This article was written by Steven J. Willner, a July 2014 cum laude graduate of the University of Maryland School of Law. While in law school, Steve concentrated his studies on business and transactions-related courses. Steve also served on the Moot Court Board and won Best Brief for the Board’s Fall 2012 Moot Court Competition. Steve passed the February bar exam and will be admitted to the Maryland Bar on June 16, 2015. Learn more about Steve at his LinkedIn profile.
Currently, Steve volunteers for the Community Law Center and thanks Robin Jacobs for her helpful assistance in finalizing this article.
On May 7, The Fayette Street Outreach Organization, Inc. led a tour for developers, community leaders, and city officials through the streets of its West Baltimore neighborhood. The tour’s goal was to demonstrate the neighborhood’s rehabilitation needs and exhibit recent efforts undertaken by community members to improve the area’s condition. Attendees were guided through city blocks lined with vacant houses, some with as many as five vacant houses for every one that is occupied.
Of course, the tour felt very timely. In light of the Freddie Gray tragedy and subsequent rioting, West Baltimore’s need for community development is receiving heightened national scrutiny. But the tour itself exposed a lesser-told story; the steps that local leaders have already engaged in to make their communities more attractive to live and work. These steps include receiving grants that will fund the renovation of vacant housing to build community centers, plans for businesses to move in to support a “Work Where You Live” initiative, and the recent growth and success of the local private elementary school, the Greater Youth Christian Academy.
The General Assembly has likewise contributed by responding to Mayor Stephanie Rawlings-Blake’s call for tax incentives to increase supermarket presence in Baltimore’s food deserts. Senate Bill 541 – which will be codified at Md. Code. Ann., Tax Property § 9-304(h) – authorizes the Mayor and City Council of Baltimore City to grant personal property tax credits to supermarkets built in a specified food desert. Ironically, Governor Hogan signed the bill at the first of three gubernatorial signing sessions on April 14, 2015, two days after Gray’s arrest and five days before his death.
Much has been written about the negative health consequences sustained by residents of food deserts. But the tax credit can play a valuable role in Baltimore’s big-picture redevelopment plan, as it offers an additional deal-sweetener to developers eyeing investment opportunities in riot-affected areas. Fortunately, the Legislature appears to have constructed a tax credit that is well-suited to meet the needs of developers while avoiding possible pitfalls common to tax-based incentives.
In order to write a practicable tax credit to combat food deserts, bill drafters had to contend with three essential issues: (1) the type of food-vendor that qualifies, (2) the precise definition of a “food desert” within which a food-vendor must be located to qualify, and (3) the level of tax relief extended to qualifying entities. The third factor is obviously critical because the tax break must actually entice grocers to try to invest in low-income areas, but the first two are equally vital to ensure that the law serves its intended purpose and is not exploited by grocers merely looking to save a few bucks.
Not many laws existed that the General Assembly could employ to serve as a template. Though many jurisdictions have attacked the food desert problem in a variety of ways, only Washington, D.C.’s Supermarket Tax Exemption Act of 2000 – codified at D.C. Code § 47-3801, et seq. – provides tax relief to food-vendors for expanding into food-insecure areas. At the federal level, members of Congress have twice introduced similar bills – the 2009 Food Desert Oasis Act and the 2013 Supermarket Tax Credit for Underserved Areas Act – but neither bill came to a vote.
However, even if those federal laws did pass, they likely would have failed to tempt their targets to extend their entrepreneurial tentacles into underserved city districts. The proposed federal bills would have granted qualified supermarkets enhanced Rehabilitation Tax Credits and special entitlement to the Empowerment Zone Employment Credit, among a few other benefits. Under such a construction, supermarkets only earn credits for expenditures associated with building and renovation costs; all other down-the-road expenses of maintaining and operating a supermarket in a particularly high-risk economic environment are unsubsidized. In contrast, the Maryland law’s credit on personal property taxes creates the potential for long-term savings to offset operating expenses, provided that the Mayor is willing to extend the credit to qualified entities several years after its initial construction or renovation. All indication is that the Mayor will do so, as she has stated that she intends to grant supermarkets up to 10 years of tax relief.
Longer savings and cheaper operating expenses can enable grocers to keep prices affordable for their low-income patrons and still turn a profit. Keeping prices down is not only necessary for economics purposes, but also plays a crucial political role, as the Mayor will need to balance nurturing the area’s food supply with staving off local fears of gentrification and displacement. As experienced from pushback in Portland, the sudden appearance of a Whole Foods or Trader Joe’s in a traditionally poverty-stricken area can alarm locals that their neighborhood may soon become unaffordable. The longer that prices remain proportionate to residents’ budgets, Baltimore City can simultaneously fight to keep West Baltimoreans around while the neighborhood improves.
The D.C. credit, on the other hand, offers a very favorable – and perhaps exceedingly charitable – 10-year tax exemption on real and personal property filings plus a 10-year break on licensing fees. Yet the tax credit has received criticism when supermarkets sought tax relief under the law despite the presence of nearby food supplies.
Unfortunately, the statute likely failed to adequately address issues #1 and #2 outlined above by creating an overly inclusive location qualification. The D.C. law defines qualified supermarkets as any supermarket built in a small business HUBZone. This is a far more expansive description typically used for food deserts – a more typical identifier is an area where the distance to sufficient food supply is more than one mile – and thus allows many more grocers to earn credits than probably intended. This concept is illustrated by the maps in the sidebar, which show areas considered HUBZones and food deserts in D.C., according to data collected by the U.S. Small Business Administration and the U.S. Department of Agriculture. The D.C. law becomes even more charitable by extending its exemptions to restaurants and “food retailers,” which is ironic considering that McDonald’s and KFC qualify under a tax law that’s supposed to promote healthy eating habits.
With SB 541, the Legislature punts the geography issue to the Mayor and City Council, who are responsible for defining the qualifying term “food desert retail incentive area.” Hopefully, the Mayor heeds the shortcomings of the D.C. law and sets the definition closer to this graphic – which even uses a generous ¼ of a mile definition – and not the HUBZone based definition, which would likely lead to similar tax credit exploitation considering the map below.
In addition, the fine print of SB 541 limits the credit to actual supermarkets, defined as a vendor selling “all major food departments, including produce, meat, seafood, dairy, and canned and packaged goods.” The law also excludes superstores like Walmart and Target from its targeted beneficiaries, as stores must have food sales and food floor space exceeding 50% to qualify. Both limitations serve the big-picture vision of neighborhood redevelopment; a small produce shop will not provide the job opportunities and blight removal that a supermarket does, and a superstore could potentially out-compete other small businesses developing in the area.
Improving the economic climate is paramount in any redevelopment plan, and can be the key factor that ultimately leads to success in West Baltimore and neighborhoods like the one Fayette Street Outreach represents. As this Washington Post article detailed, past efforts that focused primarily on housing renovation were not enough to revive neighborhoods where the drug trade provides the surest form of income. Legislation focusing on job and marketplace creation can offer something to residents they have lacked for many years. Despite Senate Bill 541’s intention as a humanism-based law, it features the kind of benefits that can help neighborhoods achieve the ultimate goal of economic stability.