A Beattyocracy: Rushing through corporate welfare like its nobody’s business UPDATED

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Developer Michael Beatty, who manages Harbor Point Development Holdings, LLC (Harbor Point) and also works for Harbor East. The bill which recently passed the City Council of Baltimore, gave the “luxury waterfront development,” Harbor Point, over $125 million in taxpayer money, a situation that can only rightly be called corporate welfare. A similar huge bout in taxpayer money to a company run by Beatty’s old partner, John Paterakis, passed the tax committee in 2010 (then it was tax breaks, now it is public financing) and Carl Stokes opposed it. The Baltimore Brew described the flurry in the City Council over its approval,

“the approval followed an unusual maneuver, sanctioned by Council President Bernard C. “Jack” Young, to suspend Council rules to allow the legislation to come to a vote without the approval of the chairman of the tax committee [Carl Stokes] that handled the bills…[the bill provided] up to $125 million in city bonds to underwrite public improvements at the 28-acre site…[which] includes legal and underwriting costs, plus a reserve fund, to finance the $107 million sought by developer Michael Beatty…about $95 million of the city’s future federal highway allocations will be earmarked for the project…the Beatty group would earn a 10-11% return on the project without city funding. With the TIF subsidy, the developer is projected to earn between 14-15%.”

Back in the committee, the bill according to the Baltimore Business Journal,

“passed so quickly, the dozens of opponents who had packed the council chamber to denounce the bill could only look on in astonishment as committee members rammed the bill through without any debate. Henry tried to offer an amendment that would have slashed the $107 million TIF to $31.3 million, but his attempt failed when his motion failed to draw a second backing.”

Instead of writing a story moaning about this horrible victory for corporate greed, I decided to do a OpenSecrets-like investigation of the money behind who voted for this proposal.

First, Luke Broadwater’s article in the Baltimore Sun on July 29th, 2013 gives some background on the big players (who are bolded):

“Michael S. Beatty’s Harbor Point Development Group LLC, which would build the project to house Exelon’s new regional headquarters, recently registered a lobbyist with the city: Ryan J. Potter, a partner in the law firm Gallagher Evelius & Jones LLP. Gallagher Evelius & Jones’ managing partner is the political kingmaker Richard O. Berndt [who supports city "revitalization" and expanded consumerism], whom Rawlings-Blake’s father once called “the political pope of Baltimore.” Former Mayor William Donald Schaefer nicknamed Berndt “the German general” and credited him with the creation of the Inner Harbor. The firm, which also represents Beatty’s former partner John Paterakis Sr. and his Harbor East development, has contributed heavily to Rawlings-Blake. During her mayoral bid, the firm and its lawyers donated about $35,000 to Rawlings-Blake…Exelon Corp., the highest-profile tenant of Harbor Point, also donated $1,000 to Rawlings-Blake. Gallagher Evelius & Jones also has donated to Baltimore City Council President Bernard C. “Jack” Young and Councilman James Kraft, who are strong supporters of the project. Additionally, Beatty — whose 27-arce development would sit between Harbor East and Fells Point — also has hired a public relations firm: Kearney O’Doherty Public Affairs, run by Gov. Martin O’Malley’s former spokesman Steve Kearney and Damian O’Doherty, older brother of Rawlings-Blake’s departing policy and communications director, Ryan O’Doherty.”

There are also other companies that benefit from corporate welfare from Harbor East: Under Armour, Hyatt, Four Seasons, Marriott, Legg Mason, Hilton, and Homewood Suites (see here, here,
& here for evidence of these claims).

As for the vote itself, Baltimore Brew noted: “the vote was lopsided, with 12 of 15 Council members voting “yes.” Stokes and Sharon Green Middleton (6th District) voted against the rules suspension, while Mary Pat Clarke (14th District) abstained.”

