Category Archives: Business Development

The Laurel Preakness? Get Real

By Barry Rascovar

May 25, 2015 — The Stronach Group, which owns Maryland’s two thoroughbred one-mile tracks, is making noise, once again, about moving the crown jewel of Free State racing, the Preakness Stakes, to Laurel Race Course.

 

Pimlico Race Course

Pimlico Race Course

It’s a non-starter — and the Stronach folks probably know it.

Legally such a move can’t take place without General Assembly approval, which won’t happen.

From a racing standpoint, owner Frank Stronach would have to be brain-dead to transplant the Preakness.

All the fabled history would be lost. Laurel races couldn’t be compared with the 140 years of past Preakness performances at Pimlico. Different track, different racing surface, different times for traversing a mile and three-sixteenths.

Laurel, as built, can’t hold 140,000 fans; Pimlico can and did this month. Nor is it a certainty Laurel could draw even a respectable Preakness crowd.

It’s an isolated, suburban site where families are more interested in their kids’ soccer games than a horse race. No one can walk to the track, or catch a bus, easily. Few folks from the Baltimore region would make the long trek.

Sure, Laurel’s a nice, more up-to-date track, but to borrow from Gertrude Stein, “There is no there there.”

Diminished Triple Crown

A Laurel Preakness would diminish the prestige and currency of racing’s Triple Crown, thus devaluing Stronach’s Maryland holdings.

It also would be perceived as a huge slap at Baltimore just when the city is trying to recover from April’s civil unrest and the black eye it received nationally and internationally. The bitterness from such a move would be harsh and unforgiving.

On paper, consolidating Maryland thoroughbred racing at one track might appear a no-brainer, but it isn’t once you start peeling back the multi-layers of reality.

What the Stronach folks really want — given the fact a one-track racing schedule is illegal and probably a long-term money-loser — is concessions from Baltimore City and the state of Maryland to offset the two tracks’ operating losses, estimated at $5 million to $8 million annually.

There are a number of ways politicians could provide the track owner with financial help.

Subsidy Options

The state legislature, for instance, could revise the division of slots revenues slightly to allocate up to $10 million annually if the Stronach Group holds a spring-summer meet at an upgraded Pimlico.

The state already guarantees each of Maryland’s two standardbred tracks $1.2 million a year for just 40 days of racing. The money comes out of the slots revenue designated for bolstering purses at those harness-racing tracks at Rosecroft and Ocean Downs.

Stronach’s thoroughbred tracks are expected to receive nearly $46 million in slots revenue for purse awards in fiscal 2017 and close to $50 million by 2020. Surely the law could be amended to let the tracks apply for a subsidy from that account to offset operating losses .

Pimlico logo

Both the state and city also could work with the Stronach Group to float inexpensive bonds for some of the improvements at Pimlico.

Baltimore City, which already is giving over $100 million in tax breaks and another $300 million in public subsidies to developers of Harbor Point downtown, could offer a similar but smaller package of infrastructure improvements and long-term tax rebates if the Stronach Group turns Pimlico into a redeveloped, multi-entertainment center.

Stronach’s Contribution

While Frank Stronach has dragged his feet in putting dollars into his Maryland tracks, he has been a good corporate citizen, even footing the bill for an expensive machine tool-and-dye training school south of the Pimlico track that taught inner-city residents the skills needed to secure good-paying, in-demand jobs.

Thanks to millions in slots revenue already designated for future race track improvements, Maryland has signaled its willingness to help revitalize thoroughbred racing.

Now it needs to seal the deal in a way that ensures Pimlico’s future and offers hundreds of new jobs for the depressed community that lies to the historic track’s south and west.

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Fracking Follies in Annapolis

By Barry Rascovar

March 30, 2015 — Shakespeare, as usual, had it right. “Full of sound and fury signifying nothing.” That describes the squabbling in Annapolis over hydraulic fracturing, commonly known as “fracking.”

It is Maryland’s phantom issue.

Environmentalists and do-gooder legislators are panicked that fracking will mean earthquakes, tainted drinking water, dirty air, despoliation of pristine farmland and other biblical plagues. They want to bar this drilling procedure forever in Maryland.

fracking-2

Hydraulic Fracturing

 

Never mind that wide-spread fracking has been going on since 1950. In those 65 years, more than one million wells have been fracked, in which a combination of water, sand and chemicals is pumped under high pressure deep into shale formations. This fractures the rock and sends deposits of oil and/or natural gas gushing to the surface.

Low Oil Prices = No Fracking

There’s only a tiny part of Maryland where hydraulic fracturing into the gas-rich Marcellus Shale formation is viable — in far Western Maryland, i.e., portions of Garrett County and a bit of Allegany County. The number of farmers who might benefit from oil and gas royalties is very small.

Moreover, no oil or gas driller is interested in Maryland any longer. The steep plunge in oil and gas prices makes fracking in the state far too costly now or any time in the foreseeable future.

So the arguments in Annapolis are largely speculative.

