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O’Malley moves forward with $1.5 billion State Center development in Baltimore

A costly boondoggle

December 10, 2014

As his term as governor winds down, Gov. Martin O’Malley is pushing ahead with the $1.5 billion State Center redevelopment project in Baltimore. The State Center project would turn a 28-acre piece of state-owned land in Baltimore into a mixed-use complex of buildings at high taxpayer expense. The plan is estimated to cost $1.5 billion.

The project had initially faced a successful legal challenge by a group of businessmen, before that challenge was overruled on the basis that the businessmen did not file their lawsuit early enough. The original ruling that O’Malley had violated state procurement law in selecting his group of politically connected donors was never overturned.

While the lawsuit worked its way through the labyrinthine legal system, O’Malley rammed through a law exempting the State Center project from legislative oversight and from other state procurement laws. This exemption is based on public-private partnerships (P3s), as laid out here.

These P3 contracts are not wholly without oversight; the document states that “P3s are subject to provisions of procurement law related to collusion, falsification of material facts, policies and procedures for exempt units, nondiscrimination, security on construction contracts, retainage, and prevailing and living wage requirements. They are also subject to the State’s MBE program for three years (through June 30, 2016).”

None of those exceptions, however, deal with the matter of who is getting contracts and for how much. The Department of Legal Services has also offered their take on the new details of the State Center deal here.

In particular, the analysis notes the dire finances of the state, writing, “Maryland continues to face a structural general fund shortfall estimated at $931 million in fiscal 2019- the first year in which Phase I would require rent payments of $18.5 million.The likelihood that the project will constitute a capital lease would also cause the State to breach its debt affordability ratios [that debt service cannot exceed eight percent of state revenue].”

The rent payments would increase by 15 percent every five years.

The financial implications of the State Center plan go beyond the state budget—like other costly development projects, this plan would hit taxpayers right in the pocketbook.

A report by the Maryland Public Policy Institute breaks down the costs of State Center Phase I. Phase I will include “515,000 square feet of state office space; 15,000 square feet of private office space; 65,000 square feet of retail space (primarily a new supermarket);  up to 100 apartments; and a 928-space state parking garage.”

The developers for the project have no tenants other than the state government, and ultimately the land is essentially returning to Baltimore tax rolls. The developers will pay a nominal rent for the land in question, while the state government pays rents for the new buildings. The state government is the primary tenant in Phase I, and will essentially be paying the property tax through developers renting state land on the cheap.

The MPPI report has two tables, detailing the overall costs and tax subsidies respectively. The base building will cost $138 million, the soft costs and development fees will cost $29 million, the apartments will cost $30 million, the state-financed parking garage will cost $28 million, contingency will cost $22 million, and Baltimore infrastructure including tax increment financing loans will cost $26 million, ending up at a total $273 million price tag for the first phase of the State Center (out of a projected $1.5 billion total cost).

Taxpayers will subsidize $127 million, over 46  percent of the total costs for Phase I. The subsidy breakdown is as follows: the present value of the additional cost of rent will be $66 million, $33 million for the parking garage, $11 million for the land, $15 million for the TIF bonds and $2 million in tax credits.

More subsidies for a mega-project that will strain the state’s budget to the breaking point and primarily benefit developers- all in all, another typical Martin O’Malley move.

Featured image from Shutterstock

Brad Matthews

Brad Matthews is the Digital Content Coordinator intern for Watchdog Wire. Twitter is @bradmatthewsDC

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