WASHINGTON 鈥斅燣ocal sports fans know all about the recent success Under Armour has enjoyed. The Baltimore-based company has grown in leaps and bounds since its inception in 1996, pulling in nearly $4 billion in revenue last year and employing roughly 11,000 people worldwide.
Across the sports landscape, it has locked down some of the most popular emerging superstars — from defending NL聽MVP Bryce Harper to two-time defending NBA MVP Stephen Curry, to defending FedEx Cup champ Jordan Spieth 鈥� helping to grow its visibility.
A few years ago, the company began competing with Nike on the national stage through its college football uniforms, particularly those of the University of Maryland. Under Armour鈥檚 founder and CEO, Kevin Plank, is a Kensington native and Maryland grad, and his success has elevated him to a status as one of the area鈥檚 favorite local success stories.
Now, the clothing and footwear giant is looking to make a big move, as it plans to relocate its corporate headquarters into the Port Covington area of South Baltimore, the swath of land south of Interstate 95 facing the Patapsco River. The move聽is part of a massive redevelopment project that includes a major public financing component which has drawn a lot of recent attention 鈥� both because of the dollar figure and the ease with which the city has greenlighted it to this point.
The details of the deal鈥檚 potential ramifications on Baltimore are complicated. If you鈥檙e interested in getting much deeper into the weeds on all the specifics, The Baltimore Sun has covered the project extensively since its inception and has far more detail on many of the myriad issues at play (including many articles cited below). But hopefully this explainer helps make sense of the project as a whole.
What exactly is Under Armour doing?
The company is looking to build a new corporate headquarters as part of a massive, mixed-use redevelopment project that will combine聽offices, retail, parks, hotels and 7,500 residences over 260 acres. Sagamore Development, a company also owned by Plank,聽is working聽to try to secure tax increment financing (TIF) from the City of Baltimore to help fund the project, a measure which has from the Baltimore City Planning Commission.
What is a TIF?
A TIF is a specific kind of financing intended to aid developers in redeveloping the public infrastructure an area of the city that needs overhaul. In Baltimore, some these are in areas requiring environmental clean up,聽called Enterprise Zones. Port Covington — another TIF district in an Enterprise Zone — requires some environmental cleanup and infrastructure work due to the industrial work of the Western Maryland Railway, which聽used to call the area home but left聽in 1988.
This particular TIF is proposed to be sold off in chunks, as bonds. To repay the bonds, the tax rate on the designated TIF district 鈥斅爐he land at Port Covington 鈥� would remain fixed, even as the value goes up with redevelopment. The difference in tax revenue is then applied toward repaying the bond over the course of 41 years.
Is this a large TIF?
Very. In fact, at $535 million (actually, $638 million worth of bonds), the TIF would be more total money committed by the city than in its . That鈥檚 a major reason it has drawn so much attention and public scrutiny.
Have TIFs worked before?
This is where some of the concern comes in.
TIFs are a fairly recent development, having only come to prominent use in the last couple decades, and often take a long time to pay back. In Chicago, where TIFs are more popular than any other American city and now comprise a whopping 32 percent of the city鈥檚 land, they have been problematic.
Tom Tresser, a public defender and civic educator in Chicago, compares TIFs to sports stadium financing deals, calling them 鈥渁nother example of sort of the same rhetoric.鈥� Tresser says the proposed Port Covington TIF is probably the largest he鈥檚 ever heard of.
Is the TIF a tax break?
For all intents and purposes, yes. This project receives a direct tax break as it is located within聽an Enterprise Zone, and additional, indirect aid from being part of a TIF.
The would-be increase in property taxes as the land value rises is instead directed into the city coffers to pay back the bond given to the developers in the first place. And the bond system in place for the Port Covington project allows Sagamore to borrow money for development up front at ostensibly a lower rate than a bank would charge them.
It also restricts the use of the profits of the increase in tax revenue to repaying the bonds, instead of being available to the rest of the city for other uses.
鈥淚t handcuffs the property taxes into the area where they鈥檙e being generated,鈥� says Tresser.
Where does the money come from?
The money does not come from Baltimore鈥檚 existing general fund, but that could hamper its ability to spend money in the future. While it goes to address many of the same infrastructure issues that city money might normally address, it does so only within the TIF district. That calls into question the need for so much money to be spent on infrastructure within one small district of the city, when many other areas also need repair and modernization.
Does the project really need $535 million in city financing?
