Baltimore is often maligned as a shrinking city beset by crime and intractable poverty. But take a walk down President Street just south of Little Italy on a Friday night, and you will enter a world that appears far removed from the idea of a city that is terminally in decay.
Past the empty pavilions of the Inner Harbor and east of the city’s increasingly troubled downtown business district, a cluster of towering high-rises emerges from the harbor like a defiant mountain range of concrete.
A cobblestone boulevard leads to a European-style thoroughfare dotted with a dazzling array of upscale restaurants and outdoor dining patios. Lines of traffic spill onto the side streets as eager tourists vie for hard-to-find parking spots.
What can the rise of Harbor East, in part driven by lucrative taxpayer subsidies, teach us as we ponder this momentous present and yet-to-be-determined future of the city?
The outdoor bars and retail shops thrum with activity while the upscale Four Seasons Hotel sits astride panoramic views of the tranquil harbor. Stories of luxury condominiums extend into a swanky dance club, which perches atop the building like a palatial penthouse. An express elevator operated by a top hat-wearing attendant delivers partygoers to an often-packed dance floor.
It’s a world unto itself, seemingly far removed from the David Simon-conjured Wire-fied landscape of a failed city beset by corruption, drug dealing, and over policing: An upscale bubble that offers a gleaming rebuke to the naysayers who deem Baltimore a dysfunctional city of a dwindling population and violent crime.
But it’s a success story that comes with a hefty, less obviously apparent, asterisk. Harbor East is, in some sense, a taxpayer-bolstered paradise.
Based on the findings of our nearly year-long investigation into how Harbor East came to be, this shining city within the city is a success story heavily dependent upon public subsidies to an extent that has not previously been reported. It is a waterfront oasis fueled by dozens of tax breaks and incentives, built and sustained by tens of millions of dollars in city money.
How these tax subsidies have both defined and transformed Harbor East is a story entangled in the city that surrounds it. As our ongoing investigation Tax Broke has revealed, it is a tale of how a community walled off from its affluent suburban neighbors turned to tax incentives to reverse years of decay and population loss. But it’s also an example of the secrecy that obscures the details of how much this policy costs and who it really benefits.
As this spreadsheet illustrates, records obtained by TRNN reveal that, between 2012 and 2022, Harbor East received roughly $115.8 million in tax relief from the city through various subsidies and incentives.
However, despite numerous Maryland Public Information Act requests, city officials would release only a limited range of data from 2013–2022 pertaining to Harbor East tax records. They also would not release separate tax bills regarding a series of PILOTs—payment in lieu of taxes—granted to buildings within the development, which led to additional tax savings for developers.
Still, what we were able to obtain paints a picture of a luxury development built upon a foundation of public subsidies.
The most lucrative of these incentives went to the Marriott Waterfront Hotel. To date, $57 million in property tax has been abated, part of a 25-year PILOT that requires a tax payment of $1 per year.
But the city has also granted tax relief to a variety of other buildings.
Roughly 75% of the additional Harbor East properties garnered subsidies worth approximately $58 million in just under a decade. The bulk of the tax breaks were PILOTs, given to at least seven properties comprising the waterfront development.
PILOTs offer fairly straightforward tax relief: Property taxes are phased in over time on a sliding scale, from a small percentage of the actual tax bill to a greater share of what would actually be owed. A ten-year PILOT, for example, might require the property to pay 5% of the entire tax bill for the first three years, then 20% for the next four, and, finally, 80% for the remaining two. But the city has been opaque about the tax savings from individual PILOTs, removing the data from online tax records and ignoring our requests for additional data.
The city has been opaque about the tax savings from individual PILOTs, removing the data from online tax records and ignoring our requests for additional data.
But some properties were granted more than one tax break.
The pricey office tower built to house the Legg Mason investment firm benefited from both an Enterprise Zone credit and a PILOT. The subsidies were intended to maintain 600 jobs and keep the firm’s headquarters in the city.
Legg Mason was acquired by California-based investment firm Franklin Templeton in 2020. The name is currently off the building, but the subsidies remain. Records show the owners of the building have not been required to pay full city property tax since 2018.
In addition to the PILOTs, multiple other buildings within the same development also received Enterprise Zone tax credits and abatements under the Brownfields incentive program. Each forgives a percentage of property taxes ranging from 50% to 75% of the entire tax bill for five to ten years, depending on a variety of criteria.
