The commission of local banks, developers and business owners created by County Executive David Craig late last year to examine the county’s commercial lending picture unveiled its final report Tuesday and, not surprisingly, called for the county to push lenders to extend credit with greater speed and less hassle.
Among their wide-ranging recommendations, the commission urged the county to “strongly urge” banks to loosen their lending standards, expand the use of its controversial tax increment financing (TIF) and payments in lieu of taxes (PILOT) legislation, and apply its expedited permit process to smaller development projects.
The commission said the recommendations would help, “ease the burden on banks and financial institutions, as well as help businesses to achieve better access to capital.”
The commission was chaired by Don Fry, president and CEO of the Greater Baltimore Committee, a powerful regional business group. Fry also served as District 35A representative in the Maryland House of Delegates from 1991 to 1997, and District 35 senator from 1997 to 1999.
Among its members were representatives from local banks and development firms, some of whom are also local business owners, and others, allies and campaign contributors of Craig’s.
Fry and county Economic Development Director Jim Richardson both said the commission was formed in response to concerns of local business interests that lending standards had become too strict in the fallout from the financial meltdown of the last few years, and cramped their ability to get new projects off the ground.
“The county executive heard from various people in the business community possibly looking to begin commercial and residential projects but were having trouble getting financing,” Fry said. “At the same time, he was hearing from companies excited to come to Harford County, but who were concerned because there was no office space.”
While the recommendations of the committee could apply to all businesses seeking financing, the emphasis of the report and, in interviews, both men was squarely on the developers hoping to build office space for companies moving to Harford County as part of the Army’s Base Realignment and Closure effort.
The report details a kind of catch-22, claiming that banks have begun requiring borrowers seeking to build commercial space to pre-lease their proposed buildings to 50 percent capacity before a loan is granted and construction begins. But, the report states, “when companies are location to a new region and new development they typically want to see the building product before executing a lease commitment.”
To some, that standard might seem sensible. But Fry said it presents hurdles to businesses at a time the county can least afford them.
“We’re not necessarily saying that they [tougher standards] are a bad thing, they’re more problematic,” he said. “These things go through cycles. It was very loose…now we’re back to traditional lending standards.”
The commission laid out several recommendations to Craig’s government which may help free up financing for local businesses.
One of the recommendations was for the county and its economic development arm to push banks to use “inflection point” lending standards. Under those standards, the borrower is evaluated based on their last 90 to 120 days of business.
The standard may seem like grading on a curve, or pushing aside a few years of storms in favor of a few months of sunny days. Fry said the standards would only be part of the valuation used by lenders, and would be applied primarily to companies with a longer track record, not new companies which have recently sprung up.
The committee also called for the county to consider small and mid-size projects for fast-tracking through its approval process. Currently, Richardson said only a few projects have been fast-tracked, including the Beechtree Estates housing development near Aberdeen Proving Ground, and the Boulevard at Box Hill complex, including the new Wegmans grocery store. But he said he would have liked to see other retail efforts, such as the new Fallston area Wal-Mart, receive fast-track status.
Both Fry and Richardson said the time spent going through the county approval process costs developers money, and in some cases may force them to scuttle their project.
“The margin of making a go of it or not is sometimes very slim for these things, the time moving through the process costs money,” Fry said. “There’s no single thing that may make all the difference, but sometimes things like this can help put things over the hump.”
The report details another benefit to a fast-tracked process, however, stating in part that, “if a project is designated to receive fast tracking approval it is not surprising that a financial institution will view a project more favorably recognizing that the county government has assigned significance to the project.”
That could create a back-door type of collusion between local government and developers in which a rubber-stamping of a project could help it gain financial support. Richardson said the proof would be in the application of the fast-tracking standard.
“Yes, it is a way to help the developer, and it’s a good thing as long as you’re applying it across the board,” he said. “It’s not favoritism, it’s helping a businessman get their project built.”
