As Cities Lose, Wall Street Wins Big
Mounting losses for the taxpayer backed Baltimore Convention Center Hotel make one thing clear, no matter how bad a deal performs, Wall Street always banks a profit
STEPHEN JANIS: This is Stephen Janis reporting for The Real News Network in Baltimore City, Maryland. I am standing in front of the taxpayer backed Hilton Hotel. It’s been a big money loser for the city and the taxpayers. But now they’re refinancing. And it’s who benefits from that that tells a tale of Baltimore’s addiction to tax subsidies.
The taxpayer financed Hilton Hotel sits in gleaming abeyance of the havoc it has wreaked on Baltimore City finances. The property has booked nearly $70 million in losses since it opened in 2008. Red ink that has forced the city to use general funds to keep it afloat.
STEVE KRAUSS: And for the first time last year, there was a small amount of the city’s backstop was used, about $780,000. It opened in 2008 right as that recession was going full swing.
STEPHEN JANIS: The fact is like many projects backed by the city, bad results means good news for Wall Street. At a recent finance board meeting, Secretary Steve Krauss discussed how the city must sell new bonds to keep the hotel solvent.
STEVE KRAUSS: The underwriters had an increasing debt service from year to year was about two to three hundred thousand dollars. So what that was creating, that was creating additional stress on the hotel from a cashflow perspective, because even if you were able to pay your bills, if you have an increasing debt service commitment, that’s going to create additional stress, obviously to the hotel’s revenues.
STEPHEN JANIS: But buried in the details of the losses was a payout to Wall Street. Roughly $2 million dollars to Piper Jaffray, the investment bank that sold the original deal to the city 10 years ago. It’s a remarkable turn of events for a project touted as a big moneymaker for Baltimore. Made more intriguing by the fact that not only was the hotel backed by taxpayer credit, but was a beneficiary of a huge tax break called the TIF, or Tax Increment Finance. The TIF allowed the hotel to take all it’s property taxes, and dedicate it to bond payments, which Steve Krauss told the board still wasn’t enough to keep the hotel afloat.
STEVE KRAUSS: Well, if no action was taken, we felt that with this increasing debt service load over the next several years, that there would be further strain on the city’s pledge, and obviously that was an important thing to try to avoid.
STEPHEN JANIS: And the hotel deal is one of many tax subsidies, granted by the city over the last two decades that have bolstered downtown to the detriment of the city’s poorer neighborhoods, and points a link between tax breaks and Wall Street, a profitable nexus, which remains shrouded partly in mystery.
CARL STOKES: I always believe when I get something of that nature that they’re hiding something.
STEPHEN JANIS: That’s because city officials have been reluctant to share the details about the deals. In 2014, then councilman Carl Stokes asked for a comprehensive report on TIFs and other tax breaks.
CARL STOKES: It’s the city who’s making bad deals. The developers are asking as they should. It’s self interest. It’s the city who reneges on the taxpayers. It’s the city who says, “Take all the money you want. Here. Here’s some more money.” It’s the city who does that.
STEPHEN JANIS: In a letter obtained by the Real News, budget director Andrew Kleine informed Stoked the request was too expensive to honor.
CARL STOKES: At least one time a developer was frank enough to share with me, and said, “The city said you can ask for more. You could ask for more.” Right? And they accepted that number.
STEPHEN JANIS: We contacted Kleine, who wouldn’t elaborate, but told us to contact the mayor’s press office. So TRN has filed a Freedom of Information Act request for the same information sought by Stokes. Meanwhile the city council is having their own difficulties getting information. Councilman Bill Henry has called for a new hearing on the same report next month.
BILL HENRY: This is an opportunity for them to come to the council and explain to us how the process works, and also give us an update for the one, for any of these projects where there’s a multiyear commitment.
STEPHEN JANIS: And also wants more transparency in the process.
BILL HENRY: One of the things that we would hear at this hearing, it’s like what’s on the table going forward. And what would be involved in giving the council and the public more lead time and greater involvement in the conversation and negotiation around the size of the city’s incentive.
STEPHEN JANIS: The question is, “Does anyone know the truth, and how costly will it be to get it?” This is Stephen Janis and Taya Graham, reporting for the Real News Network in Baltimore City, Maryland.