Harbor East is a Successful Development and Enterprise Zone Tax Credits have been Key It is often said that a picture is worth a thousand words. The picture below is worth far more than that. This photograph was taken in the mid-1980s and reflects life before Harbor East. The area is scarcely recognizable today and has been transformed into a place where thousands of people live, work and play. From the Waterfront Marriott at President and Fleet Street east to Thames and Bond Streets, the area has been utterly transformed over the past 25 years. The business mix has shifted from heavy industrial to financial, educational and professional services. The area is now among the East Coast’s most vibrant mixed-use communities and is literally active 24 hours a day.

Harbor East has become home to some of Baltimore’s largest employers including Legg Mason, Morgan Stanley, Laureate, Brown Advisory, Deutsche Bank, Old Mutual, Hogan Lovells, Algeco Scotsman, RTKL, and Johns Hopkins Medicine International. These businesses, along with enterprises such as the Johns Hopkins Carey School of Business, Maryland Athletic Club, Landmark Theaters, Whole Foods Market, J. Crew, Anthropologie, White House|Black Market, The Four Seasons Hotel, Marriott Waterfront, Marriott Courtyard, Hilton Garden Inn and Homewood Suite and scores other shops and restaurants make Harbor East one of the most successful urban spaces in the country and a model for planners and urban developers everywhere. The transformation at Harbor East has been positive and radical. Enterprise Zone tax credits have been of critical importance in the process and without them, the development would have never occurred. This model is now being expanded to transform Harbor Point. The history of the past two decades strongly

suggests that the economic formula has been working and is resulting in strong development along Baltimore’s precious waterfront. Now is not the time to upend that formula by removing Enterprise Zone status from the site. Harbor Point Remains a Work in Progress Harbor Point was home to the Allied Signal Chrome Works facility. At its pinnacle, the facility was the world’s largest processor of chrome ore. The plant operated from 1845 to 1985 and was shut down for economic reasons. Extensive environmental studies were then conducted to determine the degree of contamination and optimal strategies for remediation. In 1989, a Consent Decree was executed between Allied Signal, the US Environmental Protection Agency and the Maryland Department of the Environment specifying a remediation process that would involve removal of the manufacturing plant and any surface chromium deposits. Remaining chromium that had seeped into the ground was encapsulated.

The photograph above, taken in the early 1990’s, depicts the massive level of infrastructure investment at the site now known as Harbor East/Harbor Point. The lower left hand corner of the photograph represents the Harbor Point site, which in the picture is undergoing $110 million in remediation as called for under the 1989 Consent Decree.

By 2006, the Harbor Point’s remediation was complete and development of western Fells Point and Harbor East were nearing their completion (above). This left the expanded Enterprise Zone area as the last remaining piece of undeveloped waterfront in Baltimore Harbor. By mid-2010, the first building, known as Thames Street Wharf, had been constructed on Harbor Point’s southeast corner for the financial services giant Morgan Stanley (below).

There are a number of parcels within the geographic area described above that remain undeveloped today. They include the majority of the Harbor Point property (27 acres) bounded by Caroline and Thames Street in the east, the Jackson’s Wharf property (1.9 acres) south of Thames Street and west of Bond Street and two parcels just to the north (1.2 acres each) bounded by Lancaster to the south, Fleet to the North, Central to the west and Eden to the east. These properties comprise the expansion area and are outlined in the image below.1 The developer is requesting that these parcels be added back into the Enterprise Zone to restore the formula that has been such a success at Harbor East.

As the centerpiece for the Enterprise Zone expansion, Harbor Point is currently approved for 1.8 million square feet of office and retail development. The first building, which totals 277,000 gross square feet, was completed in 2010 for Morgan Stanley. The expansion was part of Morgan Stanley’s effort to diversify operations beyond Manhattan in the wake of the September 11th attacks. The Enterprise Zone tax credits, working in conjunction with an already established dynamic waterfront neighborhood with substantial accessibility, were centrally important in bringing 875 financial service industry jobs to Baltimore. The Morgan Stanley story is a success for the City, for the State and for the Enterprise Zone program. According to Governor Martin O’Malley, “expanding these zones will help sustain existing businesses and attract much-needed new businesses and help us achieve our most important goal of creating and retaining jobs.”2 In other words, the focus of public policy in and out of the City of Baltimore should be

