- Emmanuel Mehr
B&O to Inner Harbor: Building Baltimore through Public-Private Partnerships — Part Three
BHW 57: March 2, 2024
The election of John W. Garrett to the Baltimore & Ohio Railroad’s (B&O) board of directors in 1855 signaled a drastic shift in company leadership from public-private cooperation to private interest domination. This culminated in Garrett’s appointment as company president in 1858. He was hand-picked for the role by the company’s largest private stockholder, Baltimorean financier Johns Hopkins. Hopkins hoped Garrett would ensure stockholders received the best possible return on their B&O investments. This meant Baltimoreans overall received less benefit from the company as funds were given to stockholders as dividends, adding to public sector debt and preventing fund reinvestment in the industry itself. The B&O was the first major public-private partnership (PPP) in the United States, and in the mid-1850s it was increasingly privatized. The election of William Donald Schaefer as mayor of Baltimore in 1971 brought another public-private resource shift. He devoted much energy to revitalizing Baltimore’s postindustrial economy, especially through redevelopment of the Inner Harbor. He built numerous quasi-public corporations that utilized PPPs with extensive public funding. Consequently, as former city councilperson Kweisi Mfume points out, “[Baltimore’s] black community was suffering from a kind of benign neglect. The most glaring example of this at the time was that virtually all the city’s resources were being plowed into the downtown Inner Harbor Marina . . . designed to symbolize the renaissance of the city and be a lure for tourists.” [2] Just like the Inner Harbor redevelopment in the late-twentieth century, the increasing privatization of the B&O starting in the mid-1850s drew public funds away from historically marginalized Baltimoreans. Through their policies, B&O president Garrett and Mayor Schaefer led public-private resource extraction from Baltimoreans.
John W. Garrett was elected to the B&O board of directors in 1855, primarily due to top private stockholder Johns Hopkins’s strong endorsement. The only entity that held more shares in the company than Hopkins at the time was the state of Maryland. Hopkins was worried about the rising resistance to stockholder dividends from public interest board representatives. By 1858, he successfully elevated Garrett to B&O president. [3] As Hopkins’s nephew Joseph later recalled, “We knew that Uncle Johns wanted Mr. John Garrett to be president of the Baltimore and Ohio Railroad. There was a great deal of opposition to this among the directors of the road; but I knew that Uncle Johns had determined to put it through and was anxious to see how he would do it.” [4] The board opposition mentioned here was from the representatives of the city of Baltimore and state of Maryland, who understood that Garrett’s ideology aligned with the private investors. Public sector representatives sought to prioritize the growth of the economy and creating further investment in the railroad across the city and state. Hopkins vehemently disagreed, demanding the paying of dividends to reward shareholders for their vital investment in the company. [5] He overcame their opposition by treating the board to a dinner of frog legs and expensive wine. [6]
In addition to prioritizing dividends, Hopkins and Garrett also worked to optimize the profitability of all B&O operations. The Garrett family raised alarms about company finances as early as 1854. That year, they pointed out that the company was not paying the bonds it owed them. From that point on, Garrett prioritized close maintenance of company finances. [7] After he became president, his successful financial management impressed members of the board. This explains why he continued to be re-elected, even when public interests temporarily greatly outnumbered private investors on the board during the Civil War. [8] As historian David Schley emphasizes, his financial management relied on close attention to detail. Indeed, “He grasped the company reins tightly, opting for micromanagement instead of delegation. Garrett personally reviewed invoices for even minor purchases and chastised subordinates for delays in executing his requests.” [9] While this micromanagement surely agitated some employees, its apparent effectiveness pleased the board.
