Breaking Down the Financial Details of Port Covington: TIF, Infrastructure, Paths, and Parks

| May 18, 2016 | 6 Comments

Described as one of the “largest urban renewal projects in America,” Sagamore Development’s 266-acre Port Covington Master Plan on the South Baltimore Peninsula will require many infrastructure improvements to achieve its full build-out which is expected to take more than 20 years. Sagamore currently owns 161 acres of land in Port Covington, which it described as 85% of the private parcels in the area, from recent real estate acquisitions totaling $114 million. The majority of the remaining land is comprised of public right-of-ways, parcels controlled by the City and State, and parcels which are owned by CSX according to the Department of Assessments and Taxation of the State records.

Along with Under Armour’s 50-acre, 3.9 million sq. ft. global headquarters (Under Armour Founder and CEO Kevin Plank is a partner of Sagamore Development) at the former Port Covington Shopping Center, which will be within Sagamore’s Master Plan but will be developed by Under Armour, Sagamore is proposing:

  • 1,500,000 sq. ft. of destination, attraction, entertainment and specialty retail
  • More than 7,500 residential units, including rental and for-sale properties at various price-points
  • 500,000 sq. ft. of “maker” and industrial/light manufacturing space
  • 200-plus hotel rooms
  • 1,500,000 sq. ft. of office space (in addition to the Under Armour Global Headquarters)
  • Civic and cultural uses including 40-plus acres of public parks, a public waterfront, and other public facilities

The development will be divided into five new districts including East Waterfront, West End, Founder’s Park, East End, and the Under Armour Global Headquarters. Also at Port Covington is an existing 26 acre NGK-Locke, Inc. facility which Sagamore does not own.

Several projects have already been completed by Sagamore at Port Covington, including the fully-leased City Garage and Building 37 at Under Armour’s campus. Construction is currently underway at Sagamore Spirit and Sagamore hopes to begin construction at East Waterfront Park this year. The investment in those projects totals more than $100 million.

To pay for infrastructure improvements at Port Covington, Sagamore’s proposal includes spending $327,780,988 of its own money on infrastructure and it is hoping to receive $534,795,000 in Tax Increment Financing (TIF) from Baltimore City. Under Armour, however, has pledged to not use any TIF proceeds for the infrastructure at its campus.

A TIF is a bond issued to Baltimore City or any other jurisdiction that is leveraged and backed by a real estate development. TIFs use the increased property tax revenues at the development to pay off the bonds. When the bonds are paid off, all property tax revenues go to the city coffers, but the current property tax revenues at the current rates continue to go to the city. Sagamore would be paying the same 2.24% property tax rate on all of its properties and on its future assessments, but much of those funds will go to the bonds to pay for the infrastructure. Baltimore City would own the newly-built infrastructure and parks once they are completed. To note, TIF bonds cannot be used for other projects and initiatives around the city, they must be used by the project that backs them.

Port Covington is also part of a Baltimore City Enterprise Zone, which provides a 10-year tax credit on real property improvements with the credit decreasing 10% in years 6-10. It also includes hiring tax credits for businesses within the district as well as 10-year Brownfield Tax Credits for properties that complete the Maryland Department of the Environment voluntary cleanup or corrective action plan.

Sagamore also hopes to use the TIF bonds to seek matching funds from state in the amount of $349,459,500 and from the federal government in the amount of $224,223,500.

These financials have been a big topic of conversation in Baltimore. Sagamore Development prepared a 534-page document for the Baltimore City Department of Finance with cost estimates provided by nine firms specializing in different elements of the project, as well as bond analysis and financial projections by MuniCap, Inc., a public finance consulting firm. The document also includes letters of support from the Baltimore Development Corporation (BDC) and Baltimore City Planning Department. The document additionally includes a commitment letter from the Maryland Transportation Authority for $32.997 million in I-95 access improvements for Phase I of the transportation improvements.