                                                            1 See Exhibit A for parcel block and lot numbers. 2 http://gov.allconet.org/pr/Rt220.pdf, 2009

to expand these zones rather than to shrink them. This is particularly true for those zones that have a demonstrated capacity to create employment opportunities. In fact, among the stated goals of the Enterprise Zone program is “to improve the communities in and around the zone.”3 The implication is that the focus should not simply be upon the immediate demographics of Harbor Point and Harbor East, but upon the broader demographics of that part of the city. When one considers southeast Baltimore, particularly the area immediately north of Harbor East, one can observe high poverty rates, elevated joblessness and ongoing lack of investment momentum. The continued expansion of Harbor East/Harbor Point is critical to the wellbeing of these communities. It should also be noted that the City of Baltimore is currently reimbursed for 50 percent of the amount of the tax savings accruing to the investors in the Enterprise Zone by the State of Maryland. If investment does not transpire, there are no revenues flowing from the State to the City. Therefore, to maximize the benefit of the City-State partnership, the City must designate Enterprise Zones capable of attracting investment. Harbor Point represents an obvious mechanism by which to optimize City-State interaction. There are additional policy rationales. Traffic and commute times have increased over the last 20 years. With energy prices, including gasoline prices, on an upward trajectory, a rising fraction of households seeks to live in closer proximity to their place of employment. Ideally, this commute could be accomplished by walking or biking. In this regard, Harbor East/Harbor Point has been a massive success. Reportedly, half of Morgan Stanley’s Harbor Point employees live within 2 miles of their office. In addition to relieving road congestion and limiting greenhouse gas emissions, this creates significant and positive economic and fiscal impacts for the City. The desire for proximity creates demand for housing, which in turn translates into property tax payments. There is also augmented demand for retailed items and services, generating opportunities for small business owners. Office tenants also produce demand for hotel room and meeting spaces, which energizes that aspect of the local economy. In total, the impacts are substantially positive and the impact on prosperity widespread. Morgan Stanley may not have chosen to be in Baltimore without the Enterprise Zone tax credit. Even with the credit, the building is not fully leased. It is critical that momentum at Harbor Point be allowed to persist, and that momentum cannot be guaranteed without continued Enterprise Zone affiliation. Looking Ahead – Harbor Point as the City’s Next Great Economic Driver Harbor Point is well situated to attract the next wave of investment in southeast Baltimore. The Jackson’s Wharf site currently hosts a surface parking lot, as does a property that sits between Lancaster and Aliceanna streets (700 S. Eden Street). These parcels await development. The property north of

                                                            3 http://btrc.maryland.gov/BITCsub/documents/Enterprise_Zone_Tax_Credit_Program.pdf 

Aliceanna Street (600 S. Eden Street) is currently a distribution center building for H&S Bakery. This facility is slated for relocation once the Red Line is constructed, opening the door to transit-oriented mixed-use development more in keeping with the current structure of the neighborhood (commercial and residential) and tied to transportation. Despite its obvious locational advantages, the Harbor Point site is associated with numerous complexities- complexities that increase the cost of development. Remediation entailed encapsulating the chromium contamination, not removing it. Accordingly, Harbor Point Development has spent significant time and money over the past decade studying the most efficient ways to construct roadways and buildings on this site. Importantly, the real estate marketplace continues to recover from a the significant downturn. Parcels will be built out as market conditions allow, but those conditions are still not favorable to ambitious projects. Despite that, Harbor Point Development remains optimistic about the site’s future and is currently seeking to increase the allotment within the PUD to 2.9 million square feet. It is presently anticipated that the development will be phased in over the next 10 years and will comprise 1.5 million square feet of office space, 1,000 residential units, 230,000 square feet of retail space, an 86,000 square foot hotel and 3,000 parking spaces (see site plan opposite page). Harbor East has a proven track record of success in converting Enterprise Zone credits and other economic development tools into successful mixed-use development that brings jobs and capital investment into Baltimore City.

In addition to the 2.9 million square feet of development, the developer has been pursuing Tax Increment Financing with the City of Baltimore to construct necessary infrastructure. Currently, there is no infrastructure on site other than that associated with the Morgan Stanley office building and the Honeywell Transfer Station. A budget of approximately $100 million embodies all streets and utility infrastructure needed on and off site including a bridge extending Central Avenue south, as well as resources required for a public promenade ringing the site. This promenade will allow the broader community to better engage the site and connect to the surrounding communities. An accompanying 6-acre public park that includes a multi-purpose playing field will serve as one of Baltimore’s most attractive, prestigious and useful family amenities. Coupled with the projected private investment in the form of debt and equity, Harbor Point is expected to cost $1.3 billion. Include Jackson’s Wharf and the two parcels to the north and the number jumps to $1.9 billion. Quantifying Future Enterprise Zone Economic and Fiscal Impacts Construction Phase