Environmentalists continue to spout off about the doom and gloom that will descend on Maryland if fracking is allowed — part of a larger argument by environmental zealots who seek to ban coal and even gas-fired power plants, nuclear power plants, the export of liquified natural gas, as well as wind farms in state parks (they won that fight) and wind farms on the lower Eastern Shore.

O’Malley Study

The O’Malley administration, never a friend of business-development if it bumped up against the fears of the environmental community, forbid fracking for three years while it conducted a lengthy, in-depth, scientific study.

The results pleased no one: The research showed fracking could be done safely in Maryland, but only under very strict state supervision — the strictest rules in the nation.

Even that hasn’t made environmentalists happy. Nothing short of a permanent ban will satisfy them.

A bill imposing another three-year moratorium — totally meaningless in today’s low-cost energy world — has made it out of the House of Delegates. Prospects in the Senate are less certain. The bill calls for a 36-month study that would largely duplicate the O’Malley administration’s extensive research.

Meanwhile, a Senate bill, sponsored by Sen. Bobby Zirkin of Baltimore County, offers an even more extreme step that kills any possibility of fracking coming to Maryland.

It creates extraordinary legal liability standards, calling fracking “ultrahazardous and abnormally dangerous” and requires a $10 million insurance policy that must be in place for six years after drilling ends.

Few Side Effects

Funny thing: Over the past 65 years, fracking has been conducted without much in the way of negative side effects.

The industry has used fracking over 1 million times and the number of “ultrahazardous” outcomes has been tiny.

“Abnormally dangerous”? It would be hard to make that assertion stand up statistically.

It would be as if the Maryland legislature declared airplane travel “ultrahazardous and abnormally dangerous” due to a few highly publicized crashes — even though the odds of being killed this way are 1 in 30 million.

The fracking follies in Annapolis are a case of populist rhetoric run amuck. It’s a do-gooder attempt to outlaw something that is no longer on the radar screen in Maryland — and won’t be for years or decades to come.

Waste of Energy

Making it impossible for oil and natural gas companies to drill in Maryland — even under exceptionally close state supervision — is the sort of anti-business hostility Gov. Larry Hogan Jr. may not be able to tolerate.

A veto could await either the House bill or the Senate bill.

Still, all of this is academic — an exercise in wasted energy.

As long as oil and gas prices remain depressed, fracking has zero future in Maryland. The legislature has better things to do in its remaining days before its April 13 adjournment.

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Sticky Tax Conundrum

By Barry Rascovar

Feb. 23, 2015 — Sometimes a simple, sensible-sounding tax reform runs smack into sticky realities. The result is a puzzle for Maryland legislators trying to do the right thing.

That’s the case this session with bills (SB190, HB209) designed to clarify state law regarding the “taxable price” of discounted hotel rooms sold over the internet by travel websites.

Advocates claim companies like Orbitz and Expedia are ripping off the state by buying blocks of discounted rooms from hotels, re-selling them to Maryland consumers at higher rates but paying state sales tax on the original, lower purchase price.

Expedia logo

If that’s true, we should change Maryland’s tax laws and close this alleged “loophole.”

But it’s a complex situation in which the role of the internet travel companies isn’t transparent. There’s a yawning gulf between what lawmakers believe and what may be the true facts.

Confusion Abounds

Even the legislature’s fiscal analysts seem confused. They aren’t even sure if the proposed reform will result in more tax revenue. Opponents flatly assert the Department of Legislative Services got the facts wrong.

Travel agents maintain they are not purchasing discounted, hotel room blocks and then re-selling them to the public at a higher price. They maintain they aren’t in the room-selling business.

They say they are acting as an intermediary between the hotel and the consumer. The hotel negotiates a discounted room rate with the travel company, which then advertises this discounted rate. When a sale is made, the customer pays the discounted rate to the hotel, plus a service charge or fee that goes to the intermediary.

That extra charge isn’t taxed.Orbitz

The travel agents claim the hotels pay all the room taxes on the discounted, negotiated price. There’s no jacked-up extra room charge to consumers by Orbitz or Expedia other than that service fee.

Murky Issue

If all this is true, legislators need to take a closer look at those tax-reform bills. It may be a case of not understanding the true situation.

But it gets murkier.

The comptroller’s office is suing internet travel agents on much the same grounds. The case is before the Maryland Tax Court. Meanwhile, four counties already have sued the big internet travel sites and settled out of court.

While all this is going on in court, it seems senseless for the General Assembly to further confuse matters in ways that could mess up the current tax case and lead to years and years of new litigation.

There are other problems with the bills.

The measures would impact local travel agents, local tour operators and vacation rental managers. It would impose a new administrative tax burden on many small travel-related businesses.

Double Tax?

It also could wind up as a double tax on these local travel businesses, since they already pay a corporate income tax on their service fees.

Here’s another complication: This would amount to a new tax on services — an area where Maryland has tried not to impose levies. Is this opening the door to a broad application of the state sales tax to all service businesses?

Given the results of the last election, a drive to add more tax levies that will be paid by consumers seems ill-timed and poorly thought through. That’s especially true given the uncertainty about what’s really going on in the discounted hotel room-rate industry.