The document details prior real estate developments at Port Covington that have failed because of “physical constraints that prevent its full redevelopment.” These include the Port Covington Shopping Center, a failed development SouthBMore.com has covered in great detail, as well as a planned campus for The Baltimore Sun and a proposal by Streuever Brothers Eccles and Rouse.

The TIF proposal was approved by the BDC and Board of Finance but still needs approval from the Mayor’s Office and City Council. The plan will need planning, zoning, and subdivision approvals from Baltimore City; shoreline waterfront approvals from the Army Corps of Engineers; interstate access permit approval from the Federal Highway Administration (FHWA); Light Rail extension approval from the Federal Transit Administration, as well as support from the Maryland Transportation Administration for the extension; site clean up approval from the Maryland Department of the Environment (MDE); and interstate highway access improvement approval from the Maryland Department of Transportation (MDOT).

The TIF would pay for more than 40 acres of parks and plazas; the construction of pedestrian bridges, piers, and trails; the creation of new streets and sewers creating 45 new city blocks; the redevelopment of Hanover St. from Wells St. to the Hanover Street Bridge; the redevelopment of McComas St.; changes to Key Hwy.; and a circulating rail line in Port Covington.

Projects include East Waterfront Park ($19,633,000), a park around Sagamore Spirit featuring trails, piers, and ecology; West Shoreline Park ($56,010,000) in West End which will feature recreation fields and trails; Oval Park ($4,601,000) which will be central to the Founder’s Park district; Midway Park ($4,978,000) which is the connector between Oval Park and the Public Plaza at Lake ($18,623,000); Entertainment District Park ($3,725,000); and Plaza ($1,482,000), as well as three additional parks.

A pedestrian and bike swing bridge ($15,337,000) at the site of the now defunct Spring Garden Industrial Bridge, which will be built using reclaimed elements from the existing bridge, will connect West End to the Westport neighborhood. This bridge was previously part of of the 2007 Middle Branch Master Plan, which calls for a five-plus mile pedestrian loop, as well as the City Bike Master Plan. Sagamore supports these master plans. Sagamore also owns a 43-acre waterfront parcel in Westport which is also within the master plan area.

Looking to better connect pedestrians from the South Baltimore Peninsula neighborhoods to Port Covington, Sagamore is proposing a Light St. to McComas St. pedestrian and bike bridge ($4,811,500) under I-95 and over the train tracks. Those funds would also be matched with state or federal funds. The neighborhood is currently only connected to Port Covington at Hanover St. which is criticized by many for its lack of pedestrian friendliness entering Port Covington.

The Baltimore City Department of Transportation (DOT) also recently launched a $1.8 million study in partnership with the U.S. Department of Transportation through a TIGER grant to research improvements to Hanover St. and the Hanover Street Bridge from Wells St. in South Baltimore to Reedbird Ave. in Cherry Hill.

The TIF would fund a portion of the improvements of this area north of the bridge with $10,311,500 going towards Hanover St. improvements from McComas to Wells St. with matching state and federal funds and $48,123,000 in TIF funds going towards Hanover St. improvements from McComas St. to the bridge. Sagamore has proposed bringing much of the street back down to grade and adding large sidewalks and medians, on-street parking, and new intersections.

Other existing road improvements include a new western extension of Cromwell St. totaling $44,407,000; an extension of McComas St. west of Hanover St. ($6,861,500) that meets with a new I-95 exit; the widening of McComas St. east of Hanover St. ($21,123,000); reconfigured I-95 access points; and a reconfigured Key Hwy. and McComas St. intersection which includes new retaining walls and a reconfiguration of the train tracks.

The TIF would also fund a site circulating rail ($10,729), the redevelopment of the archaeological pier at East Waterfront Park ($26,055,000), which would include a water taxi stop, and a new pier ($21,093,000) that would also hold a water taxi stop.

