Baltimore County Executive Kevin Kamenetz has asked the County Council to approve what, in my opinion, can only be described as a $43 million bailout of the prospective developers of Towson Row. Towson Row is a massive but stalled project lying in the heart of Towson. The bailout is scheduled to be discussed at a work session of the County Council on Tuesday, December 12th, with a vote planned for the Council meeting on Monday, December 18th.
The proposed bailout was presented to the County Council on December 4th. Is sixteen days sufficient time for the County Council to review and approve such an extraordinary, unprecedented measure? Of course not. Haste is particularly foolhardy in the matter at hand.
To her credit, Pamela Wood of the Baltimore Sun obtained copies of the “County Funding Agreement” and “Development Agreement” that the County Council is being asked to approve, and posted them online on December 8th. I have reproduced below a copy of the email that I sent to members of the County Council yesterday raising some issues that I believe that they must consider before voting to approve the agreements.
Am I confident that the members of the County Council will read and understand the two agreements, or read my email, before they vote on December 18th? No, but one can always hope.
Before I get to the email, let’s get the obvious out of the way: Mr. Kamenetz’s primary motivation for proposing this bailout is, in my opinion, to heal a potentially-fatal political wound. Mr. Kamenetz is an announced candidate for governor, and he can ill afford to go into next year’s elections with Towson Row consisting of nothing more than it is now: A cratered eyesore in downtown Towson.
In a podcast reported yesterday in the Baltimore Business Journal, Mr. Kamenetz stated that he would try to separate himself from the other Democratic candidates on the issue of economic development by touting his success in projects like Towson Row. In the podcast, he pointed to the redevelopment of Sparrows Point and the Owings Mills Mall. The debacle over Towson Station and the potential failure of Towson Row threaten to undermine that campaign theme.
Mr. Kamenetz isn’t going to win the governor’s race on the strength of his less-than-charming personality. He already is going to have to live during his campaign with the infamous video of him telling Mays Chapel residents that “it is my job to talk, your job to listen right now.”
Mr. Kamenetz is going to have to try to sell himself to the voters of the state as a goal-oriented and successful, if occasionally arrogant and abrasive, leader. A montage of images that includes the episode in Mays Chapel as a representation of his temperament, and a photo of the large empty patch of dirt where Towson Row is supposed to be as a symbol of his failed economic development policies, would doom his chances to be elected governor. In my opinion, Mr. Kamenetz is desperate to get construction underway on Towson Row.
Caves Valley Partners, a developer with close political ties to County Executive Kevin Kamenetz, unveiled its plans for Towson Row in 2013. The project is a mixed-use development sitting on approximately five acres bounded by York Road, Towsontown Boulevard, and Washington and Chesapeake Avenues. The ambitious plans announced in 2013 called for office buildings, a hotel, apartments, student housing, and retail shops anchored by a Whole Foods grocery store. The project consisted of 1.2 million square feet of space on five acres of land, with a price tag of $350 million.
Four years later, there is nothing but a large hole in the ground in the heart of Towson. The project faltered, with Arthur Adler, one of the Caves Valley partners, explaining that the construction of the planned parking garage under the Whole Foods grocery story “became too costly due to the rock presence as well as other construction costs.” Mr. Adler later clarified that Caves Valley was aware of the presence of rock, but that the cost to remove the rock was greater than expected.
In May of this year, the Owings Mills development firm Greenberg Gibbons Commercial Corporation announced that it would work with Caves Valley as “co-developers” of Towson Row. Brian Gibbons, chairman and CEO of Greenberg Gibbons, said that his company would bring expertise as well as $100 million in additional investment to the project, which would be “jointly controlled” by Greenberg Gibbons and Caves Valley.
Mr. Gibbons stated that his company had been working “in the background” with Caves Valley for 18 months on a redesign of the project. “We’ve simplified the design,” Mr. Gibbons said. “We now have a project that is feasible to build.”
There was no mention at the time of any need for an infusion of County money, at least not publicly. The subject of County grants did not come up in public until last month.
Earlier this month, Mr. Gibbons told the Sun that receiving the County’s financial help is “essential” to making Towson Row work. He stated that the County’s contribution is needed to finalize financing with a California pension fund that is investing in the project. The nearly $43 million in up-front help from the County represents “the minimum threshold we needed with our partners.”
Mr. Gibbons informed the Baltimore Business Journal that he expected to break ground with the construction of the Whole Foods grocery store at Towson Row in mid-2018. It now appears that he meant that he expected to break ground in mid-2018 if the County comes up with the money that the developers have requested.