Both Garrett and Mayor Schaefer developed policies that benefited Baltimoreans of moderate or high wealth at the expense of the working class. Garrett was notoriously hard on striking B&O workers. He made his anti-labor stance clear as a board member, prior to becoming president. For example, in 1857 when rail workers went on strike, he demanded that all striking workers be fired immediately. [10] Anti-labor policy was a Garrett family tradition. His father Henry Garrett resigned from the B&O board in disgust in 1853, objecting to employee salary increases. [11] The increased privatization of the B&O starting in the mid-1850s increased the relevance of labor policy as labor strife surged. [12] While Schaefer’s massive redevelopment projects over a century later created construction jobs in the short-term, the tourism-focused industry he sought to develop replaced the industrial jobs Baltimore had lost with service industry roles. In these roles, Baltimoreans faced unstable employment, low wages, and minimal benefits. Schaefer also implemented financial austerity measures to improve economic conditions for outside investment. These measures lessened public funding, decreasing the availability of public sector jobs for working Baltimoreans. [13]
Another area of commonality between Garrett and Schaefer is their willingness to add to the accumulation of public debt. As the B&O privatized in the second half of the nineteenth century, the Baltimore municipality struggled to pay off the debts it incurred to finance the railroad. These debts were not fully paid off until the 1890s. [14] Public interests on the board cited these when they complained about Garrett’s eagerness to pay large shareholder dividends, arguing that this money should be used to pay off public debts instead. These disagreements embody the contradiction within post-1855 B&O governance that shareholder gain was the top priority while city and state funding meant the company operated significantly as a public utility. [15] Schaefer’s most controversial quasi-public organizations were the lending entities he created. A 1980 Sun exposé referred to these as the “shadow government.” Essentially these lending bodies replaced formal avenues for public lending, using quasi-public corporations to take out loans on behalf of the city. [16] This allowed Schaefer to avoid the strict financial oversight that characterized more conventional credit channels. As public historian Mary Rizzo explains, “Schaefer created a revolving loan fund of $100 million that was used for development and to bail out failing projects without city council or public oversight. Two trustees controlled what was essentially a shadow bank.” [17] Lending through PPP channels also helped Schaefer evade limits placed on official city debt. [18]
A key mechanism for Schaefer’s ability to muster capital investment was a new type of grant created by Robert Embry, a former Schaefer protégé working in President Jimmy Carter’s administration. They called it the “Urban Development Action Grant,” or UDAG for short. [19] In his 1978 “National Urban Policy Message to the Congress,” President Carter announced a $275 million increase for this new UDAG program. [20] Embry’s experience working with Mayor Schaefer on urban renewal projects informed his UDAG policies, which provided federal funding for PPPs to reinvigorate American urban economies. Such programs diverted additional funding from working Baltimoreans. As historian Jane Berger emphasizes, “While Carter’s macroeconomic and domestic policies did not bode well for the city’s poor residents and job seekers, the president’s public-private programs were greeted with considerable fanfare from the mayor’s office.” [21] Unfortunately for Schaefer, Carter’s successor Ronald Reagan reeled back federal willingness to invest money in city project PPPs. But in Baltimore, much of this redevelopment capital was already invested by the time Reagan took office in 1981. [22]
John W. Garrett as B&O president and William Donald Schaefer as mayor of Baltimore left lasting legacies of disinvestment in the Baltimorean people in service of capitalist interests. Garrett pushed for private shareholder dividends to please his influential biggest supporter Johns Hopkins while public investors struggled with mounting debt. The capital available to the city of Baltimore and state of Maryland to invest in their citizens was greatly inhibited by financial obligations to the B&O in the second half of the nineteenth century. In the 1970s, as Mayor Schaefer harnessed redevelopment PPPs to remake Baltimore’s skyline, Baltimorean communities suffered. Kweisi Mfume, one of Schaefer’s only vocal critics on the city council at the time, stated: “[A]s the city doled out millions of dollars to the armies of construction workers who toiled daily in cranes and tractors to erect this colossal tourist attraction on the Chesapeake Bay, the adjacent black neighborhoods were being largely ignored.” He continued, “Blacks made up 55 percent of the city’s nearly 800,000 residents, yet the waterfront development made crystal clear our stark lack of political and economic power.” [23] The B&O Railroad and Inner Harbor redevelopment disproportionately benefited white Baltimoreans. While free African Americans made up roughly twenty-seven percent of the Baltimore City population when Garrett became B&O president in 1858, this increased to about forty-six percent by the time Mayor Schaefer took office in 1971. [24] When he left the mayor’s office in 1987 this was up to around fifty-nine percent. [25] Yet, the dynamics of Black Baltimorean exclusion through economic policies are remarkably similar. The questions of who benefits from public funds in Baltimore and why remain pressing and relevant today.