To break it down for you, here is who voted “yes” for the Beatty bill (for suspending the rules), who voted “no” on the Beatty bill (against suspending the rules), and who abtained on the Beatty bill:

YES on Beatty Bill
1. Jim Kraft (only person who said why he voted for the bill)
2. Edward Reisinger (City Council Vice-President)
3. Warren Branch
4. William H. Cole IV (Bill sponsor)
5. Bill Henry (opposed bill back in committee by abstaining)
6. Rochelle “Rikki” Spector
7. Jack Young (City Council President)
8. Nick Mosby
9. Robert Curran
10. Brandon M. Scott
11. Helen Holton
12. William “Pete” Welch

NO on Beatty Bill
1. Carl Stokes (stormed out of the committee in protest)
2. Sharon Green Middleton

ABSTAINED on Beatty Bill
1. Mary Pat Clarke

Of the “yes” votes, ten received money* from the companies that benefit from corporate welfare from Harbor East and the big players in the development.**
1. Jim Kraft (only person who said why he voted for the bill)
- $500 from Gallagher Evelius & Jones gave him in 2011
- $1,500 collectively in 2007, 2011, and 2012 from Exelon-owned Constellation Energy

2. Edward Reisinger (City Council Vice-President)
- $250 in 2007 from Exelon-owned Constellation Energy

3. Warren Branch
- $1,250 collectively in 2009, 2010 & 2011from Exelon-owned Constellation Energy

4. William H. Cole IV (Bill sponsor)
He is, according to his official bio, Director of the Downtown Partnership & Downtown Management Authority along with Visit Baltimore meaning he serves the elites of the city directly.
- $250 from Exelon-owned Constellation Energy in 2011
- $1,000 from KO Public Affairs in 2011 – $250 from Gallagher Evelius & Jones, in 2011.

5. Bill Henry
- Gallagher Evelius & Jones gave him
$625 collectively in 2011 and 2013
- $250 from Exelon-owned Constellation Energy in 2011
- Marriott gave him $25.00 in 2011

6. Rochelle “Rikki” Spector
- $500 from Exelon-owned Constellation Energy in 2011

7. Jack Young (City Council President)
- Gallagher Evelius & Jones gave him
$1250 collectively in 2011 and 2013
- Marriott gave him $250 in 2010

8. Robert “Bob” Curran
- $1,800 collectively in 2007 and 2012
from Exelon-owned Constellation Energy

9. Helen Holton
- $500 from Exelon-owned Constellation Energy in 2007

10. William “Pete” Welch
- $300 from Exelon-owned Constellation Energy in 2011

Of the others who didn’t receive money from those business interests connected to Harbor Point:
- Nick Mosby had thousands of dollars pouring into his campaign coffers from the campaigns of Rawlings-Blake, Rikki Spector, O’Malley, Jack Young and other prominent Democrats during his political career.
- Brandon M. Scott received $6,000 from the Rawlings-Blake campaign in 2011! Scott also received $3,000 from Jack Young’s campaign the same year.

Additionally, Warren Branch was given $500 by the Stephanie Rawlings-Blake campaign in 2007 and Jack Young’s campaign gave him $3,000 in 2011, so he owes them both big time. Rikki Spector received a good amount of money from the campaigns of Stephanie Rawlings-Blake and Helen Holton in the past. Also, Bob Curran who recieved $6,000 from the campaigns of Rawlings-Blake, Cole and Young since 2007! Finally, William “Pete” Welch also received $4,500 from Jack Young and Rawling-Blake’s campaigns in 2011. This could result in a reciprocal political relationship that goes something like this:
“you helped me out, so I’ll help you out by passing this bill.”

These revelations about the politicians on the Baltimore City Council shows that those who voted for the corporate welfare either received legalized bribes (campaign contributions) from the campaigns of prominent Democrats like Jack Young and RawlingsFailings-Blake or from business interests that benefit from Harbor Point. This is troubling because it shows that most of City Council is pushing forward a Beattyocracy that will benefit the privileged few, and leave behind the suffering many in the City itself. The people we should be praising are
Mary Pat Clarke, Carl Stokes, and Sharon Green Middleton who were against the proposal. The biggest praise I give is to Carl Stokes, who spoke truth to power (which is why a consultant for Harbor East is currently plotting to destroy him) and made a powerful statement:
“I feel so strongly we have polarized our city for no good reason at all…[Exelon Corp. needed] not a dime [of city money]…It is not the responsibility of the taxpayers of the city of Baltimore to guarantee a larger profit to the developer…[this is] the worst piece of legislation I’ve ever seen…this committee has been pushed, cajoled and browbeaten to push this legislation faster than the committee should move.”

