Elrich was a panelist at a forum held by the Housing Association of Nonprofit Developers on affordable housing on March 9. In response to a question from the moderator about the difficult economics of affordable housing, Elrich said this:
Part of me wonders whether we ought to be looking at not partnering with developers but just partnering with construction companies, where basically, here’s the – I want to build a building. What’s the price? I modified my own house, I have lots of experience in this. But I also did three tenant conversions in Takoma Park while I was a council member in Takoma Park and, you know, we took – there was no developer involved. We just looked at what’s the cost of the building, the units, what’s the cost of bringing in repair, and we dealt with it as a straight up transaction and we took anybody out of it who was going to take money out of the project in addition to the costs of just doing the physical work. And you know, it may be that we look more toward builders on a contract basis rather than developers. Because then I don’t have to deal with their rate of return.
You can see this at 1:25:37 of the video below.
Let’s remember that this was said not on a street corner or in a restaurant but during a forum for developers. One can reasonably assume that many of them heard the county executive loud and clear.
These remarks are problematic for two reasons. First, they fail to recognize what developers actually do. They don’t just oversee construction contractors. They analyze market economics; hire architects and engineers; design the project; obtain financing; go through land use, transportation and environmental reviews; negotiate with the community; market the property and/or hire agents to market it; manage the property or hire a property manager (if they continue to own it) and more. Construction contractors tend not to do those things, because if they did, they would be… developers. Eliminate developers from project development and who is going to do all of the above? County bureaucrats? Good luck in saving any money that way.
Second, it is totally banana cakes to publicly say that the county is looking to partner with a developer in White Flint and then to wonder out loud – in front of developers – whether the county should be partnering with developers at all. That’s right, developers, you are invited to partner with an elected official who believes that maybe you should not be on the project. Who is going to take that deal?
Anyone want to place any bets on when White Flint gets done?
The post about the Capitol insurrection by Julie Tagen, who is Congressman Jamie Raskin’s Chief of Staff, is the first one to lead our list two months in a row. After a strong run in January, this article took off again starting February 9 when Raskin told this story to the U.S. Senate in his opening argument at the impeachment trial. It remains one of the most riveting items we have ever posted on Seventh State.
The article about White Flint is the first item to appear on our list three months in a row. This one won’t go away. It’s about more than politics; it’s about whether our county can build appealing new communities that can compete with the rest of the region. There is a real hunger for that in MoCo and it will resume prominence after the COVID pandemic winds down.
Then there are the stories about solar in the agricultural reserve. They reveal a split not just among politicians but also inside the county’s environmental community. Some see environmentalism as concerned with the preservation of nature. Others see environmentalism’s biggest priority as preventing climate change from making Earth inhospitable to humans. Both sides are right, of course, but in the case of solar in the ag reserve, their short-term prescriptions for action were at odds. This is not the first sign of an enviro split in MoCo. The Sierra Club’s endorsement of Roger Berliner over Marc Elrich in the 2018 county executive primary was extremely controversial. We may be headed for more internal conflicts in the environmental community in the future.
This is a pretty concise list of what has been on the minds of MoCo’s political community: the attack on the Capitol, Jamie Raskin, vaccines and the movement to throw out Andy Harris. The story on the solar zoning text amendment reflects a split among environmentalists that is bound to resurface on future issues. As for White Flint, which was also the top story in December, that article demonstrates a major challenge that MoCo will face as it emerges from the pandemic: how to rebuild its economy and not lose any more ground to the rest of the region. Economic competitiveness was a big issue before COVID and it will return to that pedestal as the next election approaches.
The year 2020 was hugely eventful for the entire world and MoCo was no exception. In our county, 2020 saw a public health crisis, a resulting economic crash and huge challenges to our quality of life. In political terms, it also saw unusually contentious elections for school board and circuit court judge, four historic ballot questions and numerous fights inside county government. We wrote about it all on Seventh State. Here are the top twenty posts measured by page views from the people who count the most – YOU, our readers.
This was a poorly organized public event gone wrong, culminating with an unmasked protestor getting within spitting distance of the county executive. For those who question the need for the executive to have a security detail, this is Exhibit A for why it can be necessary.
County Executive Marc Elrich’s first veto, this one targeting a council-passed bill giving Metro station developers 15-year property tax breaks, set off a fight on corporate welfare that has not ended by a long shot. That will prove especially true if a proposal by the planning staff to grant tax abatements to other properties near Metro stations advances.