This is not the first tax squabble where well-meaning lawmakers have run into unexpected obstacles because the issue is poorly understood and hard to simplify.

For years, liberal lawmakers have pushed for a “unitary tax” on out-of-state corporations. The combined-reporting bill runs into insurmountable headwaters each session because it’s not a black-or-white issue. Previous studies show the reform might prove counter-productive and yield little in new revenue over the long haul.

Tread With Care

The best course for legislators on the room-tax issue is to proceed with caution.

Let the comptroller’s court case play out. That will provide additional definition of the “taxable price” of these discounted rooms, which is strongly under dispute.

There’s also need for more legislative study.

How do these internet travel sites really work? Do they jack up discounted room rates or not? Are they true intermediaries between the hotels and consumers, collecting only a service charge?

If the state starts taxing this travel-agent service, shouldn’t it do so uniformly on all business services? Would this be wise tax policy? Would it put Maryland businesses at a competitive disadvantage?

The more we learn about this room-tax issue, the cloudier things get.

With so much room for doubt, legislators would do well to pass on these tax-reform bills until they get a clear picture of what’s at stake and how the discount room-rental industry really works.

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Baltimore’s Self-Inflicted Wound

By Barry Rascovar

Feb. 19, 2015 — Baltimore City stands to lose tens of millions of education dollars in Gov. Larry Hogan Jr.’s budget and much, much more in future years.

But Hogan is not at fault. City leaders, past and present, are to blame.

Baltimore’s self-inflicted wound was preventable and obvious. Yet elected officials chose to ignore it.

Now city schools will pay the price.

Tax-Avoidance Schemes

Mayor Stephanie Rawlings-Blake and past Mayors Kurt Schmoke, Martin O’Malley and Sheila Dixon got carried away with a tax-avoidance scheme that has enticed investors into the city.

These favored investors are allowed to make Payments in Lieu of Taxes (PILOT) and are given Tax Increment Financing  (TIF) deals that divert their property tax payments into public improvements for their developments.

The net result: New construction downtown but no tax windfall for city government.

Indeed, big projects like Harbor East and Harbor Point pay virtually no taxes to the city. The same would be true for the State Center development and the massive, now-bankrupt Westport project.

Yes, some of those PILOTs and TIFs led to development activity in Baltimore that never might have happened without these quite large and long-lasting incentives.

Damaging Tax Breaks

But someone forgot to get out an adding machine and calculate what these non-taxpaying projects would do to undercut Baltimore’s state school aid.

A big chunk of what the city receives in school funds from the state is determined by a formula based on its property valuation. The poorer a jurisdiction’s wealth base, the larger the state’s contribution.

Harbor Point and Harbor East helped Baltimore’s property wealth rise substantially. The formula assumes that this translates into markedly higher property tax revenue.

That’s not so if you’re handing out TIFs and PILOTs like sugar-coated cookies.

Baltimore’s property tax collections aren’t benefiting from these heavily subsidized projects. Now the state’s school-funding formula dictates the city will get $13 million less than last year due to all those new downtown developments.

Less School Aid

Down the road, Baltimore’s  state school aid will shrink even more as additional projects receive lucrative tax-exemption deals from the city. Most of these tax-avoidance schemes run for decades, which compounds the damage.

There’s no doubt city leaders had to offer enticements to jump-start downtown and near-downtown development, especially after the Great Recession. But they got carried away.

Any new and glitzy proposal outside the Central Business District seems to have won a major tax-relief prize.

Now the same officials who handed out those tax-avoidance awards to developers are scrambling to avert a big cutback in school aid.

They probably will get some money restored, thanks to Baltimore Del. Maggie McIntosh’s position as chair of the House budget panel.

New Critique Needed

They might even succeed in amending the formula language to take into account Baltimore’s unique situation.

What isn’t likely to happen is a frank reevaluation of Baltimore’s overly generous use of TIFs and PILOTs. It’s a good idea taken to dangerous extremes.

Think what Baltimore could do with $13 million-plus in its budget every year. That tax money isn’t helping city schools — it is helping developers who may not even need generous subsidies in today’s markedly improved development climate.

It’s time for city officials to analyze what went wrong — and fix it. Defending the indefensible no longer works.

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Growing Maryland

 By Barry Rascovar

Feb. 16, 2015 — If there is one area where Gov. Larry Hogan Jr. can sing “kumbaya” with Maryland legislators, it is economic development. The path has been blazed for him by the legislature’s Augustine Commission.

A year ago, top Democrats in the General Assembly recognized Gov. Martin O’Malley had badly dropped the ball on growing jobs in Maryland. So they assembled a commission, led by former Lockheed Martin CEO Norm Augustine, with the assignment of suggesting how to turn things around.

Commision Chair Norman Augustine

Commission Chair Norm Augustine

The group came up with 32 recommendations, all sensible and none of them novel. It won’t take much for the Republican governor and Democratic legislators to find agreement on most of those suggestions.

