![]() Date: 2024-07-26 Page is: DBtxt003.php txt00016872 | |||||||||
Place: Baltimore | |||||||||
Burgess COMMENTARY Peter Burgess | |||||||||
![]() ![]() ![]() Via Port Covington on YouTube Even before qualifying for the opportunity zone break, taxpayers were going to subsidize the development. Days after the ads touting togetherness, Plank proposed that the city float $660 million in bonds to help build what the company has said would be a $5.5 billion development. Opponents contended Plank’s proposal amounted to corporate welfare that would exacerbate the city’s stark economic and racial divides. But the company agreed to provide millions of dollars to the city and a group of nearby low-income neighborhoods to gain support for the project, and the City Council passed the measure that fall. As Under Armour’s stock plummeted in 2017 amid slowing sales growth, progress on the Port Covington project lagged. That September, Goldman Sachs stepped in to commit $233 million from its Urban Investment Group. Hogan, himself a real estate developer, personally spoke with the then-CEO of Goldman, Lloyd Blankfein, about the deal. Meeting With the Governor’s Office In the weeks after the 2017 federal tax overhaul passed, Plank’s team spotted an opportunity. Nick Manis, a veteran Annapolis lobbyist who has also represented the Baltimore Ravens, reached out to Hogan’s chief of staff about Port Covington, according to emails obtained by ProPublica through a public records request. The developers and their lobbyists had given at least $24,000 to Hogan’s campaigns in recent years. But the developers had a problem. The Friday before the meeting, a deputy chief of staff to the governor wrote in an email that “Port Covington does not qualify” for the coveted tax breaks. The Port Covington tract, which includes a gentrified corner of South Baltimore north of the largely empty peninsula, was too wealthy to be an opportunity zone. There is a second provision of the law for wealthier tracts: A tract can qualify if it is adjacent to a low-income area. But Port Covington failed that test, too. Its median family income — nearly 160% of Maryland’s — exceeded the income cap even for that provision. Port Covington was out — unless the tract could somehow be considered low-income in its own right. On Feb. 5, the Port Covington development team arrived at the second floor of the statehouse in the opulent governor’s reception room to meet with top Hogan aides. The agenda for the meeting included opportunity zones, as well as transit and infrastructure issues. The developer’s team requested that the Port Covington tract be made an opportunity zone. The state officials “acknowledged their interest in receiving that designation,” a Hogan administration official said. Bank Error in Your Favor Three days after that meeting, Plank and the Port Covington developers got bad news. The Treasury Department released a list of census tracts across the country that were sufficiently poor to be included in the program. Port Covington was not included in that list. Three weeks later, however, things turned around. The Treasury Department issued a revised list. The agency said it had left out some tracts in error. The revised list included 168 new areas across the country defined by the agency as “low-income communities.” This time, Port Covington made the cut. It couldn’t have qualified because its residents were poor. It couldn’t qualify because it was next to some place that was poor. But the tract could qualify under yet another provision of the law. Some tracts could make the cut if they had fewer than 2,000 people and if they were “within” what’s known as an empowerment zone. That was a Clinton-era redevelopment initiative also aimed at low-income areas. Port Covington wasn’t actually within an empowerment zone, but it is next to one. So how did it qualify? The area met the definition of “within” because the digital map files the Treasury Department used showed that Port Covington overlapped with a neighboring tract that was designated an empowerment zone, Treasury officials told ProPublica. That overlap: the sliver of parking lot beneath I-395. That piece of the lot is about one one-thousandth of a square mile. © Mapbox © OpenStreetMap Improve this map Graphic: Lena V. Groeger/ProPublica Here are the census tracts in Baltimore that have been designated as “opportunity zones.” All of these tracts qualify because they meet the basic criteria to be a “low-income community.” Except for one: the Port Covington census tract. Qualifies as low-incomeToo wealthy to qualify The wealthy outlier of Port Covington qualified as an opportunity zone through the backdoor. Tracts also can qualify if they are located “within” a previous government anti-poverty area called an “empowerment zone.” Old empowerment zonePort Covington Port Covington overlapped by a tiny sliver with one of these old empowerment zones, according to maps the Treasury used. This tiny overlap qualifies the entire tract for the program. Overlap between old empowerment zone and Port Covington. But that overlap isn’t real. The two zones are supposed to be divided by I-395. But the Treasury used maps that each drew the highway slightly differently, creating this tiny overlap. Overlap between old empowerment zone and Port Covington. Under Armour CEO Kevin Plank stands to gain immensely from this technical error in his favor. Here’s the property Plank controls in Port Covington. Plank-controlled property There are no regulations or guidance on how to interpret the tax law’s use of “within,” said a spokesman for the Treasury Department’s Community Development Financial Institutions Fund, which compiled the maps. The agency made what it called a “technical decision” that any partial overlap with an Empowerment Zone would count as being “within” that zone — no matter how small the area, or if anyone lived there. Or, if the overlap was even real. Turns out, no part of Port Covington actually overlapped with the empowerment zone. Treasury’s decision ignored a well-known problem in geographic analysis known as misalignment, mapping experts said. Misalignment happens when the lines on digital maps made by two sources differ slightly about where things like roads and buildings lie, according to Henry Luan, a professor of geography at the University of Oregon. For example, if a tract ends at a highway, one file might show the border on the near side of the highway while another — when zoomed all the way in — might show it a few feet away on the far side. When