The conventional wisdom in Baltimore County is that the developers have the Baltimore County Executive and County Council over a barrel with the developers’ insistence that they now need $43 million in County grants to make the development of Towson Row economically feasible. If it is true that the County Executive and County Council are over a barrel, it is only because County Executive Kevin Kamenetz and his cohorts on the County Council recklessly placed themselves in that position, and remain there by their own choice.
The tale of Towson Row is the story of all that is wrong with the development policy of the Kamenetz administration. Like the Towson Station saga, one thing comes through loud and clear when you look back at the history of the project, in my opinion: The primary focus of the Kamenetz administration is on helping the developers succeed, rather than on protecting the interests of the County and its taxpayers.
Soon after Caves Valley Partners unveiled its plans for the Towson Row project in 2013, the County began falling all over itself to clear the path for the development. Pamela Wood of the Sun recounted the history in an article last week.
One issue that Ms. Wood did not mention is the continuing questions surrounding construction of the so-called Towson relief sewer, a $1,262,626 project intended to increase sewerage capacity to accommodate the growth of Towson University and the future development of Towson Row. One of those questions is whether the developers of Towson Row will be expected to pay anything toward the construction of sewerage adequate to serve the development.
State Senator Jim Brochin, who represents the senatorial district in which Towson Row is located, estimated a year ago that the County had spent between $30 to $40 million on infrastructure to support development of Towson Row. The County already is in deep. The question becomes whether the County should dive in any deeper.
There is more invested in Towson Row than the County’s money. There is the political capital that has been invested by Mr. Kamenetz in securing the zoning concessions and taking other actions to promote the development. His reputation is at stake.
Mr. Kamenetz has touted Towson Row as a transformative project, the key to an initiative that he called “It’s Towson’s Time.” In October 2015, the following appeared on the County’s “Baltimore County News” website:
“Towson Row will transform the Towson skyline and become a focal point for residents, workers and visitors,” said Baltimore County Executive Kevin Kamenetz. “You can clearly see Towson Row’s footprint as you walk through downtown Towson. It’s exciting to see so much site activity [sic] as this significant private investment moves forward.”
“Towson Row will reaffirm Towson as a preeminent destination in Maryland, now and well into the future,” said Arthur Adler, partner of Caves Valley Partners. “We are completely reimagining the shopping, working, dining, entertainment, and green streetscape experience for Towson residents and visitors.”
The County Council could deny approval of the grant funding. That would send the developers back to the drawing boards to design a project that they could build without additional County financing. A redesign of that magnitude would produce a far less grandiose development than promised by Mr. Kamenetz, and could push the beginning of the construction beyond 2018 – outcomes unacceptable to Mr. Kamenetz.
An interesting confrontation looms. Councilman David Marks, who represents the Towson area and is in much the same political position as Mr. Kamenetz in terms of needing to get construction started on Towson Row, appears to be leaning toward approving the grants. Council Chairman Tom Quirk and Councilman Julian Jones, Jr., who almost always vote that way that Mr. Kamenetz wants them to vote, have already stated that they support the funding. (If they are your councilmen, feel free to ask them if they have even read the agreements.) The County Executive only needs one more vote.
The County Council does not allow public testimony at its evening legislative sessions. The County Council only allows public testimony at its work sessions, and schedules the work sessions during the middle of the day, when it is least convenient for most people to attend. Nevertheless, today’s work session is likely to be much more lively than usual because of the strong public opposition to the County financing of the controversial Towson Row project.
It is a story for another day, but Baltimore County has become a developer’s paradise, with developers enjoying favored treatment by the County. An example of that favored treatment is the absence of development impact fees or development excise taxes. (There are legal differences between the two, but they serve the same purpose.)
There is a shabbiness to the public infrastructure in Baltimore County that you do not see in its neighbors to the west and south, Howard County and Anne Arundel County. Some of that has to do with the relative affluence of the three counties. The main reason, however, is that Baltimore County, alone among all metropolitan counties in the state, does not collect development impact fees or excise taxes.
Impact fees or development excise taxes are imposed on the builders of new residential and commercial structures to offset the costs of expanding facilities such as streets and roads, water supply and sewerage, libraries, fire and police stations, schools, etc. to accommodate the new structures. If a county doesn’t collect impact fees or development excise taxes from builders, the costs of expanding facilities to accommodate the new development fall on existing property owners.
That is what happens in Baltimore County. If the streets in your community are crumbling and public buildings (like schools) in poor condition, it is primarily because property and income tax revenues are being siphoned away to pay for the expansions in infrastructure needed to support new developments like Towson Row.