As mentioned before, that number is actually $658.6 million in 30-year bonds (including insurance and a reserve fund), but it helps to understand how that number is broken down. The biggest chunk, $273.2 million, would be put toward creating a new street grid, something vital to the area鈥檚 redevelopment. Another nearly $70 million is set aside for infrastructural work on the site itself.
Beyond that, the divisions are less obviously necessary. Nearly $140 million is set aside for new parks, and more than $50 million for things such as聽a pedestrian bridge and internal rail circulator 鈥斅爓hich, while they fall under the broad stroke of transportation, do not positively affect聽anything beyond the site itself.
The Harbor Point development had $59 million earmarked for 9.5 acres of parks. In comparison, the 2014 city budget for maintenance on the roughly 7,000 acres of the Baltimore City Park system was $5.8 million.
The Port Covington TIFs would specifically not be used for infrastructure inside the proposed Under Armour corporate headquarters campus.
How much is the private investment?
Sagamore projects its own investment to be in the arena of $330 million, with another $4 billion in partner investment in development around the site, including the Under Armour campus, hotels, and housing.
How much will the developers benefit from the TIF?
With all the TIF benefits, the MuniCap analysis projects more than $760 million in tax credits. But other investors are also expected to buy the city bonds, and .
Will this cost the schools money?
Potentially. Maryland grants state money聽for schools based on assessed wealth of each community, determined by property values. This is not regressive like Illinois, but creates a potentially damaging situation for Baltimore: If the property value increases during Under Armour鈥檚 development (highly likely), the perceived values will rise, but the actual tax revenue going to the schools will remain at the original value of the land, per the TIF. This would potentially create a massive shortfall.
The state passed a temporary measure to address this particular issue earlier this year, specifically to ensure that TIFs do not create this disparity. However, that legislation expires in 2019 and needs to be permanently updated to address this issue, or else school funding could face massive shortfalls.
Marc Weller, president of Sagamore Development, , but put the onus on the government to find a long-term solution.
鈥淲e are absolutely committed to seeing that there is a permanent fix, and we have confidence that our legislators will make sure this happens,鈥� he said in the statement.
Will this create new jobs?
Nearly 15,000 temporary full-time construction jobs, nearly聽22,000 full-time on-site positions, including an additional 8,000 Under Armour聽positions (on top of the current聽2,000). The question of how many of these jobs will be hired locally remains to be answered, and is a point of contention heading into the public hearings.
What about affordable housing?
The city changed聽a requirement that 20 percent of the new housing units on the property be designated as low-income housing to 10 percent. Currently, City Councilman Carl Stokes is trying to fight to before any deal is signed.
What鈥檚 the hurry?
The Baltimore Development Corp. didn鈥檛 see a first proposal on the project until early 2016, meaning聽this has all come together quite fast.
The answer to this question has been up for debate until recently. Under Armour was hoping to get federal funding for the project, but had to rush to meet certain deadlines. The company has maintained, however, that the reason for the expedited process was that they had outgrown their space and needed a new campus immediately.
But that . Nevertheless, Under Armour proceeded with its purchase of the land from Sagamore.
It鈥檚 not surprising that Plank would want to move quickly in the endeavor, considering how Plank has run Under Armour. As it has made a , a very aggressive move for a company of Under Armour鈥檚 size, but as the Inc profile of Plank earlier this year mentioned, one of his favorite sayings is 鈥淣obody ever won a horserace by yelling 鈥榃hoa!鈥欌��
What is the significance of the purchase of land by Under Armour?
As mentioned before, Sagamore also is owned by Plank. This may make a sale of land from one company to the other under the same owner seem like semantics, or even an insider deal of sorts. But there are some important distinctions to be made.
To start, Under Armour is a publicly traded company, beholden to shareholders, whereas Sagamore is private. Second, Sagamore says they have made no profit on the deal, . And perhaps most important, the move signifies that Under Armour is still committed to the property (and to Baltimore) even without the federal and state money聽they were hoping for.
When will the vote happen?
Potentially soon. The Baltimore City Council has the ultimate vote on approval of the TIFs, and the first hearing on the matter is scheduled for next Wednesday, July 27. The interest in the matter has grown enough in the community over the past few weeks that it was announced Wednesday that the televised meeting has been to accommodate what is expected to be a large crowd.
With so many moving parts and a number of issues that affect the larger Baltimore community still unresolved, the process may slow down, though. Ultimately, Baltimore wants to keep Under Armour, and the company has shown every intention to stay and grow in its home city. But with over a half-billion in public money at stake, the questions are important for everyone affected to understand.
Editor’s Note: Some language regarding the relationship聽between TIF districts and Enterprise Zones has been clarified.