The Enterprise Zone credit is designed to spur commercial development in poor neighborhoods but was expanded over time to include the entire city. The Brownfields credit incentivizes developers to remediate contaminated properties and offers a similarly generous 75% reduction in tax bills for five to ten years.
The Four Seasons Hotel and Private Residences used a Brownfield credit to save roughly $10.6 million in taxes over the past decade. This incentive included nearly $6 million for the luxury condos that sit atop the hotel.
The $115 million figure does not paint a full picture of the taxpayer tab for Harbor East. The scope of our calculations is limited by the fact that many of the tax credits granted to these developments were in effect prior to 2013—records that were not available, according to city finance officials.
The lack of transparency is, in part, due to how the city bills properties that receive tax subsidies.
Special credits like Brownfields and Enterprise Zones are not detailed online. Instead, we had to ask the city for copies of the separate paper bills it mails annually to developers, which list the value of the credit. From the paper bills, we calculated the 10-year figure for taxes abated through Brownfields and Enterprise Zone tax credits that contribute to the $115 million taxpayer tab.
Even the taxes abated via PILOTs were challenging to calculate. The city told us tax bills for PILOTs are mailed separately from ordinary tax bills, including special credits. We asked for copies of the separate PILOT bills, but the city would not release them, again without explanation or response to our request.
To work around the lack of data, we obtained two decades’ worth of property assessments for all the parcels that comprise Harbor East. We used the value of the buildings to calculate the property taxes owed in any given year. Then, we applied the formulas outlined in council legislation, which authorized several of the Harbor East PILOTs to estimate the tax savings for a given PILOT to arrive at the approximate figure.
Decades of support, a meager paper trail
Tens of millions in direct tax incentives are just a small part of the taxpayer assistance received over time by Harbor East developments. An array of government-backed loans, an interest-free mortgage, and city-built infrastructure also provided critical assistance during the buildout.
The most detailed inventory of these other subsidies is recounted in a 1990 agreement between the city and Baltimore businessman John Paterakis. It outlines in some detail how Harbor East was initially financed and who paid for it.
Paterakis, who died in 2016, was a powerful Baltimore insider—a successful entrepreneur who grew a baking empire from a single row home in Fells Point into a complex of warehouses that now envelop a large swath of the area. The contours of the deal were based upon his desire to transform a dusty waterfront parking lot he partially owned into a flourishing urban enclave.
But, again, his vision came with a hefty price tag for taxpayers.
Initially, the city owned roughly 12 acres of the nearly 20 that now comprise the development. Paterakis, according to the contract, owned just 8 acres. To enable him to purchase at least part of the remaining space, the city offered a development firm he controlled, Harbor East LLC, an interest-free mortgage for $2 million.
In 2011, Harbor East tapped into a federal stimulus program that provided access to $45 million in Recovery Zone tax-exempt bonds. But despite queries to the Maryland Economic Development Corporation, which handled the deal, state officials could not provide information on the current status of the bonds.
The loan was satisfied almost 20 years later with a cash payment of $525,545.
The city also promised to make a series of “public” improvements to the site at taxpayer expense. Among them were streets, parks, utilities, and the necessary bulkheads to support new infrastructure. In the agreement, the total cost was estimated to run as high as $21 million, which in part would be financed and repaid with revenue from a city-run parking garage—which, records indicate, has yet to be built.
The city also agreed to build a $4 million marina, which it handed over to Paterakis to manage. That deal allowed the developer to lease the marina in exchange for an 8% share of gross income, save one exception: 50% on fuel sales. Finance officials would not provide the details on how much that deal has netted the city or if the parameters of the deal have changed.
But even as the development took shape in the early 2000s, public money continued to play a substantive role in financing.
In 2011, Harbor East tapped into a federal stimulus program that provided access to $45 million in Recovery Zone tax-exempt bonds. Paterakis used the money to finish the construction of the Four Seasons Hotel. But despite queries to the Maryland Economic Development Corporation, which handled the deal, state officials could not provide information on the current status of the bonds.
We asked the department of finance for updates on the status of the marina and the current terms of the deal. They did not respond. We also provided the 1990 agreement to the city and asked for comment. They did not comment.
The State Department of Commerce said the $45 million bond was a private transaction that was issued by the Maryland Industrial Development Authority and then sold to PNC bank. The Department of Commerce also stated they did not have any information on the current status of the bond.
