SUBSIDIZING THE LOW ROAD:
Economists Say City Faces Employment Mismatch
Baltimore City needs to get more bang for its economic development buck, according to economists who point to a lack of accountability on the part of subsidized businesses.
Heather Boushey, Ph.D., an economist with the Washington, DC-based EPI, pointed out that the current unemployment rate obscures the recessions true depth.
Camden Yards generates about $3 million annually in state revenue, but costs the states taxpayers $14 million.
Ms. Boushey was one of two presenters at a forum called The State of Working America: Implications for the Low-Wage Workers in Maryland, held on November 19 at the University of Baltimore. The other speaker was Richard P. Clinch, Director of Economic Development for the Maryland Business Research Partnership.
The event was one of a series of forums convened by Open Society Institute-Baltimore in an effort to generate ideas, spark partnerships, and create solutions to economic problems.
Clinch has found that Baltimore Citys employment figures do not stray much from the EPIs overall U.S. findings. The city has the highest unemployment rate in Maryland at 7.5%. This is down, however, when compared to 1998s figure of 9.2%.
Additionally, while the state of Maryland has a 67% labor force participation rate, Baltimore City has a 57% rate. Further, while 16% of Marylands workforce has less than a high school diploma, 32% of Baltimore City workers have not earned a diploma.
However, according to Clinch, the city has improved its job gap numbers significantly. In 1997, there were 2.9 job seekers per available job; in 2000, there were 1.8.
Clinch also reported that an employment mismatch is occuring in Baltimore City. While it has the highest proportion of unskilled workers, most new jobs being created in the city are professional and technical. The City has the states lowest concentration of low-skill jobs at 66%, while the outer suburbs—where such workers can least afford to live—have the highest percentages. According to Clinch, low-skill job openings in Baltimore City are not increasing; when they occur, they are a result of meeting replacement needs rather than due to growth demands.
Despite the current situation, Clinch offered some possible solutions for Baltimore City. The new tourism opportunities such as the waterfront Marriott Hotel and parking garage could add hundreds of low-skill jobs, he pointed out. But generally, he said, low-skilled jobs are not a sector of the economy that is growing.
The picture for higher-wage jobs is much brighter. Other major developments—including, most recently, Tide Point and Montgomery Business Park—all promise to add thousands of new, permanent jobs to the Baltimore area.
Another key issue for Baltimore is linking transportation to the outlying areas of the city, which offer more low-skill job opportunities.
The economists also called for more concentrated efforts to improve education and job training in Baltimore City, so that city residents will be qualified for the better jobs when they become available.
If this training does not occur, Clinch warned, not only will there be few opportunities for those with less education, but they may also find themselves unable to afford to live in the city, as real estate prices can be expected to increase, because real estate prices can be expected to increase as skilled workers move into the city.
Report Is Critical of BDCA September 2002 report by a national nonprofit called Good Jobs First, called Subsidizing the Low Road: Economic Development in Baltimore and authored by Kate Davis and Chauna Brocht with Phil Mattera and Greg LeRoy, was made possible by a grant from the Rockefeller Foundation. LeRoy, founder of Good Jobs First, is author of No More Candy Store: States and Cities Making Job Subsidies Accountable.
The report outlined pervasive process problems in Baltimores privatized system for initiating deals: the Baltimore Development Corporation (BDC). The authors found that taxpayers have little input into the development process in the city, and faulted BDC because its records are secret, exempted from the Maryland Public Information Act.
Among the reports findings:
- The public cost to develop tourism-related businesses is steep, and will continue to be, because Baltimore and other competing tourist venues face the need to constantly reinvent themselves to keep themselves competitive.
- The Orioles and Ravens stadiums are not breaking even. The authors cite a Brookings Institution study showing that Camden Yards generates about $3 million annually in state revenue, but costs the states taxpayers $14 million. (Meanwhile, the owners of the two sports franchises have benefited substantially from the taxpayer-subsidized facilities. [See accompanying chart regarding the Ravens Stadium deal.]
- In 2002, of over $150 million budgeted by the city for economic development, $40 million went for tourism-related projects and another $30 million was earmarked for new parking lots downtown.
- The public-benefit projections for the planned $200 million public infusion in the biotechnology park north of Johns Hopkins Medical Institutions seem overly optimistic, as the benefits depend on successful commercial drug production before envisioned jobs can be created; most such jobs, should they materialize, are10 to 20 years away.
- The City is increasingly reliant on taxpayer subsidies like PILOTs (payments in lieu of taxes) and TIFs (tax increment financing, a diversion of property taxes). Example: The Waterfront Marriott hotel, the Citys first PILOT, will cost $2.3 million in foregone property taxes in 2002 alone, and over the next 25 years will cost about $30 million in foregone taxes. The deal was made in 1999.
- Despite the high cost of PILOTs, the report faulted the City for not attaching any kind of job quality standards—such as wage or healthcare requirements—to them, even though such jobs typically are low-wage and low-benefit.
- The BDC, whose board is appointed by the Mayor, is not subject to any statutory oversight by the Board of Estimates. Further, it does not use clawbacks (contractual recapture provisions) to get money back is a subsidized company fails to meet job requirements.
- BDC reported that, out of 29 recent deals, about half of new jobs go to City residents. The report noted that BDC did not provide specifics on such information as wages and benefits these new positions paid.
The report's recommendations:
- Improve public participation in development deals using public funds, such as providing 30-day advance notice of public hearings and providing full disclosure of each deals scope, costs and benefits.
- Add more community and labor representatives to the boards of the Citys agencies related to economic development.
- Require every subsidized company to submit an annual report on the number and quality of jobs created, with the City verifying this data and making the information available to the public.
- The Mayors Office should publish an annual report detailing the terms of every deal that used taxpayer funds, along with job outcomes.
- Make BDCs records subject to the states Public Information Act.
- Set wage and benefit standards by ordinance.
- Adopt clawbacks after a subsidized business has been operating for two years.
- Put a cap on PILOT and TIF deals, limiting the total subsidies.
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This story was published on December 4, 2002.