Underlying the bipartisan nature of the commission is the fact that Hogan’s new budget secretary, former Sen. David Brinkley, served on the panel alongside Republican Del. Wendell Beitzel. Two key Democratic chairmen, Del. Dereck Davis and Sen. Ed Kasemeyer, were on the commission, too.

Key recommendations:

  • Consolidate economic development programs, develop one-stop shops for businesses and put more emphasis on technology industries.
  • Reverse the state’s hostile, rule-enforcement approach toward businesses through customer-service training and a new, “what can I do to help” attitude.
  • Put state money into university-generated business development and address the needs of underperforming public schools.
  • Focus on unskilled high school graduates who need vocational training and apprenticeship programs.

One of the more shocking findings of the commission is that 44 percent of kids in Maryland public schools qualify for free or reduced-price lunches, and most of them come from minority families struggling to eke out a living.

The state’s public schools aren’t giving them the right kind of education. These kids graduate without the tools to find jobs. Their path up the economic ladder is blocked.

Unskilled and Unemployed

Even worse, there are jobs out there for them — some 132,000 currently unfilled positions in Maryland. Employers told the commission they simply cannot find in-state workers who possess the right technical skills.

This glaring mismatch between education preparedness and job qualifications is one of society’s neglected weaknesses. Educators haven’t addressed it. Neither have the politicians.

They are too focused on creating college-prepared students. Those from the lower rungs of education are left to flounder with few, if any, employable skills.

Quick Fixes

Hogan and legislators can start addressing this situation with some quick fixes.

Find a pot of money for the state’s community colleges, which already lead in offering job-training and apprenticeship programs. What’s missing has been a major financial investment from the state and local governments in these specialized skills courses.

The state also needs to offer local school systems extra funds if they bring back vocational education in a big way.

High school students should be pursuing career paths and job-readiness courses, especially those not interested in college.

Such an approach is sorely needed in low-performing districts like Baltimore City and Prince George’s County and in rural jurisdictions where employment opportunities are limited.

Singing in Unison

The good news is that both Hogan and Democratic leaders in the General Assembly are singing from the same hymn book.

An even better sign: The Augustine Commission concluded what’s really needed is “a cultural change” that depends “on leadership, not money.”

If each side fully commits to the objectives laid out by the panel, Maryland actually could make progress in growing its business base and creating a workforce that is job-ready.

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Gill to the Rescue?

 By Barry Rascovar

(A version of this column was published by CenterMaryland.)

Jan. 13, 2015 — For Gov.-elect Larry Hogan Jr., there’s no more important cabinet appointment than secretary of the Department of Business and Economic Development.

What happens on job-growth and business-growth are likely to determine the success, or failure, of the Hogan administration.

So there was a lot riding on last week’s choice of R. Michael Gill as DBED secretary. The response to date: overwhelmingly positive and complimentary. Hogan seems to have picked a winner.

Mike Gill

New DBED Chief Mike Gill

“He’s absolutely perfect for the job,” says former Sen. Frank Kelly, who served with Gill on the University System of Maryland Board of Regents.

“Mike has the most positive attitude of anyone I know. His enthusiasm is contagious. I think that’s what we need.”

Super-Salesman

Gill has a deep, abiding love for all things Maryland. He won’t have trouble “selling” the Free State to business prospects. It will come from his heart.

He’s a smart, personable super-salesman with a knack for retaining details about the people he meets. He’s quick on his feet, interesting to talk to and a true people-person.

Mike Gill has 32 years’ experience in information technology and wireless communication, starting with sales and marketing jobs at IBM, a fertile training ground.

He struck it rich by founding an early telecom wireless services and repair company (AMERICOM), but he also knows what it is like to take over a struggling technology company (Bluefire Security Technologies) and watch it flounder because its product was ahead of its time.

Gill is a master networker and civic presence, an investment banker (chairman of Evergreen Advisors) for middle-market companies and a never-give-up booster of state education institutions, especially his alma maters, Calvert Hall and Towson University.

Facebook Friends

The new DBED chief’s wide spectrum of acquaintances is reflected on his Facebook page, where “friends” are listed.

At the top is Hogan, followed by the state’s new insurance commissioner, Al Redmer, former state budget chief Chip DiPaula, and veteran Baltimore disc jockey Eddie Applefeld.

A second column lists University of Maryland Medical System vice president and lobbyist Mark Wasserman (a former DBED secretary), Towson real estate promoter Bob Latshaw, former Republican state chair and moving van mogul John Kane and business pal Ed Crawford.

Some are Democrats, though most are Republicans. Nearly all of them have important government experience and/or years of business know-how.

This symbolizes what Hogan is trying to achieve: Running government more like a business by turning to a mix of successful private-sector executives and entrepreneurs to light the way, along with folks possessing government management backgrounds.

Reviving DBED

Gill’s orders are to jump-start a moribund DBED weighed down for the past eight years by Gov. Martin O’Malley’s love-hate relationship with Maryland businesses. “Selling” Maryland was never at the top of his “to-do” list.