Now, the bill goes to the mayor. As I have noted in the past, Mayor Stephanie Failings-Blake is not a neutral arbitrator.*** In 2011 and 2012, Gallagher Evelius & Jones gave $5,000 to her campaign. Additionally, in 2011 Exelon also gave her $1,000 and Exelon-owned Constellation Energy gave her $250. The next year, Exelon-owned Constellation Energy had transferrred $2,000 into her PAC. What also should be noted is that Marriott has also given her $1,550 collectively in 2007, 2010, 2011 and 2013. Back in June she called the “revitalization” of Harbor Point a project as big as Inner Harbor.
As a result Democrats are not immune from corporate corruption via legalized bribery showing that GOP is not the only big business party.**** Already uber-rich & powerful developer Michael Beatty has given $4,000 to Gregg Bernstein, $3,250 to Governor Martin O’Malley, $1,000 to Lt. Governor Anthony Brown and $500 to Comptroller Peter Franchot. There were even massive contributions in the tens of thousands of dollars to the Democratic State Central Maryland Commitee by these same interests:

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The words of one (possible) former occupier come to mind: the city budget helps the rich and hurts the middle class. This reasoning is similar to a conversation a number of twitterers in response to my tweet announcing the passage of the Beatty corporate welfare bill. Let us remember what Luke Broadwater recently wrote in the Baltimore Sun, “the developer of Harbor Point plans to buy the initial offering of city-issued bonds for the $1.8 billion project, accruing millions in interest from the controversial public financing deal…Developer Michael S. Beatty’s Harbor Point Development Group LLC plans to purchase about $35 million of the $107 million in bonds and would earn an estimated 6.5 percent interest rate, enabling him to pay for a construction loan.” This act of class warfare is clearly shows the cronic corruption in the City and the compliance of its government to the rich. As Charles Beard said, no government is neutral. In an email forwarded to me by @MairZDoatz, a knowledgable reader of the post laid out some of the details of this act of class warfare:

Beatty now says he’s going to buy $35 million of the bonds. That’s 33% of the total. That means he is lending Baltimore $35M. Municipal bonds – just like all bonds, including U.S. Savings Bonds – are debt instruments. The issuer is borrowing money for a predetermined period, at a specified rate of interest. The issuer has to make annual interest payments to the bond holder (the lender/investor). Then, at the expiration of the term, the borrower has to repay the principal amount to the lender.

So – Baltimore gets $35M from Beatty. Then Baltimore either spends it on capital improvements for the Harbor Point project, or it gives it to back to Beatty so he can spend it on his project. The term of this bond issue looks to be 12 years, but that’s only from the City Council file, so who knows? Let’s assume the term IS 12 years, and the rate of interest is 5%.

Beatty lends Baltimore $35M for 12 years at 5% per annum. No matter what happens to the $35M, Baltimore has to pay interest to Beatty in the amount of $1,750,000 every year for
12 years. That’s $21,000,000 in interest Baltimore will pay Beatty the lender between now and 2025.

1. (a) Somewhere along the way I think I read that Beatty had said that he was going to cover Baltimore’s annual interest expense on this bond issuance. IF SO – then he simply sends the $1,750,000 back to Baltimore every year. This makes his interest income equal his interest expense, so he owes no federal or state income tax on HIS OWN interest transactions.

1. (b) If Beatty is repaying Baltimore for Baltimore’s interest expense on the entire $107,000,000 – then he gets an interest expense tax deduction of $3,500,000 a year for the next 12 years.