Let’s put this in perspective. Anne Arundel and Howard Counties have a combined population of about 877,600. Baltimore County has a population of about 831,000. In fiscal year 2017, Anne Arundel and Howard County collected a total of about $29.7 million in impact fees (Anne Arundel County) and development excise taxes (Howard County). That’s $29.7 million in property and income tax revenue that they didn’t have to spend to expand the capacity of infrastructure to support new development, and that therefore could be used to do things like repair and replace existing roads, schools, and other infrastructure.
The county closest in population to Baltimore County is Prince George’s County, with a population of about 909,500. Prince George’s County collected about $32.2 million in impact fees in fiscal year 2017. If you are from communities like Catonsville, Dundalk, Pikesville, or Towson, take a trip to Prince George’s County and tell me which county does a better job of keeping its streets and other governmental facilities in repair.
I bring up impact fees and development excise taxes only because it is worth considering that the builders of Towson Row will not pay them, despite the enormous impact that the development will have on public facilities, including streets and roads. Guess who will pay for expanding the capacity of those facilities to accommodate Towson Row? That’s right, the same people paying for the grants.
My email to the Council.
Members of the County Council:
I will spare you my opinion on the wisdom and propriety of the proposal to award grants totaling $43,016,785 to the developers of Towson Row. I will, however, make some suggestions, comments and questions based on my reading of the Community Funding Agreement and the Development Agreement.
What is the legal authority for the grants?
The County Council should insist that the County Attorney, preferably in a formal legal opinion, confirm that the County Council has the legal authority to approve the expenditure of County funds for the grants contemplated by the “County Funding Agreement.” Although the agreement describes them as “tax credit advances” and “hotel tax advances,” that language is nothing more than window dressing, in my opinion. The only relationship to tax credits and hotel taxes is that the amount of the grants is, for no reason that I can ascertain, determined by the projected amounts of certain tax credits and hotel tax payments, and the developers would forego claiming certain tax credits to which they would be entitled.
The disbursements of County funds scheduled under the agreement are grants, pure and simple. The recipient of the grants under the agreement is identified as TR Development Corporation.
The Baltimore County Council has no inherent power to make grants to private for-profit businesses on an ad hoc basis; grants of public money for private purposes must be explicitly authorized by state statutes or county ordinances. The Baltimore County Code does have provisions for economic development grants set forth in Title 10 of Article 10, which establishes the Economic Development Revolving Financing Fund.
County law specifies a process for applying for an economic development grant or loan, and requires an application conforming to the requirements of § 10-10-105 of the County Code. Was that process followed? If not, under what legal authority are these grants being made to TR Development Corporation?
There were two red flags in the agreement that caught my attention. The first is that the authority for the funding is not included in the Recitals, as customarily is done, at least in my experience. The second is that the agreement includes representations by TR Development Corporation that it has the full power and authority to enter into the agreement, and that the agreement is valid and does not violate any of the corporation’s organizational documents. The agreement contains no parallel representations on the part of the County.
In my opinion, the omissions are odd, but may not signify anything other than casual draftsmanship. In context, however, they support my opinion that the legality of the County Council’s action in approving the grants must be confirmed.
Why is confirmation important? There is widespread and vehement opposition to the proposed grants. Unless the County Attorney can render a persuasive opinion that there is sound legal authority for the grants – and that the required process for approving such grants was followed – a taxpayer’s suit challenging the grants is almost inevitable. A successful suit would all but guarantee that Towson Row remains nothing more than a hole in the ground for the foreseeable future.
Conversion of the sale of County-owned property into a gift.
There is another provision of the County Funding Agreement that is, well, innovative. In effect, it converts the sale of three County-owned parcels to the developers of Towson Row into what is tantamount to a gift.
The County previously has contracted to sell three County-owned parcels within the development site to the developers for a total purchase price of $2,335,825. Under the agreement, that amount will be “reinvested” by the County in the Towson Row project upon receipt.
The “reinvestment” clause provides that the money realized from the sale of the properties will be applied to the first scheduled “tax credit advance” under the agreement. Once so applied, the “income” from the sale will reduce the total amount of the tax advances to which the County is obligated to disburse to the developers in the form of grants by the amount of the sales price of $2,335,825. In other words, it will reduce the total amount of the grants from $43,016,785 to $40,680,960.
The effect is that the County realizes no money from the sale of the properties; it simply gets a reduction in the total amount of the grant funds that the County has voluntarily obligated itself to award to the developers! As I said, I give credit to the drafter of the agreement for being creative, although I am uncertain of the benefit to the County.