laid on top of each other, the two files end up with minuscule differences that don’t mean anything in the real world. Except in this case, it had big real world consequences for Port Covington. The mapping error allowed the entire tract to qualify as an opportunity zone. “That area of overlap is a complete artifact of” the map files Treasury used, said David Van Riper, director of spatial analysis at the Minnesota Population Center. “It’s not an actual overlap.” ![]() A mapping error by the Treasury Department centering on this lot allowed Port Covington to qualify as an opportunity zone. (Matt Roth for ProPublica) Sometime in the mid-2000s, the Census Bureau used GPS devices to make its map files more accurately represent the country’s roads. One of the maps used by Treasury appeared to be based on the older, less accurate Census maps, Van Riper said. Even accepting Treasury’s misaligned maps, the entire Port Covington tract receives tax benefits, even though less than 0.3% of it overlaps with the neighboring tract. “Only a minimal overlap, but you make the whole Census tract benefit from the policy?” Luan said. “That doesn’t make sense to me.” Port Covington is one of just a handful of tracts in the country that ProPublica identified that qualified through similar flaws in Treasury’s process. Taking the Break Nothing indicates the Port Covington developers had any influence on the Treasury’s decision. But the lobbying of the governor before the Treasury change appears to have paid off. As they were lobbying, Baltimore officials were working out which parts of the city would benefit most from being opportunity zones. They petitioned the governor to pick 41 low-income city neighborhoods to get the tax break, all of them well below the program’s maximum income requirements. The city’s list remained largely intact when the governor made his selections in April. Hogan made just four changes, three of which qualified under the main criteria without the benefit of the mapping error. But the fourth didn’t: Port Covington. Plank’s team cheered the revision. The very thing that made Port Covington a poor candidate to be an opportunity zone — that it wasn’t a low-income area — could make it exceptionally attractive to investors. In January, they convened an opportunity zone conference at their Port Covington incubator called City Garage featuring state officials and executives from Goldman, Deloitte and other firms. “Port Covington kind of fits all the needs,” said Marc Weller, Plank’s partner, at the conference. “It has all the entitlements, and it has a financial partner in place as well. It’s probably the most premier piece of land in the United States that’s in an opportunity zone.” The opportunity zone program has restrictions intended to prevent already-planned developments from benefitting. But the Port Covington developers told Bloomberg that the firm will be able to reap the benefits of the tax break because it has found new investors. Among the potential new investors who might take advantage of the tax break are Plank’s own family, one of the developers told the Baltimore Business Journal. A Port Covington spokesman denied that Plank’s family members are potential investors. To get the maximum benefit, investments need to be made in 2019, though investments made through 2026 can take advantage of growth tax-free. Only a portion of the Port Covington project is expected to be underway by then. ![]() Developers broke ground on the project in May. They say they have found new investors to take advantage of the opportunity zone tax break. (Matt Roth for ProPublica) A Goldman spokesman said it is “likely” that the firm will take advantage of the opportunity zone benefits in Port Covington, adding that it has “made no firm decisions about how each component will be financed.” Margaret Anadu, the head of Goldman’s Urban Investment Group and the lead on the Port Covington investment, recently said of the opportunity zone program: “These are the same neighborhoods that have been suffering since redline started decades and decades ago, pretty much eliminating private investment. … And so we simply have to reverse that. And the only way to reverse that is to start to bring that private capital back into these neighborhoods.” The Port Covington tract is just 4% black. For it to be included in the program, another community somewhere in Maryland had to be excluded. The ones that the city suggested that were excluded by the governor, for example, are 68% black and have a poverty rate three times higher than Port Covington’s. There is some evidence suggesting being named an opportunity zone has already been a boon for property owners. An analysis by Zillow found that sale price gains in opportunity zones significantly outpaced gains in eligible tracts that weren’t selected. Real Capital Analytics found that sales of developable sites in the zones rose 24% in the year after the law passed. Under Armour has said it’s still committed to building its new headquarters on the peninsula, but it’s not clear when that will happen. Still, other aspects of the once-stalled project finally started moving forward in recent months. After presenting plans for the first section inside the opportunity zone this winter, the project finally got underway on a rainy day in early May of this year. “The project is real,” Weller said at the kickoff event, which included Anadu, the Goldman Sachs executive, and city and state officials. “The project is starting. We’re open for business.” Do you have information about opportunity zones? Contact Jeff Ernsthausen at jeff.ernsthausen@propublica.org. Graphics by Lena Groeger. Additional reporting by Isaac Arnsdorf. Jeff Ernsthausen Jeff Ernsthausen is a data reporter at ProPublica. Jeff.Ernsthausen@propublica.org Portrait of Justin Elliott Justin Elliott Justin Elliott is a ProPublica reporter covering politics and government accountability. To securely send Justin documents or other files online, visit our SecureDrop page. justin@propublica.org Justin Elliott @justinelliott 917-512-0223 Signal: 774-826-6240 MOST POPULAR STORIES How Teach for America Evolved Into an Arm of the Charter School Movement “I Don’t Want to Shoot You, Brother” There Has Been an Explosion of Homicides in California’s County Jails. Here’s Why. Wasted Funds, Destroyed Property: How Sheriffs Undermined Their Successors After Losing Reelection One Trump Tax Cut Was Meant to Help the Poor. A Billionaire Ended Up Winning Big. 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