2. IF Beatty has no obligation to compensate Baltimore for its interest expense, then this deal nets him a profit of $21 million over 12 years — solely on his interest income on his $35,000,000 investment/loan to Baltimore.

3. At the end of the term, Baltimore has to repay the entire $107,000,000 to the investors who bought the bonds. That includes Beatty. In 2025, Baltimore will cut a check to Beatty for $35,000,000, which is repayment of his original investment/loan.

There are even more possibilities. Bond values fluctuate in inverse proportion to interest rates. When interest rates increase, the value of bonds decreases. And so forth. But I think there is room for a little clarification from the city government before things get more complicated.

Also:Of course you can share it. It’s all public anyway. Any accountant can explain it in detail.

There are many more issues, but they involve corporate taxation. Suffice it to say that they all work to further enrich Mr. Beatty at the taxpayers’ expense.

The fact Beatty is profiting off the taxpayer’s money is just plain wrong and it adds to the massive public anger against handouts to huge Baltimorean corporations. At the same time, the Tribune-owned Baltimore Sun praised the bill saying that “the deal…saves taxpayers millions associated with the cost of issuing bonds, and it provides some reassurance about Mr. Beatty’s ability to fulfill his promises — and cover the bond payments…The advantage to the city, though, is substantial…The details of Mr. Beatty’s plan to buy the first round of bonds amount to a pleasant — if modest — surprise.” Columnist Dan Rodricks however wrote an editorial on Sunday, August 18th, criticizing the deal and the corporate welfare as Gordon Gecko-like:

“You follow me, kid?” An old friend of mine, educated at Hotchkiss and Haverford, used to ask that all the time, sometimes after every two sentences, like when he showed me how to make a martini or how to work the clutch in a ’74 Fiat or when he tried to explain what arbitrage was. He had a head for cocktails, cars and finance, and he talked real fast, with a cigarette on his lip. He’d start explaining something complex, like bond trading, and stop and ask, “You follow me, kid?”

And I would say, “Keep going,” as if I understood.

I thought of my old friend Friday morning when The Sun landed on my desk with a front-page picture of Michael Beatty and his thinning Gordon Gecko hairstyle, above the headline: “Beatty to buy TIF bonds.”

See if you can follow me.

Beatty is the wealthy guy who wants to develop an old chromium plant site in the Baltimore Harbor into a fabulous office-hotel complex with public spaces so we can all go down there on New Year’s Eve and watch the fireworks.

Despite what I just said about chromium, these 28 acres, called Harbor Point, are supposedly some of the most valuable acres in the United States, prime for development.

Beatty claims that his development will create thousands upon thousands of new jobs and eventually millions and millions in property taxes for our endlessly cash-starved city.

I mean, it’s like he’s going to build a city-within-a-city next to the city-within-a-city he already built: Harbor East.

Beatty is willing to invest some of his money and other people’s money in this project. But, of course, he stuck his hand out and asked City Hall to sell more than $100 million in municipal bonds to raise money for things like sidewalks and streets and the parks for the fireworks viewings.

You follow me so far?

If I’m going too fast, let me know.

We’re giving money to millionaires again, but not in the usual way. That’s where the TIF comes in. That stands for tax increment financing, which basically means the city takes out a loan (through bonds) to pay for stuff, and the property taxes the project generates pay back the bonds over time. Beatty asked for a certain amount of TIF to help him and his backers get a 14 percent return on their investment.

You like that?

Fourteen percent.

That’s the way the world works, and you cannot have thinning Gordon Gecko hair on the front page of the newspaper unless you understand that. Guys with big money get to insist on this kind of return. And when politicians are involved, it’s generally an easy deal.

That’s what happened in the mid-1990s when John Paterakis, the wealthy and politically influential bread baker, got millions in tax breaks to construct a hotel at Harbor East, a mile from where, at the time, the city needed a convention center hotel. That was all politics and entitlement at work.

