Would you pay higher-than-market rent in a city with a 22 percent commercial vacancy rate? Neither would I. But that’s what Maryland Gov. Martin Malley wants Maryland taxpayers to do — after they’ve subsidized construction of the State Center project in midtown Baltimore to the tune of $127 million.
The public-private development to replace run-down state offices with a new mixed-used development on land already owned by the state was first proposed by Republican Gov. Robert Ehrlich and was subsequently approved by Maryland’s three-member Board of Public Works.
But times have changed since 2006.
“The $127 Million Taxpayer Handout,” an economic analysis done last month by Jeff Hooke, managing director of a D.C.-based investment bank and chairman of the Maryland Tax Education Foundation, and Gabriel Michael, senior fellow at the Maryland Public Policy Institute, concluded that the project “represents a significant commitment of public resources for the primary benefit of private developers.”
The duo points out that public subsidies for Phase 1 amount to 46 percent of the budget even though the state won’t own the State Center. They also predict that the private developers will wind up investing little of their own money on a project in which the state of Maryland is the only committed tenant so far.
Yet instead of negotiating for a better deal, the long-term lease will force taxpayers to shell out $10 more per square foot than current market rates over the next 20 years.
Worse, the developers of the $1.5 billion project were selected without competitive bidding, leading to serious questions about price inflation. A lawsuit alleging that the deal violates state procurement law was filed against the state of Maryland and the private developers in December by property owners in Baltimore’s central business district.
The entire project is on hold pending the outcome of the litigation.
You might think O’Malley would pause at this point to reconsider the project. But you would be wrong. Instead, Maryland officials sent a letter to MPPI President Christopher Summers disputing the study’s findings and demanding that it be withdrawn.
That was a curious demand, Summers told The Washington Examiner, since the data on which the study was based came directly from the Maryland Departments of General Services, Legislative Services and Transportation.
Summers refused, and a detailed response to eight specific objections raised by Michael Gaines, assistant secretary for real estate in the Maryland Department of General Services, and State Center project director Christopher Patusky can be found on the institute’s website, mdpolicy.org.
Generally speaking, the authors maintain that the supposed future benefits to Maryland taxpayers do not justify the upfront expense, and in fact the project may not produce enough tax revenue to exceed the debt service on the tax increment financing bonds used to pay for it.
“They’re trying to discredit our report, but no one is focusing on the economic analysis,” Summers told The Examiner. “We really caught the O’Malley administration off guard. They never expected anyone to take a look at the true cost of this project. They want to spend a lot of taxpayer money for something that is not needed.”
Before the collapse of the real estate bubble in 2008, such a project would have been routinely waved on as political business as usual. But with financial markets in turmoil, a quarter of the offices in downtown Baltimore empty, and cash-strapped Maryland’s excessive dependence on the credit-downgraded federal government increasing the risks exponentially with no guaranteed benefits to offset them, the State Center project looks exactly like the white elephant it is.
Even Maryland State Comptroller Peter Franchot is urging O’Malley to abandon this risky project. That’s good advice.
Barbara F. Hollingsworth is The Examiner’s local opinion editor.