One other key proposal forwarded by the commission called for the expansion and greater use of TIF and PILOT legislation. The TIF measure generated controversy recently when the county fronted a multimillion dollar loan to support developer Clark Turner’s Beechtree Estates project, which would create more than 700 homes off Route 7 near APG.
Richardson and Fry acknowledged that, perhaps more than any of the commission’s other proposals, the expanded use of TIF and PILOT would create a public outcry. Fry said the commission also urged the county to engage in informational and educational efforts to explain economic development projects to both professional and the public. Richardson said his office would work to ensure that any project receiving public tax support had a public benefit.
Just over six months remain before the federally-mandated Oct. 1 deadline for the thousands of Army civilian jobs to complete their move to APG. Those jobs will come to Harford County regardless of whether the local lending environment improves.
But Richardson said what hangs in the balance are the thousands of other government contractor and ancillary jobs which are tethered to the Army civilian positions. He said if companies are unable to locate enough office space and residential housing in Harford County and specifically near APG, they may maintain only a small local workforce locally, and plant the bulk of their employees out of the area. That “or else” looms behind the committee’s report and its suggestions for broad government support for business.
In the wake of the sweeping economic upheaval of the last few years, federal regulators have tightened standards and attempted to restore sanity to the fiscal world. But the committee in its report said those efforts may curb Harford County’s need to build, and advocated more freedom for local developers.
“At one point the pendulum was too far to one side,” Richardson said. “Now we’ve swung too far to the other side. We need to be somewhere in the middle.”
The county government’s press release, and the commission’s full report, are included below:
(Bel Air, MD) – Harford County Executive David R. Craig has announced the findings and recommendations of the first ever Banking and Finance Commission in Harford County. The Commission was established by Executive Order pursuant to the Harford County Code late last fall.
The Banking and Finance Commission was charged with reviewing the regulatory banking practices that may be preventing businesses from accessing the capital they need to succeed in today’s economy. The 22 member Commission is representative of the Harford County and Baltimore area banking industry, commercial and residential real estate businesses, as well as small and medium sized businesses and regional economic development organizations. During the Commission’s meetings, members were presented with testimony from real life scenarios where businesses and the financial community have been struggling to make deals happen.
Former Delegate, State Senator, and current President of the Greater Baltimore Committee Donald Fry served as chair of the Commission. Commenting on the Commission’s report, Fry stated, “The report represents the best efforts from leaders of the business community, both from Harford County and the greater Baltimore Metropolitan area in addressing the financial concerns facing businesses today. I want to thank the stakeholders from business and government that came together and worked to find solutions to help the economy and economic development in Harford County, the greater Baltimore area, and the State of Maryland.”
The Commission’s report states, “There is no one size fits all answer to solve the financial issues in the country. This is no different when examining the financial challenges and commercial lending difficulties occurring in Harford County.” The report further states, “There are a number of recommended improvements that the Commission suggests will help ease the burden on banks and financial institutions, as well as help businesses better access capital.”
The Commission’s 14 recommendations are broken down into four main categories: local level, state level, federal level, and other or miscellaneous.
Commenting on the work of the Banking and Finance Commission, County Executive Craig stated, “The work of the Commission clearly reflects the needs of our local community; Main Street America, as opposed to Wall Street. This is where the rubber truly meets the road. All too often in my position, I hear of business opportunities that are stalled or fall through due to the lack of adequate financing. The findings and recommendations from the Commission help identify disconnects between policy and the business community. It is my hope that policy makers at the state and federal level will take a serious look at the Commission’s report and seek to implement some positive changes that will help further spur business investment and job creation.”
The Harford County Banking and Finance Commission Report will be presented to the Greater Baltimore Committee, the Economic Advisors of Greater Baltimore, the Maryland Association of Counties, the Maryland Economic Development Association, and the Senate Finance Committee to mention a few. Additionally, County Executive Craig plans to meet with Maryland’s Congressional delegation to discuss the Commission’s recommendations and seek their support for change at the federal level.
To view the report, click here, or visit the Harford County Government website at www.harfordcountymd.gov. For further information contact the Harford County Office of Economic Development at 410-638-3059.