In the spring of 2012, HPD retained Sage Policy Group, Inc. to analyze the economic and fiscal impacts of future development at the proposed Enterprise Zone expansion parcels. Sage estimates that future construction will support 7,040 direct jobs over the course of build-out. There will be an additional 1,045 jobs supported city-wide during construction attributable to purchases of supplies/services from local businesses. An additional 2,139 jobs will be supported in Baltimore City due to the wage gains of construction and related workers. In total, future construction of the Enterprise Zone expansion area will support 10,584 jobs in Baltimore City with associated income of $695.8 million. The construction phase will also support $1,642.2 million in sales of goods and services by city businesses when multiplier effects are fully considered. The exhibit below provides summary detail regarding construction phase economic impacts. Exhibit 1: Economic impacts: future construction (one-time impacts)

Type of Impact Jobs Labor Income

($millions) Business Sales

($millions) Direct Effect 7,040 $467.0 $1,086.7Indirect Effect 1,405 $108.8 $234.6Induced Effect 2,139 $120.0 $302.9Total Effect 10,584 $695.8 $1,624.2

Source: Sage

The construction phase will also produce tax revenues for the City of Baltimore and State of Maryland. The table below indicates that total City and State revenues will exceed $48 million over the course of build-out, of which roughly one-third inures to the City while the balance accrues to the State.

Exhibit 2: Fiscal impacts related to taxes/fees: construction phase (one-time impacts)

Location and type Value of impact ($millions)

Baltimore City Income tax $15.6

Total $15.6 Maryland Income tax $23.1 Sales tax $9.4

Total $32.6 Total City and State $48.2

Source: Sage Occupancy/Post-Construction Phase Once the project is operational, a set of ongoing, permanent economic and fiscal impacts will occur. These impacts are based on the operational and maintenance costs of the development, the operations of the businesses/institutions located at the development and the spending of residents. The exhibit below reflects the combined economic impact of new and existing businesses and residents at Harbor East and Harbor Point. At full build-out, future operational impact in Baltimore City includes more than 25,000 jobs associated with $1.59 billion in additional income each year. Local business sales will be augmented by $3.58 billion. With respect to new construction, it is easy to see that impacts will be substantial. If one presumes 200 square feet of office space per employee, the 1.5 million square feet of additional proposed office space translates into 7,500 direct jobs. This figure does not include direct jobs associated with retail space or the hotel and also does not encompass multiplier effects. Exhibit 3: Economic impacts: future operations at full build-out (ongoing, annual impacts)

Type of Impact Jobs Labor Income

($millions) Business Sales

($millions) Direct Effect 15,440 $889.1 $2,036.1Indirect Effect 5,167 $444.8 $898.6Induced Effect 4,542 $255.8 $644.7Total Effect 25,149 $1,589.7 $3,579.4

Source: Sage

Additionally, there are substantial positive fiscal impacts associated with the continuation of Enterprise Zone designation. At full build-out, Harbor East will support nearly $85 million in City taxes per annum and $101.5 million in State taxes. These figures are presented in 2012 dollars in the exhibit below.

Exhibit 4: Fiscal impacts: future operational phase (ongoing, annual impacts)

Location/type of impact Value ($millions)

Baltimore City Real property tax $44.1 Income tax $39.5 Parking tax $0.9 Admissions and Amusement Tax $0.2

Total $84.7 Maryland Real property tax $2.2 Income tax $58.6 Sales tax $40.7

Total $101.5 Total City and State $186.2

Source: Sage. Note: City/State fiscal impact estimates are mutually exclusive. Conclusion Harbor East has been one of Baltimore’s great success stories. Since its inception, Harbor East has attracted corporations from across the nation, and development continues. A necessary and vital ingredient in this formula for success has been Enterprise Zone designation. The designation has also allowed the City to benefit from State financial participation. While Harbor East has been a success, success at Harbor Point is not guaranteed, particularly in light of the current, coordinated global economic slowdown. Harbor Point’s successful development will be important in a number of ways, including with respect to expanding visitation and positioning Baltimore to attract and retain more corporate headquarters. Perhaps most importantly, successful development will create additional job opportunities for residents of communities proximate to Harbor Point, many of whom continue to struggle with elevated unemployment and low incomes. The Enterprise Zone is key to attracting these jobs and businesses through lower building operating costs and employment tax credits. Enterprise Zone designation is therefore merited at Harbor Point/Harbor East from a public policy perspective.

Appendix A Expansion Area Block and Lot numbers

Harbor Point Block 1815 Lot 1

Block 1817 Lot 1 & 4 Block 1825 Lot 03 Block 1825 Lot 02

Block 1825 Lot 01 Jacksons Wharf Block 1826 Lot 1 Block 1826 Lot 2 Central Ave Block 1804 Lot 01

Block 1805 Lot 01-05