Taxation, Finance, and Economic Development Committee held a public hearing on the legislation in late July 2016, it faced a crowd of over 600 people, so many that it had to schedule a second hearing. Afterwards, Councilman Carl Stokes, the committee’s chair, called three public work sessions to compel Sagamore to negotiate with the coalitions.
“If there’s one lesson that people in other cities should learn from us, it’s that you have to be united,” Carter said in August 2016, before negotiations began.
Breaking Down the Deal
Through TIFs, cities earmark a project’s future tax revenues to pay off front-end public improvements that make it feasible. For Port Covington, investors would finance initial costs, buying bonds with the promise of strong returns, and those bonds would be repaid with increased tax revenue resulting from rising property values in the development. Sagamore’s TIF application projects that the tax revenues generated by Port Covington’s tax will exceed city costs—including interest owed to investors—by $1.7 billion. In this scenario, the city would be able to pay for the project and also achieve economic development, job growth, and new revenue without using general funds or raising tax rates for infrastructure. It would also reduce the risk that Under Armour would leave Baltimore, a cold-sweat notion for some city leaders.
But TIFs pose risks of their own. First, projections can be wrong: if infrastructure costs more or a project raises fewer tax dollars than projected, a city’s net gain may be diminished. Infrastructure costs for Harbor Point, a waterfront project that received a $125 million TIF from Baltimore in 2013, are triple those projected. TischlerBise, a fiscal and economic consulting firm that BUILD retained to analyze the Port Covington TIF application, argued that, among other things, the TIF application did not fully consider public costs for police, fire department, schools, and libraries.
Also, a developer may not truly need a TIF: if it would have funded infrastructure costs in the TIF’s absence, then the city would be forgoing revenues it could have used for other pressing needs. Baltimore’s Department of Planning and others describe this assessment as a “but-for” analysis, in that they analyze if a “project would not otherwise proceed ‘but for’ the TIF investment.”
Finally, if a TIF-funded project falls through, it may pose risks to the city’s bond rating and result in underused infrastructure that it must manage.
Importantly, a TIF is not always a matter of a simple yes-or-no vote; its components can be teased apart. For example, it may make sense for the city to support street construction necessary for Sagamore’s project to move forward, but not more optional touches such as waterfront landscaping or kayak landings. (The current proposal designates almost $140 million of the TIF to parks and recreation, almost three times Baltimore’s entire parks budget, though Sagamore would manage the parks).
These risks do not necessarily make Port Covington a bad deal. But because they exist and are magnified by the scale of the investment, many are arguing that the city should receive more in return. A cross-sector Baltimore task force released a report in 2011 recommending that, beyond improving their “but-for” analysis, transparency, communication, measurement, and assurance of return on investment, “TIFs should be used to promote public policy goals. . . . The TIF serves as a leveraging opportunity to encourage the direction of development rather than as a source for private-sector financing.”
In Port Covington’s case, the coalition of affordable housing, labor, and faith-based advocates argued that, in return for a TIF, Sagamore should be mandated to provide 51 percent of on-site jobs to city residents and meet prevailing wage and benefits standards. Sagamore projected 33 percent local hiring and promised a minimum of 20 percent, with no prevailing wage standard (the TIF applications shows that most permanent jobs will be entry-level retail or higher-wage office jobs).
Community advocates also sought a requirement that 25 percent of the new housing units be affordable at a range of income levels. The city had waived the project’s inclusionary housing requirements under the current citywide ordinance, which mandates that TIF-funded projects make 20 percent of their housing units affordable. The Port Covington TIF application stated that 10 percent of housing units would be affordable at 80 percent of area median income.
Then there was school funding. Maryland’s state education funding formula removes $1 of state aid to locality every $100 increase in property wealth, even if that wealth is earmarked by the locality to repay TIF bonds. The city’s TIF analysis, which was conducted by MuniCap Inc., projected that the Port Covington plan would result in a loss of $315 million in state education funding over 40 years to a school system that is already facing shortfalls. The ACLU of Maryland conducted a separate analysis and found that the loss could be over $1 billion. Advocates argued that Sagamore should make Baltimore public schools whole. The state has committed to covering losses for three years.