The remaining funds includes the creation of new streets and sidewalks, storm water management, erosion control, bio-retention facilities, water lines and telecom ductbank, bike lanes, and tree pits on 45 new city blocks, as well as soil removal and grading as the site is a brownfield. All of the TIF cost details can be seen in the graphic at the bottom of this article.

Along with matching funds for Hanover Street North and the I-95 pedestrian bike bridge, Sagamore is proposing $165,436,000 from the state for a Light Rail connection to the Westport Light Rail Station and $198,950,456 from the Federal government and $163,281,544 from the State for I-95 modifications, including new ramps and exits. Sagamore is proposing $1,596,900 from the Federal government and $1,310,600 from the State for a CSX tunnel crossing, and $15,370,064 from the Federal government and $12,614,436 from the State for utilities on McComas St.

Sagamore has pledged to spend $327,780,988 of its own private dollars on infrastructure. This includes $114,731,000 in land acquisitions, $138,320,252 for pre-development site work, $11,658,000 for a bulkhead and utilities by Sagamore Spirit, $1,967,00 for a bike path which will soon begin construction, $1,020,000 for a Gwynns Falls Water Wheel which would intercept much of the trash that ends up in the Middle Branch, $1,134,000 for Hanover Street lighting, and the remaining funds for land redevelopment (see graphic below).

With the $534,795,000 TIF bond being a loan that has interest, it is expected to cost $1,424,515,451 over a 41-year period. In the event incremental property taxes are not sufficient to pay principal and interest on the TIF bonds, Sagamore would pay a “special tax” from the city. About this from Sagamore Development:

The “special taxes paid by the Developer” are imposed by the City upon the parcels in the Special Tax District (currently only properties owned by Sagamore) in the event incremental property taxes are not sufficient to pay principal and interest on the TIF bonds.  The City has neither an obligation nor any exposure with respect to making up any shortfalls; all such shortfalls, of which there will be some in the early years, must be paid by the property owners (again, currently only properties owned by SDC) within the Special Tax District.

As part of the proposal, Sagamore has agreed to a Memorandum of Understanding (MOU) with the City on inclusionary housing. The City’s 2007 Inclusionary Housing Law states that projects that meet certain criteria, such as receiving a TIF, are required to include a range of income-restricted residential units to ensure income diversity in the project. The law also requires that the City provide financial assistance to the developer of a project to offset the imposition of those requirements. Compliance with the 2007 Inclusionary Housing Law would require more than $184 million in financial assistance. The Department of Housing has determined that the Port Covington project is exempt from the 2007 Inclusionary Housing Law requirements given the lack of resources and the cost to provide the assistance.

In the MOU, however, Sagamore and the City agree that the goal for the new Port Covington is to have 10% of all residential units be available to households whose annual income is less than 80% of area median income, adjusted for family size (AMI). However, if affordable housing units cannot be constructed on a financially reasonable basis at Port Covington, Sagamore will make a payment to the Inclusionary Housing Offset Fund. The fee increases from $3,000 to $5,000 per unit for each cumulative increment of 1,000 units that are built.

The City and Sagamore have agreed on a process and strategy for minority- and women-owned business inclusion, which is described in the report as exceeding Baltimore City’s requirement.

The City and Sagamore have also agreed on a process to accomplish the goal of hiring Baltimore City residents to fill the opportunities generated by the project. The Mayor’s Office of Employment Development (MOED) and Sagamore will strive for a goal of 20% of all on-site employees and 51% of new hires to be Baltimore City residents. During the first five years of the project, Sagamore will fund 100 YouthWorks jobs or other comparable positions for young people annually, an investment of at least $750,000. During the first five years of the project, Sagamore will also fund a MOED Local Hiring Coordinator at $80,000 annually who is solely dedicated to the project and who will provide a monthly manpower report.

The report projects the project will create 23,994 temporary jobs that provide an annual compensation of $1,920,367,864. The project is projected to create 34,974 permanent jobs with an estimated annual compensation of $2,377,516,522. The report breaks it down as 6,801 retail jobs, 27,825 office jobs, 125 hotel jobs, and 223 manufacturing jobs.