That’s why people get antsy about these high-profile financial deals: City Hall. It’s hard to imagine that our elected leaders even comprehend what’s going on. Maybe they have staff that can match wits with Beatty and his financial strategists, but when it comes to City Council, we don’t have a lot of confidence.

Plus, they’re a bunch of pushovers. Guys with French cuffs treat a council member to dinner at McCormick & Schmick’s, and the French cuffs pretty much get what they want.

So Beatty will get what he wants — the TIF, plus a bunch of tax breaks that could total something like $400 million over the next couple of decades.

You follow me?

Now here’s the latest: Beatty is going to put up $35 million for some of the bonds he talked the City Council into authorizing for his project.

Put another way, the developer who is benefiting from the sale of the bonds is going to buy some of the bonds.

We are told that this maneuver saves the city money — about $6.5 million that otherwise would go to a lot of guys in suits who do these bond deals.

It seems odd, but someone has to buy the bonds, right? So why not the developer? Beatty has as much right as anyone else to enter that market.

Still, I know what you’re thinking. You’re thinking what I was thinking when I was thinking about this Friday morning and I got a wicked headache: If Beatty can get up $35 million to buy bonds, why couldn’t he just put $35 million more into the project to begin with? That would buy a lot of public space for fireworks watching.

I think I got this, or at least a good guess: Investing in the bonds that are backed by tax revenues from Harbor Point and pay a steady 6.5 percent is much less risky than putting up your own money.

Plus, Beatty getting into the bond sale is a public relations thing. It helps the city a bit; it makes the Harbor Point deal seem slightly more palatable.

But I think I’ll stop here.

I think I might have lost some of you at “palatable.”

Still, there was a hard-hitting editorial in the Baltimore Sun today, by Kate Berliner, titled Losing faith in Baltimore. Berliner wrote that, since she moved to the city, it “has offerred taxpayer-financed subsidies to a number of corporations from stadiums to hotels and casinos, Harbor East, the Baltimore Grand Prix, and now Harbor Point…I join many of the wary and skeptical citizens in regard to the funding of the Harbor Point TIF. I am tired of the promise of joba with such projects…Citizens have patiently had our tax dollars invested for decades now, and it is time for the city to invest in its people.” Below this on the opinion page was an editorial by Jane Harrison titled Will we ever get housing right? Harrison wrote that there has been two big deals recently: “the first is the preliminary approval by Baltimore City Council of…some $420 million in public assistance, tax credits, and interest for creating the infrastructure for proposed Harbor Point development…The second…[is the] Baltimore housing agency’s transfer…of $6.8 million intended to assist poor families find affordable places to live…pay off long-standing court judgements for lead poisoning suffered by six formee residents living in public housing.” The editorial also noted that the facts underlying these huge transfers of money are that “41,637 households (104,092 individuals) pay more than half their income for rent or live in severly inadequate conditions…today [there are] over 60 homeless shelters barely coping with families and individuals who shuttle between homelessness and squalid, provisional living conditions in the city.” Harrison closes, asking readers:
“…What hope is there in the face of this to ever see a comprehensive and equitable citywide housing and economic development plan with the genuine promise of it being acted upon?”

There is reason to hope for the best for Baltimore that counters Michael “Greed is Good” Beatty who is a real life Gordon Gekko (sorta), and push through nonviolent direct action for what The Baltimore Book recommended:
“A strategy that would give ordinary citizens decision-making power over economic and community development would foster positive change in the city.” I end with what social activist and people’s historian Howard Zinn wrote in A Power Government Cannot Suppress:

“To be hopeful in bad times is not just foolishly romantic. It is based on the fact that human history is a history not only of cruelty, but also of compassion, sacrifice, courage, kindness. What we choose to emphasize in this complex history will determine our lives. If we see only the worst, it destroys our capacity to do something. If we remember those times and places — and there are so many — where people have behaved magnificently, this gives us the energy to act, and at least the possibility of sending this spinning top of a world in a different direction. And if we do act, in however small a way, we don’t have to wait for some grand utopian future. The future is an infinite succession of presents, and to live now as we think human beings should live, in defiance of all that is bad around us, is itself a marvelous victory.”