During those eight years, Maryland gained a reputation as a state where government was hostile to the private sector. No wonder O’Malley’s DBED secretaries proved lackluster.

It won’t be easy turning around the department and creating the sort of buzz that sparks corporate interest in moving jobs to Maryland.

If anyone can do it, though, it is Mike Gill.

Mike Gill

Keeping Spices at Home

He’s already waxing eloquent about retaining McCormick & Co.

Thanks to his decades-old relationship with McCormick, Mike Gill is well positioned to find a way to satisfy the Fortune 500 spice company so it will anchor its new headquarters near McCormick’s historic roots.

Gill has a wealth of knowledge about Maryland’s high-tech and bio-tech advantages and the state’s first-rate institutions of higher education.

North Carolina may have a Research Triangle, but Maryland has a Research Rectangle (NIH, UM’s flagship College Park campus, Johns Hopkins and UM’s professional schools and medical research campus in Baltimore).

Boston may have a Route 128 Technology Corridor, but suburban Washington has its own, high-powered I-270 Tech Corridor, which dominates Montgomery and Frederick counties.

Only Maryland has an emerging cyber-security corridor stretching from Fort Meade and NSA to Washington, D.C.

Combine this with business incentives Hogan is certain to propose from the State House, and DBED might start generating exciting news sooner rather than later.

No Desk Jockey

One of Mike Gill’s favorite quotes (from espionage mystery writer John Le Carre), goes like this:

“Behind the desk is a dangerous place to view the world.”

That is especially true in government, as Gill will discover. Too many State House leaders spend way too much time in meetings. Their daily schedules are chock full of paper-shuffling, conference calls and roundtable talkathons.

Gill insists on an outside-the-office routine, where he gets to know his staff intimately, learns from them about issues and problems and works cooperatively to find solutions.

It won’t be much different dealing with Maryland’s businesses.

As DBED secretary, Gill will be on the go constantly, searching for companies that appreciate Maryland’s quality of life and its vast potential, finding out what local firms need and offering start-ups guidance and hand-holding from economic development pros.

Mike Gill has been described by a business friend as “a man of action, not words.” That sounds like the right formula for DBED at this juncture.

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Hogan’s Unappetizing Choices

By Barry Rascovar

Jan. 5, 2015 — The New Year belongs to the victors, like Gov.-elect Larry Hogan Jr. But reality will set in quickly once hard, unappetizing choices pit campaign pledges against on-the-ground reality.

Larry Hogan Jr.

Governor-elect Larry Hogan Jr.

Here are some examples:

RED LINE/PURPLE LINE

During the campaign, Hogan criticized both mass transit lines as too expensive for Maryland’s financial situation.

He said the money would be better spent on roads, not rapid rail.

At the same time, Hogan pounded away at the need for aggressive job and business creation. He pledged to energize the state’s lackluster economic development effort.

Killing the Red Line in Baltimore and the Purple Line in the Washington suburbs would, indeed, save lots of money for Maryland — $1.035 billion on the Red Line and $637 million on the Purple Line.

But not a penny of the savings will help Hogan close the $1 billion general fund budget deficit staring him in the face. Transportation funds are segregated in a separate account.

Even worse, the savings probably wouldn’t pay for much in the way of local highways work, either. That’s because the state would only be paying one-sixth (or possibly less) of the cost each year during the lengthy construction stage.

Compounding matters, revenue estimates for transportation taxes are proving overly optimistic, leaving a $441 million hole in the state’s six-year transportation plan.

Killing the Red and Purple lines would close that gap, but what’s left wouldn’t have much of an impact on local road-building when spread over six years, plus inflation.

The demise of Maryland’s two major transit projects, meanwhile, would be devastating for transportation contractors and the thousands of workers who wouldn’t be employed building the two rail lines.

That hurts Maryland’s jobless rate and the state’s economic growth.

So killing the two projects outright may not be the smartest step.

Baltimore badly needs the Red Line to connect its inadequate transit system and get low-income city workers to job sites. The Purple Line is crucial for near-the-beltway, lower-income neighborhoods and for lessening the crunch in rush hours on the Capital Beltway.

Then there are the political ramifications.

Kill the two transit lines and the new governor immediately makes enemies of the three largest delegations in the Maryland General Assembly — Baltimore, Montgomery County and Prince George’s County.

Together, the three have enough votes to make life miserable for Hogan.

There’s got to be a middle-ground way, which would involve a construction delay while engineers search for cost-effective options to lower the price tag for the two rail routes.

When the Woodrow Wilson Bridge crossing the Potomac River near National Harbor was reconstructed, the cost soared out of sight. Only after an innovative project engineer, Tom Mohler (now a partner with RK&K Engineers in Baltimore) devised a cheaper approach — chopping the massive project into smaller chunks — did the price tag diminish enough for Maryland, Virginia and the District to proceed with construction.

That’s what may have to take place on the two expensive mass transit routes, too.

SCHOOL CONSTRUCTION

Hogan faces a huge budget deficit, which may require a deep cut in school construction funding, from the $300 million level favored by the O’Malley administration to the $200 million level.