[1] “Baltimore Inner Harbor, Pier 4, South side of Pratt Street between Frederick Street & Market Place, Baltimore,” photograph (Baltimore, MD, date unknown), Historic American Engineering Record, Library of Congress, https://www.loc.gov/item/md1585/.
[2] Kweisi Mfume and Ron Stodghill II, No Free Ride: From the Mean Streets to the Mainstream (New York: One World, 1996), 220, https://archive.org/details/nofreeridefromme00mfum.
[3] Kathleen Waters Sander, John W. Garrett and the Baltimore & Ohio Railroad (Baltimore: Johns Hopkins University Press, 2017), 119, Kindle edition.
[4] Helen Hopkins Thom, Johns Hopkins: A Silhouette (Baltimore: The Johns Hopkins Press, 1929), 45, https://archive.org/details/johnshopkinssilh0000hele.
[5] William Bruce Catton, “John W. Garrett of the Baltimore & Ohio: A Study in Seaport and Railroad Competition, 1820-1874” (PhD diss., Northwestern University, 1959), 148-149, https://www.proquest.com/openview/7b27a9770ac2f7ca7599296c55adef56/1.
[6] Thom, Johns Hopkins, 45.
[7] Catton, “John W. Garrett of the Baltimore & Ohio,” 141-142.
[8] John F. Stover, History of the Baltimore and Ohio Railroad (West Lafayette, IN: Purdue University Press, 1987), 115, https://archive.org/details/historyofbaltimo0000stov.
[9] David Schley, Steam City: Railroads, Urban Space, and Corporate Capitalism in Nineteenth-Century Baltimore (Chicago: The University of Chicago Press, 2020), 147, Kindle edition.
[10] Sander, John W. Garrett, 122.
[11] Catton, “John W. Garrett of the Baltimore & Ohio,” 140.
[12] Schley, Steam City, 133.
[13] Jane Berger, A New Working Class: The Legacies of Public-Sector Employment in the Civil Rights Movement (Philadelphia: University of Pennsylvania Press, 2021), 7-9, Kindle edition.
[14] Mary P. Ryan, Taking the Land to Make the City: A Bicoastal History of North America (Austin: University of Texas Press, 2019), 229, Kindle edition.
[15] Catton, “John W. Garrett of the Baltimore & Ohio,” 149.
[16] See Berger, A New Working Class, 164; C. Fraser Smith, William Donald Schaefer: A Political Biography (Baltimore: The Johns Hopkins University Press, 1999), 199, https://archive.org/details/williamdonaldsch00smit.
[17] Mary Rizzo, Come and Be Shocked: Baltimore Beyond John Waters and the Wire (Baltimore: Johns Hopkins University, 2020), 133.
[18] Aaron Cowan, A Nice Place to Visit: Tourism and Urban Revitalization in the Postwar Rustbelt (Philadelphia: Temple University Press, 2016), 98, Kindle edition.
[19] Smith, William Donald Schaefer, 165.
[20] Jimmy Carter, “National Urban Policy Message to the Congress,” March 27, 1978, The American Presidency Project, UC Santa Barbara, https://www.presidency.ucsb.edu/documents/national-urban-policy-message-the-congress.
[21] Berger, A New Working Class, 162.
[22] Katharine C. Lyall, “Public-Private Partnerships in the Carter Years,” Proceedings of the Academy of Political Science 36, no. 2 (1986): 12, https://www.jstor.org/stable/1173895.
[23] Mfume and Ron Stodghill II, No Free Ride, 220.
[24] U.S. Census Bureau, Population of the United States in 1860; Compiled from the Original Returns of the Eighth Census (Washington, DC: GPO, 1864), 214, https://www2.census.gov/library/publications/decennial/1860/population/1860a-01.pdf; U.S. Census Bureau, 1970 Census of Population (Washington, DC: GPO, 1973), 22:51, https://www2.census.gov/prod2/decennial/documents/1970a_md-01.pdf.
[25] U.S. Census Bureau, 1990 Census of Population: General Population Characteristics, Maryland (Washington, DC: GPO, 1992), 15, https://www2.census.gov/library/publications/decennial/1990/cp-1/cp-1-22.pdf.