Community advocates were seeking two kinds of concessions: they want higher amounts of community benefits and they want them to be binding. “There is no accountability written in [the TIF deal],” said the Rev. Glenna Huber, BUILD’s co-chair, as negotiations began. “We want to make sure that these things that people say are priorities now . . . stay priorities throughout the life of the TIF.”
The “Armpit” of Baltimore
As coalitions organized their bases to flood the TIF hearings, Sagamore was already finalizing a $20 million community benefits agreement (CBA) with the SB6 Coalition, six organizations representing the six South Baltimore neighborhoods that face Port Covington from the Patapsco River’s southern shore. The agreement included funding and technical assistance for affordable housing, employment training, school and afterschool programs, and parks and amenities. In return, SB6 committed to supporting the Port Covington TIF legislation.
The CBA was announced at a press conference on July 14, 2016, in Cherry Hill, a community that was built for north-migrating African Americans in the 1940s (The Sun called it a “model Negro Village”), but quickly fell on hard times and never recovered. The emcee was Michael Middleton, who manages the Cherry Hill Development Corporation (CHDC) and is SB6’s spokesperson. “This is a deal that we believe benefits all of Baltimore City and particularly this area of South Baltimore,” he told the audience. “There’s a lot that’s been done for us, or to us, but not with us.”
Like Port Covington, Cherry Hill is bound by water and transit. A four-lane bridge tethers the two sites, the only land route from Port Covington into South Baltimore’s isolation. “These are six communities that have been treated like the armpit of Baltimore,” says Middleton, who came of age in the post-war era in one of Cherry Hill’s hundreds of public housing units, near the city dump. Today, his CHDC office sits in the back of an old rectory on Cherry Hill Road, a small room with foot-high stacks of papers, an old desktop computer, and only a fan to temper the summer heat.
Since developing a new Master Plan in 2008, Middleton and his fellow community leaders have had big plans for Cherry Hill. They are implementing a new concept for their schools to prioritize early learning, a plan to attract and steward new mixed-income housing without displacing the thousands of residents on public assistance, and a workforce development program focused on transportation and logistics. “We’ve had all these grandiose ideas,” Middleton says. “Now we have resources to implement those plans ... the thing that most community development organizations don’t have.”
Middleton, who has often worked with opponents of the TIF, argued that Sagamore is committed to exceeding its own affordable housing goals (though it didn’t want to raise those goals) and that the state’s education funding formula would be changed. But Middleton is no supporter of business-as-usual in the city, especially the ease with which the city waives inclusionary housing for TIF-financed developers. “Sagamore has played according to the rules that have been set up by Baltimore City,” he says. “Baltimore City has made some stupid rules!”
But Middleton believes that what separates him and opponents of the TIF is mostly circumstance. “In a lot of older urban areas, we operate from positions of desperation,” he says, “and as a result of that, our approaches tend to be different. We react like desperate people. We’re in a community that has over 50 percent low-income housing, a food desert, a poor quality of education, a lack of economic development . . . and the South Baltimore communities have received nothing from Baltimore.”
Now his community’s time has come. “There are those who ask us to wait. And I ask, for how long do we wait? For me, one more hour to watch what poverty does to a person or to a community is too much. And if I could stop time, and stop the pain and hurt and degradation of poverty, that would be fine. But since I can’t do that, I insist that we get what we can get now. Right now. Not a minute longer. Period.”
Condemnation and Compromise
The two work sessions for the council’s Taxation, Finance, and Economic Development Committee—one on education and workforce development, the other on affordable housing and profit sharing—produced sparse negotiation and unceasing rhetoric, applause lines aimed at the hundreds of attendees who divided the room like kin at a shotgun wedding. A pattern emerged: Sagamore presented its current commitments as fixed, exasperated community advocates argued for bolder ones, dialogue became contentious, and Councilman Stokes applied the brakes.