Both the details and the history of how Paterakis was able to wrangle more help from the city, and why the city was so willing to give it, are murky at best. Jay Brodie, former president of the Baltimore Development Corporation, said much of the negotiation preceded his tenure.
“I was not there at the beginning,” Brody told TRNN.
Brody took the helm of the BDC in 1996. The quasi-public agency was often criticized for making closed-door deals with developers and being opaque about its internal decision-making process.
However, he revealed that the city had a previously undisclosed profit-sharing agreement linked to the Marriott Waterfront Hotel PILOT. That deal led to what Brody says was a low-key confrontation with Paterakis sometime during the 2000s.
“I remember meeting Mr. Paterakis when he said, ‘I know you’re going to ask for a check,’” Brody recalled. “I said, ‘Yes, I’m expecting a check for $1.5 million.’”
Brody said the check eventually arrived.
No public record exists of a profit-sharing agreement between developers and the city regarding the Marriott Waterfront Hotel. The city did require profit sharing tied to the PILOT for the former Legg Mason building, though that deal has been embroiled in controversy after the building sold for a record $438 per square foot in 2017.
Brody argues that, despite the substantive public investment, disclosing too many details about the city’s dealings with a developer could jeopardize the city’s ability to make deals with private businesses in the future.
The Abell Foundation, a local nonprofit, sued for records of how much developers paid from the proceeds of the sale as per the profit-sharing agreement. Like much of the inner financial workings of the project, the city has subsequently refused to release details. The Maryland Court of Appeals recently heard the case, with a decision expected next year.
Brody argues that, despite the substantive public investment, disclosing too many details about the city’s dealings with a developer could jeopardize the city’s ability to make deals with private businesses in the future.
“We’re looking at developers’ bank accounts,” he noted. “This allowed Mr. Paterakis to finance the project without revealing confidential information,” he said.
Still, Brody maintains the city had to assist Paterakis to mitigate the difficulties of building close to the water. Among the challenges he cited was the construction of a slurry wall to support bulkheads that now anchor the Four Seasons Hotel.
“He faced quite a few tough challenges,” Brody said. “But I think in the end it is a great project.”
Opaque costs, unknown and uncertain benefits
The biggest incentive for the city to forgo tens of millions of taxes from development is often the prospect that properties subsidized by taxpayers will, in the future, become self-sufficient, adding new value to the city’s existing tax base. The idea is that, by incentivizing new construction, the city will be compensated for any taxes lost, with new properties generating much-needed revenue that would otherwise not exist in the first place.
But that expected payoff, at least for some of Harbor East, may not be as quick or beneficial as expected, according to a critical measure. Several buildings in Harbor East have been saddled with steep drops in value as determined by the state’s tri-annual assessment.
The current assessment of The Marriott Hotel is 32% lower than in fiscal year 2020. Similarly, the office building that housed the former headquarters of Laureate Education is 25% lower than in 2020. The Hilton Garden Inn building at 625 South President Street also took a hit, losing 49.8% in value since 2020.
The Baltimore Business Journal reported last year that the former Laureate Education headquarters has been placed on a mortgage watchlist. The property was added to the list due to a steep decrease in tenants.
The current assessments might reflect the headwinds buffeting downtown commercial properties across the country. The ongoing fallout from the coronavirus pandemic has dented hotel valuations, as well.
But it’s also a reality that taxpayer-bolstered development does not always meet expectations and is not immune to market forces.
A prime example is the Hilton Convention Center Hotel, which was initially billed as a nearly guaranteed profit center for Baltimore when the city council approved $300 million in bonds to build it in 2005.
The project was sold as the answer to the city’s flailing convention business. But a slow opening due to the Great Recession in the late 2000s, followed by the later effects of the pandemic, left taxpayers holding the bag.
Currently, the hotel has required $23 million from the city’s general fund just to pay the bonds used to finance its construction, and its appraised value is estimated to be almost half the outstanding debt.
Currently, the Hilton Convention Center Hotel has required $23 million from the city’s general fund just to pay the bonds used to finance its construction, and its appraised value is estimated to be almost half the outstanding debt.
However, throughout the hotel’s descent into financial trouble, city officials insisted all was well through a series of press conferences where officials denied evidence the business was struggling. These concerns were only acknowledged as a problem when the city was forced to pay its bills.