The problem is that many of the counties where Hogan was wildly popular are the very counties lobbying the state for more new-school dollars to handle a surge in students.

Hogan might end up disappointing the very voters who put him in office.

Clearly the state’s budget hole, plus the state’s over-reliance on floating bonds, call for reductions in spending.

School construction sticks out like a sore thumb.

Hogan might attempt to do more with less — by putting the state’s money into renovations of existing schools instead of costly new construction. He may be able to stretch fewer dollars further.

But it won’t make all his supporters happy, especially those with kids attending overcrowded public schools.

FILM TAX CREDIT

Maryland’s generosity toward the film industry led two TV production companies in recent years to work in the state on “Veep” and “House of Cards.”

Since 2012, this has cost Maryland taxpayers $62.5 million in tax credits to the production companies.

Yet it has put hundreds of skilled laborers to work behind the scenes: designing sets, arranging the lighting, working on the sound and engineering crews, preparing the costumes and working as extras. Hundreds more have been hired locally to play roles in the TV series.

If the tax credit is killed, one of the biggest losers would be Harford County, which, ironically, gave Hogan an overwhelming victory in November.

The Department of Legislative Services claims the film tax credit has generated little in the way of a return on the state’s investment, but the DLS may have been looking at the wrong indicators.

As an economic development tool, the tax credit is nurturing a local film industry. It is responsible for the evolution of a solid core of high-quality, skilled craftsmen and artists — just the right ingredients for luring more film crews to Maryland.

Kill the film tax credit and you likely kill any chance of Maryland retaining “Veep” and “House of Cards.” Hogan would be chopping off any possibility of Maryland gaining a reputation in Hollywood as a welcoming place for film production.

For a governor promising to grow jobs and the state economy, Hogan would be sending the wrong signal by taking an ax to the film tax credit.

Such unappetizing choices put him in a bind.

Hogan must find a way to balance the state’s books while not forsaking his pledge to jump-start Maryland’s quest for jobs and business — while at the same time not alienating his supporters or powerful groups in the legislature that could potentially subvert his agenda.

It won’t be easy.

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Barry Rascovar writes a blog, www.politicalmaryland.com. He can be reached at brascovar@hotmail.com

State Center Questions

By Barry Rascovar

Dec. 11, 2014 — Next week, lame-duck Gov. Martin O’Malley may decide to bring the matter of the $1.5 billion State Center project before a divided Board of Public Works.

It would be a controversial move.

State Center with new building

State Center with new building

Readers responded to my previous column on this topic with some interesting thoughts. Their conclusion: There are far better ways to redevelop this space and provide decent offices for state workers in Baltimore.

University Center?

Steve, who is a Baltimore-area developer, writes:

In my opinion the universities and hospitals are the glue that holds this City together once you get away from the Inner Harbor. 

“How about they move the government uses down to the [Central Business District] as [Peter]Angelos suggests and then make the State Center parcel available to the [University of Baltimore] and/or [the Maryland Institute, College of Art] so that they can expand their campuses, while incorporating into the project some retail and other amenities that would benefit neighboring communities? 

“[A win] for the CBD, win for the universities, win for the neighboring communities.  Maybe that makes too much sense for it to happen.”

Hurting ‘Older Downtown’

Hugh, a long-time financial industry executive, writes:

“It was an ill-conceived idea from the start. There is so much B [office] space in the Central Business District available suitable for state workers at much better rates/rents.

“Additionally, [the State Center project] would take current state workers [out of] ‘older downtown.’ [This] would hurt vacancy rates even more.”

Ideal Arena Site

Owen, a longtime development pro, believes the State Center site is ideal for a new city arena.

The current plan, he writes, suffers from its “wayward scope, negative financial profile and appealing alternatives.”

Relocating the arena there makes sense, he believes:

“While the previously contemplated office project appears permanently stalled, the site adjacent to the O’Conor office building is large enough to accommodate a new arena and would certainly bring new life to the neighborhood.”

The area has lots of public transit and the Lyric and Meyerhoff performance centers. Owen adds an arena at that site would create “a more dense critical mass of entertainment related uses.” This, he feels, would lead to “more amenities for those patrons and create a rising tide for all to benefit.” 

‘No Longer Affordable’

A few days ago, Comptroller Peter Franchot chimed in as well. Not surprisingly, he’s against the amended plan, just as he opposed older versions of the State Center proposal.

Franchot says, “This is really a very questionable project. . . . When you look at the deal right now, unlike a few years ago, it’s no longer affordable. The commercial real estate market really hasn’t fully rebounded in Baltimore. We’re going to be paying a lot in rent.”

Then there’s the question of endangering Maryland’s triple-A bond rating.

State legislators are concerned State Center subsidies might put Maryland over its capital bond cap. Even if that’s not the case, the costly lease agreement will put a crimp in the state’s operating expenses for decades to come.

DLS Analysis

It’s also worth noting some of the points made in the Department of Legislative Services analysis of the revised State Center proposal.