*Let us not forget what the MD State Board of Elections says about political campaign contributions:

“A person may contribute directly or indirectly no more than $4,000 to one political committee, and a total of $10,000 to all political committees, during the four-year cycle. The $4,000 limit on contributions to the political committee of a candidate applies regardless of the number of offices sought by the candidate in separate elections during the 4 year election cycle or the number of authorized candidate committees formed to support the candidate, including slates.
A political committee may transfer no more than $6,000 to another political committee during the four (4) year cycle. There is no aggregate limit.”

**Marriott, Hilton, KO Public Affairs, Gallagher Evelius & Jones, Constellation Energy (see here as to why), and Exelon Corp. Also note: Harbor Point Development Group LLC was not calculated in because it seems to not give political contributions, except for one I found. The same goes for: Under Armour (only three contributors), Hyatt Regency Baltimore (only one contributor), Four Seasons (only two contributions), Legg Mason (only four contributions), & Homewood Suites (gave to none of the people who voted).
This data comes from Maryland Campaign Reporting Information System maintained by the MD State Board of Elections.

*** Articles I’ve written criticizing Stephanie Failings-Blake:
http://beyondbarricade.wordpress.com/2013/03/09/the-shameless-destruction-of-camp-83/
http://beyondbarricade.wordpress.com/2013/01/01/2013-and-a-newfound-hope/
http://beyondbarricade.wordpress.com/2013/04/15/city-favors-developers-over-people/

****see my article about this very subject which goes into more detail, but on a local & national scale.

Update: Luke Broadwater thanked me for sending this piece to me & following me :). That’s pretty big.

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Also added a comment about Beatty sent my way by @MairZDoatz from a knowledgable reader and concerned citizen. Added an opinion in the Baltimore Sun by Dan Rodricks as well.

About interestingblogger

I'm a social activist and a person interested in politics in general. I want to make a change and have a more just world for all.
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3 Responses to A Beattyocracy: Rushing through corporate welfare like its nobody’s business UPDATED

  1. Pingback: Real life Gordon Gekko wins out in Baltimore | Interesting Blogger: Reporting to benefit the commoner

  2. Like the rest of America’s Rust Belt cities, Baltimore has been dying, economically, for the last 40 years, coinciding with the nation’s transition from an industrial-manufacturing economy to a service-technology economy.

    In business, money – like water – flows downhill. Foreign nations offer quality industrial resources and durable products (steel, aluminum, appliances, cars, and many more, along with huge labor pools) at prices American companies cannot match.

    City leaders have a mandate from their constituents to do whatever they can to preserve their city’s economic viability. In Baltimore’s case this means finding new high-wage jobs with fringe benefits, to replace the tens of thousands of jobs lost in the last four decades at companies such as General Motors, Bethlehem Steel, Maryland Shipbuilding & Drydock, and the many more of the major manufacturers that used to populate they city’s waterfront.

    We believe it necessary to view the recent activities of the Mayor and City Council with a fair amount of consideration for the challenges they face in restoring Baltimore’s working class economy to a semblance of its former position in the community.

    Surely, the citizens must be vigilant in their oversight of their government, particularly as it involves major commitments of tax money on speculative ventures where the outcome cannot be guaranteed.

    This blog is an excellent source of information, and forum for discussion, among Baltimore’s taxpayers and citizens. We commend you for offering this essential service, and we urge Baltimore’s community to make the best use of it.

    Sincerely,
    The Editors of PERSPECTIVE

    • I thank you greatly for your praise of this blog. I try my best to highlight certain topics. I agree with much of what you are saying. I’m generally critical of government in whatever form it takes. I would give them more consideration, but I feel they are funded by the business interests of the city. There are few exceptions like Carl Stokes and Mary Pat Clarke. That doesn’t mean that the City Council and government can’t do good things or be pushed by citizens of the city. But thanks again for your comment.

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