MoCo PTA Vice-President Laura Stewart wrote this guest blog on inequities in MCPS’s capital budget. It’s a must-read for everyone who cares about school construction.
In early November, MCPS told the public that it was planning a phased-in reopening of schools for some in-person instruction. But the winter surge of COVID quickly overtook that plan and cast the timing of reopening in doubt. The issue is still unsettled.
Back in the summer, MCPS’s original reopening plan was drenched in controversy, ultimately resulting in a pitched battle with the county teachers’ union (MCEA). MCPS wound up going with virtual learning for the fall, like most other large school systems in the region, but the mechanics and safety of reopening are still subjects of debate.
Jobs, jobs, JOBS. According to White Flint developers, MoCo’s slow rate of job growth was one reason that they could not get financing to proceed on the county’s preeminent development plan. The chart below says it all. And when the COVID pandemic finally ends, county leaders must dedicate themselves to creating jobs, Jobs, JOBS or MoCo’s stagnation will continue.
Back in June, incumbent Baltimore City Council Member Zeke Cohen, who had a big lead in money and endorsements over his challenger, appeared on election night to be getting just 2% of the vote. That was the first sign of a primary gone wrong, which led to many misgivings about the state’s processes with mail ballots and the performance of its long-time election administrator Linda Lamone.
2020 was a year of surprises, and one of the bigger surprises was the emergence from political retirement of former County Executive Ike Leggett. Question B (Robin Ficker’s latest anti-tax charter amendment) and Question D (nine council districts) disturbed Leggett enough that he started a ballot issue committee to defeat them. This post was Leggett’s guest column on why they were bad ideas and it got a big reaction from our readers.
After school board candidate Lynne Harris blamed MCEA for allegedly resisting school reopening (a post that also appears on our top 20 list), a group of rank-and-file teachers pushed back in this guest post. It achieved wide readership that was probably concentrated among teachers as the general election approached.
In non-COVID news, 2020 was the year that the county’s police department (along with departments around the country) became a political football. This post describes how the executive, the county council and Annapolis all jumped into the issue of policing with little coordination. Lost in the debate was the central fact that crime in MoCo is at its lowest level in decades. Policing will continue to be a hot topic in 2021.
Tomorrow we will list the top ten Seventh State posts for the year!
The top three stories fit together and have meaning for the new year and beyond. The Day of Reckoning is Near summarizes the county’s dire fiscal picture as it heads into a challenging FY22 budget discussion in the spring. Jawando Calls for a Tax Hike kicks off an inevitable dialogue about taxes, one which will only get hotter before the executive makes his budget recommendation on March 15. And What Happened to White Flint? – December’s runaway winner – lays out the story of how the county’s premier development plan has been held back by our slow rate of job growth. Budget headaches, taxes and economic problems are about to collide.
Ten years ago, White Flint was regarded as the future crown jewel of MoCo. With a shiny new master plan, a tax district for infrastructure and an assortment of regulatory breaks, the area was supposed to create new high-end high-rises combining office, retail and residential uses that would generate billions of dollars in county revenues over coming decades. Everyone who lives here knows that vision is still largely unrealized. And now a new report by county planning staff lays out why.
First, let’s revisit what White Flint was envisioned to become in its 2010 master plan: a smart growth, walkable mecca around a transformed Rockville Pike which would be transit-heavy and pedestrian friendly. The plan required substantial infrastructure investment including streetscaping, a new road network and a bus rapid transit route. Unlike many county master plans, this one had a mechanism for financing infrastructure: a new special taxing district. Properties inside the taxing district would pay into a fund used to pay for the new infrastructure needed to bring the plan to life. In return, impact taxes were set to zero. The council set an infrastructure project list through a resolution and projects in the district were exemptedfrom county traffic reviews. This combination of high density, infrastructure investment and regulatory exemptions was revolutionary for MoCo at the time and still has not been fully replicated. MoCo politicians love to throw around the word “bold” like peanut shells, but White Flint (now marketed as the Pike District) truly deserved the adjective.
So what happened?
In simple terms, the planning staff describes a negative, self-reinforcing feedback loop that has no identifiable end. The loop functions like this. Low levels of development led to low proceeds for the tax district. It was supposed to raise $45 million in its first 10 years but only generated $12-15 million. Low tax district revenues held back the construction of some of the transportation improvements and other infrastructure necessary to make the area more attractive to investment. Developers seeking financing for projects were hindered by the inadequate infrastructure along with the “prominence of underutilized properties.” One of those properties, the mammoth White Flint Mall site, was tied up by years of litigation. The lack of financing, along with construction costs and market conditions, has held back development. And of course the lack of development holds back tax district revenues necessary to pay for infrastructure, so the cycle continues.