State Center plan

State Center Plan

First, the plan now is based on the state taking an additional 115,000 square feet of office space — for a total of 515,000 square feet. That means yanking more state agencies out of the downtown business district, which already is hurting badly from high vacancy rates.

Second, these sky-high leases — $35.85 a square foot, plus a 15 percent inflation factor every five years — “would not be subject to appropriations in the State budget.” It is the only such project that is exempt from legislative oversight and review.

Third, the now-shrunken underground garage still would cost the state $28.3 million, leading to an annual debt service of $2.5 million for the state and an annual loss to the transportation trust fund of $2 million per year.

Fourth, the 500 spaces reserved for state employees will cost each of those workers $600 a year, versus the free parking on surface lots employees now use. (There are 3,500 workers in the State Center complex, meaning the new replacement building will not come close to accommodating all those who drive to work.)

Fifth, moving expenses alone will cost the state $2.4 million. Then the state will mothball the existing buildings. That adds another $5.8 million per year in expenses.

Sixth, DLS questions whether a private charter school is best situated in a state-leased office building. That’s the latest plan from the developers.

DLS also wonders if it is realistic for developers to anticipate a supermarket will open in the Firth Regiment Armory building, with its high walls and enormous heating and air-conditioning bills.

“It is unclear if any of these changes make sense,” DLS concludes.

The agency’s analysis lists four options:

  • Do nothing, which will require costly annual patch-ups to the 50-year-old structures.
  • Renovate or replace the current state buildings, at a cost of $215 million. (Given the state’s over-extended capital bond program, this is a non-starter.)
  • Sell the State Center buildings now in use and rent space elsewhere. Downtown office rents are cheap and there’s oodles of quality space available.
  • Buy out the developer and re-bid the project — but this time limit the RFP to one new privately owned office building for state workers.

DLS raises significant and substantive issues that cry out for careful scrutiny.

Changing Times

Since the State Center plan was first unveiled to great fanfare in 2005, times have certainly changed.

What is now under examination may not be economically feasible.

There may be far better uses for the site.

There are far less expensive ways to find better office space for state employees.

Perhaps most telling, the state no longer has the financial strength to give such a generous subsidy to a private developer for a project that is, at best, marginally viable.

There are plenty of reasons to take a “go-slow” approach on the State Center proposal. 

We could learn next week if O’Malley agrees.

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State Center Boondoggle

By Barry Rascovar

Dec. 8, 2014 — As Gov. Martin O’Malley winds down his second and final term as Maryland chief executive, he owes it to his successor — and to his legacy — not to push for approval of a new plan for developing State Center in mid-town Baltimore.

It’s a boondoggle in both its current form and in its amended form.

State Center vision

State Center vision

With the state facing dire budget deficits for years to come, it makes no sense for O’Malley to saddle the next governor with an inflated lease that will cost an extra $18.5 million per year — rising by another 15 percent every five years — to house agencies already working in lease-free buildings at State Center.

The only winners in this proposal are the developers, who just happen to include a number of friends and allies of the governor.

One-Sided Deal

Going forward with this shell game of a $1.5 billion plan would seriously tarnish O’Malley’s reputation. It would be unfair to pawn such a one-sided deal off on Gov.-elect Larry Hogan and Maryland taxpayers.

The governor should do the wise thing and put the amended State Center plan on hold  until Hogan is inaugurated.

Bringing this matter before the Board of Public Works could set off needless fireworks and disputes over an ambitious development that the Department of Legislative Services has repeatedly called into question.

From the beginning, the State Center plan that O’Malley has backed made little sense.

It was an idea that emerged during boom times and depends on the largesse of the city and state governments.

Ambitious Plan

The developers want the state and Baltimore City to underwrite much of the cost for constructing a new building on state land near the existing, aging state office complex.

Then state agencies will move from the state-owned buildings to the new, privately owned office structure — with the developers charging exorbitant rent equivalent to harbor-view rates.

The developers then will gut the 15-story State Office Building and turn it into market-rate apartments. More office buildings and residential units will follow on land leased from the state — with all the profits benefiting the developers.

None of this was realistic, even during good economic times.

The site is not in an appealing location, since it abuts a crime-ridden housing project and an under-achieving hospital. The site is about a mile from the central downtown business district, overlooking a forlorn section of Howard Street.

Appealing Alternatives

It would be far cheaper for the state to move agencies into inexpensive, modern office space downtown — either permanently or temporarily while the State Office Building and Herbert R. O’Conor Building are renovated. Or the state might move the agencies into the million-square-foot former Social Security annex near Lexington Market through a private-public partnership arrangement.

State Center complex

State Office Building (right) and O’Conor Building (left)

The most expensive way to give state workers better office space would be to proceed with the private development of State Center.

Even the developers’ parking arrangement for the office building seems unrealistic.

The state would be stuck with the tab for the expensive underground garage, but there wouldn’t be enough spaces to handle all the workers’ cars — and there would be few parking spaces for people conducting business at state agencies or shopping at the building’s ground-level retail stores.

