Understanding Under Armour’s big Baltimore play

WASHINGTON — Local 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 MVP Bryce Harper to two-time defending NBA MVP Stephen Curry, to defending FedEx Cup champ Jordan Spieth — 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’s 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’s 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 is part of a massive redevelopment project that includes a major public financing component which has drawn a lot of recent attention — both because of the dollar figure and the ease with which the city has greenlighted it to this point.

The details of the deal’s potential ramifications on Baltimore are complicated. If you’re 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 offices, retail, parks, hotels and 7,500 residences over 260 acres. Sagamore Development, a company also owned by Plank, is working to try to secure tax increment financing (TIF) from the City of Baltimore to help fund the project, a measure which has already received unanimous approval 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, 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 used to call the area home but left 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 — the land at Port Covington — 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 seven most expensive TIFs to date combined. That’s 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’s land, they have been problematic.

Tom Tresser, a public defender and civic educator in Chicago, compares TIFs to sports stadium financing deals, calling them “another example of sort of the same rhetoric.” Tresser says the proposed Port Covington TIF is probably the largest he’s 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 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.

“It handcuffs the property taxes into the area where they’re being generated,” says Tresser.

Where does the money come from?

The money does not come from Baltimore’s 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’s 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 a pedestrian bridge and internal rail circulator — which, while they fall under the broad stroke of transportation, do not positively affect 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 income received from interest payments on those bonds would be tax-exempt.

Will this cost the schools money?

Potentially. Maryland grants state money 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’s 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, addressed the issue in a statement last week, but put the onus on the government to find a long-term solution.

“We are absolutely committed to seeing that there is a permanent fix, and we have confidence that our legislators will make sure this happens,” he said in the statement.

Will this create new jobs?

Nearly 15,000 temporary full-time construction jobs, nearly 22,000 full-time on-site positions, including an additional 8,000 Under Armour positions (on top of the current 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 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 get that number back up to 20 percent before any deal is signed.

What’s the hurry?

The Baltimore Development Corp. didn’t see a first proposal on the project until early 2016, meaning 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 federal and state funding was denied this week. Nevertheless, Under Armour proceeded with its purchase of the land from Sagamore.

It’s not surprising that Plank would want to move quickly in the endeavor, considering how Plank has run Under Armour. As it has made a $1 billion foray into fitness apps over the past couple of years, a very aggressive move for a company of Under Armour’s size, but as the Inc profile of Plank earlier this year mentioned, one of his favorite sayings is “Nobody ever won a horserace by yelling ‘Whoa!’”

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, per an independent assessment. 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 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 moved to a larger venue 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 between TIF districts and Enterprise Zones has been clarified.

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