This map from the report shows the vast majority of land in White Flint is underutilized (areas marked in red and orange) relative to its zoning.
The most interesting part of the report summarizes comments from White Flint property owners, who comprise a who’s who list of prominent MoCo developers. First, let’s identify what they don’t complain about. They don’t complain about the plan itself; indeed, they think the area still has potential. They don’t complain about market demographics; they find the wealth and education levels in the area attractive. They don’t intend to sell their existing properties, which generate enough cash to cover operating costs and taxes, but they’re not in a hurry to redevelop them. And not a single one of them complained about taxes or requested a tax abatement.
Here are a few excerpts from the report on their take on White Flint’s problems.
*****
All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. In addition to limited employment growth, construction costs increased dramatically since 2010, office users occupied less space per employee, and retail demand declined with the rise of online shopping, all factors that continue to reduce demand for or limit the financial feasibility of new development.
Multiple developers noted without providing details that their firm managed to solve issues of high construction costs in other submarkets where there is a higher pace of job growth and household formation, which in turn supports rent growth.
Developers interviewed affirmed that the Pike District is accessible to fewer jobs within a reasonable commute than its peer non-downtown submarkets, and that this reduced access to job centers limits demand for additional multifamily units.
All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. Developers cited the reduced pace of household formation as a key contributor to stagnant rents, a major concern for the feasibility of future projects.
Several developers independently stated that the attraction of a major employer to the Pike District, such as a life science campus, would significantly increase the feasibility of new multifamily projects.
Developers are not currently willing to build speculative office projects in Montgomery County due to the lack of underlying job growth and the uncertainty about the future of the office sector. Several developers mentioned that they would still consider speculative office construction in Tysons and along the Silver Line corridor, highlighting the continued job growth in Northern Virginia and the contrast with suburban Maryland.
Several interviewees contrasted recent Northern Virginia economic development wins, such as the expansion of Microsoft in Reston, with news that a large distribution center project in Gaithersburg for Amazon is in jeopardy due to delays in the entitlement process. These interviewees stressed that while the number of jobs in these deals is modest, there is a constant drumbeat of positive economic news from Northern Virginia that is unmatched from suburban Maryland.
*****
Let’s boil this down to three words: jobs, Jobs, JOBS. Employment growth was the dominant theme for these developers, but they had a few things to say about business climate and regulations too.
*****
Interviewees related that development projects ultimately deliver equivalent profits as similar projects in neighboring jurisdictions, but that Montgomery County’s reputation as generally “a difficult place to do business” limits developer interest.
Developers agreed that the difficulty of the business environment issue is primarily about perception rather than the ultimate profitability. Interviewees cited as examples a range of policy issues such as a minor energy efficiency tax that Montgomery County leadership presented and implemented as a temporary measure but that never expired.
Multiple interviewees stated that in competitor counties they feel that the entitlement review process is oriented to enabling and facilitating a project, whereas in Montgomery County it feels like an oppositional relationship. Related to this, developers feel the County continually creates new policies and initiatives that adversely affect development, and which ultimately encourages them to focus on assets elsewhere in the region.
*****
The county council and the planning staff are focused on tax abatements as a way to stimulate development, especially housing. But developers in White Flint weren’t complaining about taxes. In fact, tax revenues are NECESSARY to finance infrastructure required to make development happen and function well. It is the absence of tax revenues that resulted in under-financing of infrastructure in White Flint, a key part of the area’s negative feedback loop.
Instead of taxes, the key issue identified by White Flint developers is the absence of job growth, which they believe would stimulate demand for housing and eventually make the economics of housing construction work even with high construction costs. In short: if you want more housing, create more jobs. All of these developers know what we have been saying on Seventh State for years: MoCo has one of the worst records on job growth and business formation of any large jurisdiction in the metro area.
The county’s terrible record on job growth and business formation must be reversed.
All of this points to the need for a strategic decision. MoCo can focus like a laser on job creation, doing everything possible to help entrepreneurs grow their organizations and create employment for residents. If the county does that, the vision of White Flint and other smart growth plans can be realized. Or MoCo can keep handing out tens of millions of dollars in corporate welfare as it has done for decades, thereby depleting its ability to construct infrastructure that facilitates economic growth. Or it can do nothing.