Port Covington currently has a tax assessment base of real estate value of $72,766,300 that provides the city with $1,635,786 in property tax revenues each year. At full build-out the base is expected to be $2,536,134,406 with an expected yearly property tax revenue of $57,012,301. The report projects Port Covington to increase its population by 12,073 residents with the large majority being residents of rental units.

Along with increased property tax revenues, the proposal is projecting increases in income to Baltimore City through personal property tax revenues, hotel occupancy tax revenues, energy tax revenues, personal income tax revenues for residents and employees,  and real estate transfer tax and recordation tax revenues. See the breakdown in Table V below.

At full build-out, Sagamore is projecting $40,338,430 in yearly net fiscal impact to Baltimore City. The TIF investments for the city is estimated as a rate of return of 10.3%.

The report states that the risks to the city are mitigated by the special tax, as well as the issuance of the bonds in four stages. At each stage, the bonds will not be released until Sagamore can prove financing and equity in place to move forward to the next stage.

The report also addresses the TIF’s impact on state aid to Baltimore City Public Schools:

It should be noted that the impact to State aid to schools is not included in the fiscal impact analyses as an amendment (HB 285) has been approved by the General Assembly which will change the formula relating to State aid to schools. Historically, the formula for State aid to schools includes three factors contributing to a jurisdiction’s wealth: (1) personal property assessed value, (2) taxable income and (3) real property assessed value. It is anticipated that the real property assessed value located within a development district will be held constant and will not have a negative impact to the corresponding jurisdiction’s receipt of State aid for schools. HB 285 is intended, during an interim period, to maintain the adequacy of State aid to education funding, taking into account the impact of tax increment economic development incentives.

Sagamore is hoping to get the Master Plan approval from the Baltimore City Planning Department on May 26th, as well as zoning approval in Quarter 2 of 2016 and approval of subdivision of the real estate and the TIF in Quarter 4 of 2016. Sagamore Development President Marc Weller said he hopes infrastructure improvements start in mid-2017, pad site development begins in mid-2018, and vertical real estate development begins in mid-2019.

Charts from the report:

Fed:State:Private Breakdown

TIF Price Breakdown

Fiscal over 41 years

Properties owned by Sagamore are in light blue, parcels controlled or under contract by Sagamore are in light green, and properties not under Sagamore’s control are in white:

properties 1

properties 2

properties 3

Open Space Map – Park space in green:

parks layout

Middle Branch Master Plan with Pedestrian Loop:

middle branch Master Plan

(5328)

About the Author:

Creator of SouthBmore.com and resident of SoBo. Graduate of Towson University and owner of Incept Multimedia, a full service video production company. Diehard Ravens and O's fan, beach volleyball enthusiast, dog lover and "bar food" foodie. Email me at Kevin@InceptMM.com and follow me on Twitter at @SoBoKevin.
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  • Robert Schmollinger

    Kevin,

    Thank you for the article.

    Can you please clarify something for me? As the TIF bonds are issued, does Sagamore take receipt of the proceeds or will the funds be managed by the City? Given that the city government has been woefully lacking in its oversight and auditing, I would be extremely skeptical of the City’s ability to adequately control such large sums of money without there being large scale graft.

    Depsite this reservation, I believe that this is good move for City and would urge our city lawmakers to approve while attaching a much stronger set of oversight controls regardless of whether the city or Sagamore administer the TIF funds.

    I believe that the estimated return on investment of 10.3% from the TIF money and a guarantee from Sagamore to make up any shortfalls in specific revenue with a “Special Tax” outweigh those risks of graft and other execution risk.