Again, this points to the underlying problem with Harbor East: how can the city assess the long-term costs and benefits of a project that requires taxpayer funding when so little is known about the future performance of the project?
Baltimore City Councilwoman Odette Ramos (D-14) efforts to measure the long-term costs and benefits of another widely used tax incentive are illustrative of the difficulties in obtaining data to evaluate the benefits of developer tax subsidies.
Last year, she introduced a modest bill to study the costs and benefits of TIFs, or Tax Increment Financing. Baltimore has used TIFs to help bolster projects like Harbor Point, the home to energy giant Exelon’s Maryland headquarters, and Baltimore Peninsula, a waterfront development financed in part by Under Armour founder Kevin Plank. TIFs allow developers to borrow future property tax payments from Wall Street and use the money to invest in construction costs.
Ramos’ proposal was met with skepticism. In a rare rebuke of a colleague, the council voted it down by a 4-3 vote even though the city had already budgeted $35,000 to pay for it. For her, it was an example of how the city’s approach to tax incentive-based development lacks accountability.
“I am concerned about the lack of transparency in understanding the TIFs and the tax credits,” Ramos said. “My bill attempted to get at the information. I have requested it in another way and I’m waiting for it to be delivered to me.”
However, the lack of a detailed fiscal picture of the subsidies undergirding Harbor East is not limited to tax data. It’s also unclear how to calculate if $115 million in incentives has paid off for taxpayers in other less direct gains like the number of jobs created and new residents attracted.
A state law authorizing PILOTs requires city officials to file annual reports that provide some data on job retention and taxes paid by each beneficiary. However, there is no formal process for reporting on the cumulative economic benefit to the city for other subsidies such as the Enterprise Zone and Brownfields tax credits.
State Senator Jill P. Carter has introduced a comprehensive transparency bill during the current legislative session. She aims to create a task force to deliver a detailed picture of the costs, benefits, and long-term impact of public funding for private projects.
“We just need a better sense of how this is working and who benefits,” Carter told TRNN. “Any business would expect this kind of transparency; why can’t it be afforded to the people who are footing the bill?”
Multiple attempts by TRNN to contact the developers of Harbor East to get the developer’s perspective on both the performance of the tax incentives and problems with transparency went unanswered. In fact, simply finding a person to speak for the development was challenging.
An unidentified employee who answered the phone number listed on the Harbor East website said the development did not employ a person who handles media inquiries. Multiple inquiries sent to various emails for members of the Paterakis family were also not answered.
We also reached out to the mayor’s office and the city’s finance department multiple times. We asked both to either confirm our calculations or offer an alternative number—both have yet to respond.
Flying blindly into the future
The lack of transparency about the benefits and pitfalls of the city’s expansive use of subsidies has become apparent even as Baltimore faces a pivotal moment in its push to reshape wide swaths of downtown.
Currently, developer David Bramble is preparing to overhaul the struggling Inner Harbor. He has pledged to tear down the modular pavilions, which were once touted as the epitome of the city’s urban renaissance. Bramble says he plans to reimagine the city’s waterfront with housing and more walkable and pedestrian-friendly thoroughfares, which could cost at least $400 million in city money.
At the same time, long-term deals to develop housing and retail near Camden Yards and M&T Bank Stadium have fallen into place. Recently, the state signed an MOU with the Orioles that calls for development surrounding the stadium. The legislature has already slated $1.2 billion in pre-approved financing to upgrade the facilities and the surrounding neighborhoods.
Meanwhile, Mayor Brandon Scott has also proposed increasing the city’s debt obligation with a plan to rebuild vacant homes through a 150 million dollar TIF. The plan would tap state funding and recapture sales tax revenue, but, at its core, the program would be funded by yet another tax exemption—albeit in this case for a neighborhood that is struggling and far removed from the environs of Harbor East.
All of these disparate challenges may seem unrelated—yet they are actually informed by the same questions underlying Harbor East: What role should public money play in funding private development? How does a city grow in a way that is both fair and productive? How can a community reimagine itself while meeting the competing demands of affordable housing, attracting new residents, and not overburdening current taxpayers who pay the highest rate in the state? And what can the rise of Harbor East, in part driven by lucrative taxpayer subsidies, teach us as we ponder this momentous present and yet-to-be-determined future of the city?
These questions demand answers as the city teeters on the precipice of an existential makeover, with the shadow of Harbor East looming over what happens next.
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