The Port Covington deal
A look at the details and what city officials are considering
Sagamore Development wants to redevelop more than 200 acres of mostly empty industrial land in South Baltimore, creating a ring of riverfront parks and building new apartments and condos, stores and offices, as well as manufacturing space and a new headquarters for Under Armour.
But the area, which the city has wanted to see redeveloped for decades, has few roads and utilities, and extensive environmental problems. It's also cut off from the rest of the city by a tricky highway and road network.
To make the project happen, the firm, which is owned by Under Arnour CEO Kevin Plank, is seeking $1.1 billion in support from local, state and federal governments for needed infrastructure.
The city is weighing a request for $535 million in tax increment financing, with funding coming from municipal bonds and repaid through new property taxes generated by the project.
While the proposal has sped through city review so far, some have protested it as a “tax giveaway.”
Here's a look at some of the details and what city officials are considering.
Sagamore has requested $535 million for infrastructure. The city would end up issuing about $658.6 million in 30-year bonds, including $5 million for issurance costs and $65.8 million for a reserve fund, according to an analysis by Columbia-based MuniCap, a consulting firm hired by the city to review the project.
The bonds would not be issued all at once, but sold in smaller amounts at different times depending on needs, starting with $49 million for infrastructure — $62 million in total bonds — in June 2017.
The city would review the project each time a new round of bonds is sought in order to make sure the development is on track, officials said.
About $139.8 million would go to parks; $273.2 million would go to create a new street grid; and about $68.8 million would go to site work, such as stormwater management, fencing and erosion control, and demolition of existing utilities. Another $52 million would go to more singular projects, such as an internal rail circulator and a pedestrian swing bridge connecting Port Covington to Westport, where Plank also owns land.
TIF funds would not be used for infrastructure inside the proposed Under Armour campus.
Sagamore has proposed to spend $165.4 million in state funds for a light rail spur. The firm wants to spend $362.2 million, including $199 million in federal funds, for modifications to Interstate 95. The state money could include Maryland Transportation Authority bonds.
Sagamore estimates its contribution at $327.8 million, including $114.7 million spent acquiring properties and $23.3 million for design, planning and construction.
The firm would spend $47.5 million on land development and $21.3 million on other projects, including $5.5 million to reconfigure property leased by The Baltimore Sun; $1.1 million for lighting on the Vietnam Veterans Memorial Bridge along Hanover Street; and a $1 million trash-collecting waterwheel for the Gwynns Falls.
Sagamore has said it expects partners to invest $4 billion in development, including the Under Armour headquarters, offices, shopping, hotels and 7,500 residences, if the TIF moves forward. At full build-out, MuniCap projects the area will have an assessed value of about $2.6 billion.
Tax increment financing is not a tax break. But the project would receive tax breaks because it is located in an Enterprise Zone and involves environmentally damaged property.
The Enterprise Zone and brownfields credits could be worth more than $760 million, according to an estimate by the MuniCap analysis.
Not until 2038, according to MuniCap. But Sagamore, or whatever companies the firm sells land to, would need to pay “special” taxes estimated at $291 million to make up the difference.
Sagamore or its partners also would be responsible for covering the TIF's costs through special taxes if property values plunged in a real estate crash.
The property would go to tax sale and the buyer would be responsible for paying the special tax.
Jack Orrick, a partner at Linowes and Blocher in Bethesda, said the tax sale process ensures the city can collect the money. But because property taxes are typically small relative to the worth of a property, the scenario is “very unlikely.”
The bond issuance also includes money for a reserve fund, which is required to pay debt service if the TIF revenues are insufficient for some reason.
The TIF under consideration is structured to allow the firm to earn a profit of about 9 percent, or about $402.3 million. That calculation only includes the impact of the TIF as well as tax credits and land sales by Sagamore to partners.
Sagamore also has developed some buildings on the site, which are leased to Under Armour and others, but unless such building becomes a larger part of Sagamore's business plan it won't be considered by the city.
The city and Sagamore have not yet settled on a “profit-sharing” agreement.
MuniCap estimates the project would generate $1.7 billion in revenue for the city, after expenses, interest payments and other costs over 41 years.
The expenses include $1.4 billion in interest payments on the TIF, as well as about $2.16 billion that includes additional city services, such as fire and police.
New revenue includes $1.5 billion in new property taxes, after the TIF payments, as well as $1.6 billion in personal income taxes from those living or working in Port Covington.
At this point, it's unknown. City schools are jointly funded by the city and the state.
The state grants local school aid based on the assessed wealth of a community, requiring wealthier jurisdictions to contribute a greater share. If the project increases the city's property values, but tax receipts don't keep pace, that could lead to state cuts.
The state this year passed a measure, which expires in 2019, designed to hold jurisdictions harmless for the impact of new TIFs.
Politicians have said they expect the impact of economic development incentives to be taken into account in a broader revision of the state funding formula expected in a few years.
The MuniCap study does not consider the impact of the legislation on state aid.
Sagamore is working with neighborhood groups in South Baltimore, including Cherry Hill and Westport, on a community benefits agreement. It also faces negotiations with the City Council.
The firm already has signed agreements with the city setting goals for local hiring, supplier diversity and affordable housing.
MuniCap expects the project to generate nearly 35,000 permanent jobs when fully built out, including positions that are part time or located elsewhere in Baltimore.
That includes the equivalent of about 22,602 full-time positions on site, of which 17,521 would be office positions; 4,857 in retail; and 139 in manufacturing. Those estimates include the 10,000 employees Under Armour expects to fill its new campus. (About 2,000 currently work in its Locust Point headquarters.)
MuniCap also estimates that there will be the equivalent of about 14,603 new full-time, temporary construction jobs at the site over the life of the project.
The firm's analysis expects about 33 percent of the employees to be city residents — higher than the goals outlined in a recent agreement between Sagamore and the city.
MuniCap estimates that about 12,000 people, including about 880 students, would live in the area. Its cost-benefit analysis assumes that those people will be new residents to the city.
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