Senator Bill Ferguson Releases Statement on Use of Impact Funds for Steam Pipe Relocation

District 46 Senator Bill Ferguson is chair of the Baltimore Casino Local Development Council (BLDC), which advises Mayor Rawlings-Blake, and future Baltimore mayors, on how the community impact funds should be spent.

Statement from Senator Ferguson from his blog:

Earlier this week the City’s Board of Estimates approved the Mayor’s request to use casino area impact fees to cover the relocation costs of an aging, but highly utilized, steam line on city-owned land leased to the Horseshoe Casino.

Some argue that the City should have adopted the same uncompromising position that the other parties in the dispute took. But as we know from the grandstanding in our nation’s capital, refusal to compromise makes for great sound bites but terrible public policy.

Here’s what we know:

Under state law, 5.5% of all revenue generated by the Horseshoe Casino is earmarked for community impact fees to be used near the facility.

These casino area impact fees can only be used for infrastructure, safety and security programming, and community and economic development for the neighborhoods and business districts immediately surrounding the facility.

The Mayor has final authority over how impact fees are spent, but state law requires the establishment of a community and business advisory panel, which, in Baltimore is called the Baltimore Casino Local Development Council (LDC), which I chair. We have been meeting for the last 18 months to prepare for the casino’s opening and to discuss potential uses of the community impact fees, both immediate and in the long term. So far, we have made recommendations for the use of impact fees in Year 1, fiscal year 2015. We are meeting monthly to advise the Mayor on the second year while also consulting on the development of the City’s long-term Master Plan for the casino area. We have strived to create an inclusive and transparent process with this newly created Council; the majority of our work is available online at:http://www.baltimoreldc.wordpress.com.

For the next three fiscal years, the Horseshoe Casino is projected to generate $7-10 million, $10-12 million and $15 million, respectively.

For those first three years, the City’s development agreement with the casino provided for a $6 million reimbursement to the casino developer for infrastructure improvements that the developer completed off the casino site and that benefits the public at large. That $6 million dollars in reimbursement payments from impact fees is spread equally over a three-year period, $2 million per year.‎ To date, Caesars has completed qualified projects costing in excess of $6 million, overage costs for public infrastructure projects that it will not recoup.

Over the first three years of operation, assuming the revenue projections are accurate, total impact fees will be close to $35 million dollars. After subtracting $6 million for infrastructure reimbursement payments, there is $29 million available exclusively to benefit the neighborhoods and business districts immediately surrounding the facility. These funds can only be used to mitigate potential challenges created by the casino and to enhance the quality of life of residents and stakeholders living or working immediately around the casino.

Because of the City’s deal structure with Horseshoe, the casino will pay an additional estimated $30 million over three years in ground lease payments to the City. The Mayor has earmarked these funds for property tax reduction and school construction. This innovative lease structure is unlike any other in the State, where the casino operators own their own land and make no lease payments to local government.

Veolia, which is under contract to maintain the steam line in question but not responsible for major capital repairs or relocation, refused to contribute to the cost of relocating the line. Unlike Baltimore City, the impacted communities and the casino employees, Veolia had little to lose by taking that position. The Mayor urged Veolia to exercise its corporate conscience and volunteer payment for a relocation that directly benefits them. Veolia had no interest in this option. Ongoing negotiations would have been lengthy, costly, and, most likely, delayed the August 26 opening.

Caesars, too, refused to pay, believing that in consideration of the up to $30 million in ground lease payments, the city was required to convey a site ‎on which the facility could be built and operated safely. In its current location between the casino facility and the parking garage under Warner Street – immediately in front of the casino entrance – the steam line posed a significant liability for safe operations. If in the future, the steam line ruptured, the construction cost would be significantly higher due to the upgraded paving installed by Caesars and the requirement that repairs would necessitate the City to act on an emergency repair contract to mitigate the disruption. This potential impact on the casino could result in a loss of $90,000 per day to the City and reduce the amount of community impact funds available in future years.

Without payments by Veolia or Caesars, the Mayor was faced with two options: (1) find a means of paying for the line’s relocation, or, (2) refuse to act and deal with the consequences later.

When it became clear that Veolia and Caesars would not voluntarily pay for the steam line’s relocation, the Mayor’s staff immediately contacted me as chair of the Local Development Council. I urged the Mayor to continue negotiations. When those talks broke down, I recommended that the Mayor’s staff present the problem and optional solutions to the LDC at the next planned meeting in July of this year. The Mayor’s staff readily agreed.

Recognizing the potential concerns of community members over the use of impact fees to cover costs of the steam line’s relocation, the Mayor’s staff sought means of mitigating the cost impact. Instead of requesting the use of first year dollars for payment — the LDC already voted on those fund for community benefit — the Mayor’s staff agreed to spread the $3 million dollars over two years, Year 2 and Year 3 of community impact fee allocations.

In July, the Mayor’s staff presented the steam pipe problem and answered questions from members of the LDC. The LDC did not vote on the City’s proposal because no Year 1 funding was involved. However, it’s important that the LDC, although advisory, will still vote on the use of these funds for future years. Furthermore, during the meeting, the Mayor’s staff committed to the LDC that they would continue to work to find other ways to fund this particular infrastructure project moving forward.

To date, the Horseshoe Casino has hired 1,900 individuals, of which nearly 950 are residents of Baltimore City who are anticipating the start of work on August 26th. Delay of the facility’s opening delays the start date of work for these 950 individuals, costing these individuals immediately and the City an estimated $90,000 per day in lost revenue (not including revenue from the City’s piggyback tax on income that would be foregone from employees’ casino wages).

From my perspective, the cost of moving the steam pipe is a direct result of the casino project. It is an example of the unglamorous but necessary infrastructure costs reluctantly anticipated by the LDC. The 5.5% of casino revenue dedicated to community impacts was intended to cover local infrastructure impacts like this.

The City faced the intransigence of two companies against the consequences of an open-ended delay in opening of the casino, which imperils the very fund that is the subject of this debate. When faced with a choice of less than ideal known and uncertain consequences, compromise involves going with the best of those alternatives. $1.5 million for two years unleashes $26 million for community benefit over three years.

Ultimately, when faced with difficult options, the Mayor could have taken a page out from the playbook of gridlock in Washington and refused to compromise. Doing so probably would have benefited her politically. However, it wouldn’t have solved the problem, and we would be arguing over why the project is delayed. I haven’t always agreed with our Mayor’s policies, but I do support the Mayor’s decision here.

Together I look forward to continuing to work with the Mayor, her team, the community, business leaders, and all other stakeholders to ensure that we overcome any future challenges associated with this project and maximize our potential opportunities in Baltimore.