In my experience, it is one of those provisions that you see in a proposed contract to which your first reaction is “you have to be kidding.” The County Council should at least be aware that the agreement foregoes the $2,335,825 in revenue anticipated from the sale of the three properties, and converts it into a “grant” (or gift) to the developers.
Why isn’t Towson Row Statutory Trust a party to the County Funding Agreement, and what protections are afforded to the County under the County Funding Agreement if TR Development Corporation goes bankrupt?
The agreements before the County Council for approval include the County Funding Agreement referenced above, and a Development Agreement. Kudos to Pamela Wood of the Baltimore Sun for obtaining copies of the documents and posting them online.
The parties to the County Funding Agreement are the County and TR Development Corporation, which is named in the agreement as the “Recipient.” The agreement is signed on behalf of the Recipient by Arthur Adler, identified as the president of TR Development Corporation.
The County Funding Agreement also imposes obligations on the “Developer,” identified as Towson Row Statutory Trust. Towson Row Statutory Trust is not a party to the agreement. Mr. Adler, however, also signed the agreement on behalf of Towson Row Statutory Trust as an “authorized person,” under the following statement: “Towson Row Statutory Trust executes this Agreement to acknowledge its consent to the obligations of the Developer contained herein.”
The parties to the Development Agreement are the County and the Towson Row Statutory Trust. Towson Row Statutory Trust is identified as the owner or contract purchaser of the parcels of land to be developed as Towson Row. The agreement is signed on behalf of the Towson Row Statutory Trust by Mr. Adler as an “authorized person.” Mr. Adler is a partner with Caves Valley Partners. Neither agreement is signed by a representative of Greenberg Gibbons Commercial Corporation, which became a “co-developer” of Towson Row in May.
The almost universal rule-of-thumb is that persons or entities intended to be bound by the terms and conditions of a contract are made parties to the contract, with their respective rights and obligations set forth in the contract. Why isn’t Towson Row Statutory Trust a party to the County Funding Agreement?
The County Council also should ascertain what if any protections are afforded to the County under the County Funding Agreement if TR Development Corporation goes bankrupt. In other words, what status would the future property and hotel tax revenues anticipated to “repay” the County for the tax credit and hotel tax advances have under such a bankruptcy filing?
Exactly whose interests are being protected by these grants?
According to news accounts, Greenberg Gibbons Commercial Corporation announced in May that it formed a joint venture with Caves Valley Partners to be a “co-developer” of Towson Row, and that it would bring additional investors to the project. Caves Valley Partners reportedly faltered when the costs of removing rock from the proposed site of a parking garage were greater than expected, and the project stalled.
Whose investment in Towson Row is at risk if this project doesn’t get the grants, or doesn’t go forward for some other reason? Or if the project fails for some reason, such as changing market or economic conditions? One would suspect that Greenberg Gibbons protected itself and its investors as much as possible in return for coming aboard. I believe that the public has the right to know whose financial interests are being protected by these grants, especially in light of the controversy around the size of the campaign contributions made by Caves Valley Partners.
Where is the Fiscal Note from the County Auditor?
As of this afternoon, it still had not been posted. A proposal to award $43M in grants with no Fiscal Note? In an ideal world – and nothing about Baltimore County government resembles an ideal world – that Fiscal Note should have been posted at least 7-10 days ago so that people attending the work session tomorrow could read it for purposes of preparing their testimony. (Not to mention that members of the Council might want to ask knowledgeable questions about it at the work session.)
Does the analysis from Sage Policy Group state that the infusion of $43 million in County funds is necessary to make the project work?
If the entire report has been made available, I can’t find it. I have read statements attributed to the Kamenetz administration that the report concludes that the $43 million in grants are “justified” by the ultimate benefits in revenue, jobs, etc. Even assuming that is correct, it answers the wrong question. Does the report also state that the $43 million in grants are necessary to make the project work? Was Sage even asked to address that question?
If not, on whose word is the County Council relying that there is a need for these grants? I point out that, under Section 10-10-105(c) of the County Code, an application for assistance from the Economic Development Revolving Financing Fund is evaluated on the basis of “need” and the “financial ability of the applicant,” among other factors. $43 million is a whole lot of money to be ponied up without some independent professional determination that, considering the financial resources of the applicants, the applicants need this money to make the project work.
I understand that this proposal was presented by the County Executive to the County Council on Dec 4th. Mr. Kamenetz must have remarkable faith in the acumen of the members of the County Council to believe that they will be ready to approve such an extraordinary undertaking by December 18th.
Good luck, and thank you for considering my suggestion, comments and questions.
David A. Plymyer