    Robert in South Baltimore

    • Renew Baltimore

      When the TIF bonds are sold to investors the proceeds are placed in a trust account managed by the City’s trustee. Every month Sagamore will submit an application for payment to BDC for the TIF eligible infrastructure work completed that month. BDC’s third party engineering inspector will inspect the work to make sure that the work being billed for was completed. Once the inspector signs off on the payment application BDC reviews it, signs off and sends it to Dept. of Finance. Finance then authorizes the Trustee to release that payment and the trustee makes direct payments to the subcontractors and consultants responsible for that work. Hope that helps.

      • Robert Schmollinger

        Thanks!

    • Renew Baltimore

      I would encourage you to write a letter to City council supporting this TIF.

  • Mayor’s Office of Employment D

    Point of clarification … Regarding the local hiring measures, the Mayor’s Office of Employment Development is here to assist Sagamore with reaching its goals. We will help prepare local residents for positions, incumbent upon information provided to us from Sagamore.

  • Amanda

    Let’s make one thing clear here–I’m not against Under Armour receiving a TIF loan, I’m against their receiving so much. TIF loans are issued based on the City’s assessment of all taxable properties within the City’s Enterprise zone–basically, if you live in South Baltimore, your annual property taxes are going to be issued in TIF bonds to Under Armour; you’re subsidizing this corporate buildout.

    City TIF guidelines state that the ratio of private to public money should be 12:1, or at minimum 8:1. Per UA, they are spending $327 m in initial development costs, and asking the City for $535 m, then going to the Federal government for another $574 m–that’s $1.10 m in public money to $327 m of private funds, far under the 8:1 minimum guidelines, and the rest of the money for the projected buildout will be coming from private investors–as UA projects the total cost of the project to be $5.5 billion over the next 25 years, that’s roughly a 5:1 ratio of public to private money.

    Remember that Under Armour requested a $35 m TIF loan in 2012 to renovate and build out their Locust Point location–said development not to complete until 2021, and for which UA still owes money to the City.

    UA’s new complex may also increase demand for public services that would not be covered by the TIF repayment because all UA money for the next 30 years will be going to repay the debt to the city. If the UA development results in more people coming to the Port Covington district, that’s great, but that means that additional MTA and city sanitation resources will be needed, as well as an increased police presence, and increased need will result in increased taxes. and we all know City government has never met a tax they didn’t like.

    Let’s also remember that the City is already $147 m in TIF debt from projects such as Harbor Point, the Mondawmin redevelopment, and the EBDI. Now they are looking to add another $535 m? Under Armour’s plans for this project are dependent on their company’s revenues continuing to grow over the next 25 years as they have the previous 20–I am somewhat skeptical, as few companies can grow exponentially over a 45 year period. Also, CEO Kevin Plank’s salary was reportedly $3.5 m in 2014, and in 2015 it dropped to $2.4 m. The price of UA stock has also been on a bit of a roller coaster.

    My opinion is that if UA is putting in $327m of their own money, then the City should match the funding. The proposed development does have a lot of potential, given its proximity to the berth where cruise ships dock in Baltimore, but it still remains to be seen whether other private developers will be as interested in the area as UA is. A matching-funds TIF of $327m spread out over the 25 year build-out period comes to about $65m every 5 years, and each $65m funding amount should be paid back before the next round of taxpayer-backed TIF bonds are issued. This also gives City government the ability to re-evaluate the project every 5 years, determine if enough outside private investors are interested in the development to justify continuing to issue public money to a private developer. If UA wants more than $327m public money, they should have to put in more than $327m of their own money. UA CEO Kevin Plank has a net worth of $3.2 billion, he can afford to put a little more in.

    The last TIF close to this size was $500 m for 9000 acres in New Mexico for Albuquerque’s Mesa Del Sol project–a neighborhood construction/revitalization project projected over 40 years, building 37,000 homes for 100,000 people, 800 acres of school and university space, and 3200 acres for parks/public access facilities. The TIF bonds were issued in 2008, ground was scheduled to break in 2011 with the first 250 homes available in early 2012.