About an hour into the second session, on Aug. 23, 2016, a debate on affordable housing minimums devolved into a bitter back-and-forth about kayak landings, and a bellicose minister had to be sent from the room. The next day, Stokes tabled the third work session to allow for private negotiations between Sagamore and BUILD, PORT3, and Build Up Baltimore, thus extending the delay.
“The plight that we see in our inner cities comes back to jobs,” Plank had told CNN. But after early 2015, fewer Baltimoreans saw jobs as a panacea. “The city should not be in the business of subsidizing affluent enclaves,” the Rev. Andrew Foster Connors of BUILD said at the second work session, “especially not one year after the unrest.” The growing awareness of “two Baltimores” best explains why Port Covington had become such a minefield.
A week into the private meetings, Maryland Working Families released an open letter on behalf of PORT3 and Build Up Baltimore titled “Sagamore Walked Away from Community.” Community advocates had rejected the developer’s final offer as too light on affordable housing requirements and too vague on hiring and profit sharing. “Our coalition didn’t walk away from the table,” Carter said in the letter. “Sagamore overturned the table.” The Rev. Ty Hullinger of the Maryland Interfaith Justice for Workers quoted the U.S. Catholic Bishops’ pastoral letter on Catholic social teaching and the U.S. Economy: “The fundamental moral criterion for all economic decisions, policies, and institutions is this: They must be at the service of all people, especially the poor.”
This moment marked the end of the advocates’ alignment. A week after the letter’s release, another press conference was hastily organized. BUILD and Sagamore had reached a $100 million citywide community benefits agreement, the largest CBA in Baltimore’s history.
The 22-page memorandum of understanding includes agreements to raise the project’s local hiring mandate to 30 percent for all on-site employees, raise the affordable housing mandate to 20 percent (with at least 12 percent on-site), pay a $24/hour minimum wage for infrastructure jobs, and include over $25 million for youth and workforce development, along with other citywide investments. Sagamore also agreed to “not request any TIF bonds to be issued if there is a projected negative impact on state education funding for Baltimore City Schools.”
Many PORT3 and Build Up Baltimore members countered that the memorandum of understanding was too weak, and it’s not clear how enforceable it is (see page 16). The Public Justice Center argued that the affordable housing requirements contained too many “buy-out” and off-site loopholes, insufficient housing for the poorest families, and too few guarantees that affordable units would be integrated with market-rate units.
At the September 2016 press conference, Huber spoke on behalf of BUILD. She started in song: “A Brand New Day,” from The Wiz. “We’ve gone from promises to commitments,” she said. “From goals to mandates. From feel good to reality . . . . Did we get everything that we went to the table demanding? No. But that’s not what negotiation is about. It’s a give-and-take process.”
“We have a long way to go,” Huber concluded, “but this, my friends, is a very solid start.” On Sept. 12, 2016, the following workday, the council advanced the TIF legislation unanimously. A small huddle of Baltimoreans gathered in protest outside of City Hall.
Over the months of advocacy and negotiation, the different community coalitions that engaged Port Covington—including SB6—never seemed to have all that many disagreements of principle. Their differences were in level of desperation, trust, and tolerance for compromise. Each had its own threshold at which it saw the potential of a tide that might lift all boats outweighing the city-within-a-city’s exclusiveness.
But each agreed, in their own way, that compromise and solution are still a harbor apart. A true solution requires greater consensus among city leaders on the basic purpose and value of TIFs. Nationally, this purpose has undergone unmistakable changes. Columbia Law professor Richard Briffault writes, “TIF was originally created to support urban renewal programs and was narrowly focused on addressing urban blight, yet now it is used in areas that are plainly unblighted.”
This has been the trend in Baltimore, and neither begins nor ends with the massive project moving forward at Port Covington. Whether the trend will change depends not on the good will of its developers or the unity of its advocates, but on which side of the city the windows of its leaders face.
Daniel Kravetz is a freelance writer based in Washington, DC. He also writes grant proposals and communications pieces for nonprofits. More information is at www.danielkravetzwriting.com.