The initial plan, devised before the Great Recession and championed by Republican Gov. Bob Ehrlich, was overly optimistic at the time. It envisioned State Center as a great transit hub (Metro, light rail and buses) that would be a natural magnet for new city residents and offices.

It hasn’t turned out that way.

Angelos Vindicated

Baltimore attorney Peter G. Angelos sued the state over the plan, claiming it would be far less costly and far better for Baltimore City if state agencies moved into  vacant space in the central downtown business district.

Angelos won his argument in circuit court but lost on appeal. Time, though, has proved Angelos right.

O’Malley shouldn’t leave office under a cloud.

Citizens owe him a huge debt of gratitude for the way he muscled Maryland through the Great Recession without massive layoffs or harmful cuts to the state’s social safety net.

It would be best if O’Malley left the State Center plan in limbo rather than foist this ill-timed proposal on Hogan.

Given the depressing economic outlook for Maryland’s state government, there’s no way the State Center project should move forward.

It’s a white elephant waiting to happen.

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Uber and Out in MD

By Barry Rascovar

August 14, 2014 — Maryland’s Public Service Commission struck a blow for the rule of law this week when it declared the popular app-based, ride-sharing company Uber Technologies isn’t exempt from regulations other companies must follow if they want to transport paying customers.

It is “clear and unambiguous” that Uber is a passenger-carrying, for-profit, public transportation service, according to the PSC.

Uber logo

As such, Uber is not free to make its own rules and ignore Maryland law.

Just because Uber is using innovative Internet technologies to reinvent the taxicab industry doesn’t mean it can arrogantly write its own dictum and thumb its nose at statutes that govern the way other common carriers operate.

Companies like Uber seem to believe that because they are Internet-based, they can run their kingdoms according to their edicts and decrees.

Isn’t the Internet all about unfettered communication and freedom?

Brave, New World

Doesn’t a business based on Internet technologies have the right to do what it pleases, regardless of the consequences or existing statutes?

To follow that logic is to abandon all governance in favor of a libertarian society stripped of legal restraints.

Thankfully, the PSC wasn’t buying Uber’s scary vision of a brave, new fee-for-transport world. If we live in a country ruled by laws, then the laws must be applied across the board.

There’s no doubt Uber offers customers a good deal.

Uber smart phone app

Uber Smart Phone App

But huge dangers lurk as well.

Because Uber doesn’t want to play by the PSC’s rules, it sets its own customer charges. Unlike other cab companies, it applies higher “surge pricing” during busy times. It hasn’t bothered to apply for a common carrier license from the PSC, either.

Uber’s drivers don’t have Maryland passenger-for-hire licenses, which means its drivers haven’t undergone state criminal background checks or driver record checks.

Uber drivers don’t have passenger-for-hire vehicle insurance: If there’s an accident, the driver’s personal auto insurance won’t pay the passenger’s medical bills, or for damages.

No Safety Net?

(Uber claims on its website it has a “commercial insurance policy for rideshare drivers.” But it also claims “all UberBLACK, UberSUV, or uberTAXI rides are provided by commercially licensed and insured partners and drivers. Those transportation providers are covered by commercial insurance policies, in accordance with local and state requirements” — a statement that isn’t true in Maryland.)

Without a government-imposed safety net, passengers take their lives in their hands when they travel with Uber.

“Technology is not a substitute for regulatory oversight,” says Paula Carmody, the Maryland People’s Council, who usually is critical of PSC actions. This time, the official whose job is to look out for consumers applauded the regulatory commissioners. They “got it right.”

Paula Carmody, People's Counsel

Paula Carmody, People’s Counsel

The commissioners also recognized that the Internet riding-sharing revolution is transforming the passenger-for-hire industry. They directed their staff to come up with new regulations within 90 days reflecting evolutionary changes in transport services.

The staff will propose ways to make sure Uber-type companies and drivers have sufficient insurance; that their vehicles are safe and inspected; that drivers are qualified, and that new technologies affecting rates and pick-ups can be applied to all of the state’s taxi-style companies.

Uber, though, continues to act like a spoiled child caught trying to empty the cookie jar.

PSC logo

It railed against the “PSC’s attempt to take choice and competition away from Maryland residents.”

Uber said it will “continue to defend the rights of riders and drivers to have access to the safest, most reliable transportation alternatives on the road.”

“Safest”? Hardly.

The notion that Uber cannot compete if it plays by the state’s rules is buncombe.

What Uber really wants is a built-in advantage over traditional cab and sedan companies. That can only be accomplished by operating outside Maryland law that governs the cab industry.

Level Playing Field

Uber has opened the door for other companies to benefit from technology innovations it has brought to passenger-for-hire car service. That’s what the PSC wants to see in its new regulations.

In other states, Uber is getting its way. It can continue its outlaw-status with minimal state interference.

Not in Maryland, where Uber is being asked to recognize the importance of regulatory laws designed to ensure public safety.

That’s what government is supposed to do — even in an anarchic Internet Age.

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