Subsidizing the Low Road: Economic ... - Good Jobs First

6. Case Study: The Baltimore Waterfront MarriottThe first payment-in-lieu-of-taxes (PILOT) agreement negotiated between thecity and a private company generated a great deal of controversy, including a lawsuit, astate legislative fight, and the rewriting of the PILOT legislation.In 1999, the city entered into a PILOT with local developer John Paterakis toconstruct a 750-room Marriott hotel on the east side of the Inner Harbor. According tothe city's own estimates, the PILOT will cost the city $2.3 million in lost property taxrevenue in 2002 and more than $30 million over the 25-year duration of theagreement. 134The hotel deal originated in 1996, soon after the Maryland Stadium Authorityhad completed its $150 million expansion of the Baltimore City Convention Center.The city and state had originally undertaken the project to help Baltimore competeagainst Philadelphia and Washington, DC for large conventions. Convention centerboosters argued that the project would result in $340 million in convention-relatedspending each year that would generate more than $30 million in state and localrevenue. 135 However, once the project was completed, convention center bookings fellfar short of the projections originally used to justify the expansion. Rather thanreexamining the assumptions behind the original projections, Baltimore officialsdecided that the convention center was losing business because the city did not haveenough hotel rooms to handle large events.In 1996, the city asked the Legg Mason Realty Group to study Baltimore's hotelmarket. The resulting report concluded that the city needed about 1,200 more hotelrooms to satisfy the new demands for space created by the convention centerexpansion. However, the study, which assumed that the convention center would befully booked, 136 ignored the fact that demand for convention center space wasrelatively flat in the 1990s. 137 Creating more hotel rooms would not solve this problem,but plans for the Inner Harbor hotel went ahead nonetheless.In 1997, the Baltimore Development Corporation asked developers to submitproposals for the hotel, promising that public subsidies would be provided. Severalestablished developers entered the competition, but the BDC awarded the project toJohn Paterakis, the owner of a local bakery empire. Paterakis proposed to build aWyndham hotel on the east side of the Inner Harbor. Many observers were surprisedby this decision. The Paterakis site -- which was not even considered in the LeggMason study -- was over a mile from the convention center, well beyond walkingdistance. 138 Paterakis proposed some unconventional solutions to this probleminvolving aerial cable cars, people movers and water taxis, but many observers31