Tag Archives: Martin O’Malley

Presidential Dreamin’

By Barry Rascovar

June 1, 2015 — What a surprise. . . . Martin O’Malley is running for president.

Gov. Martin O'Malley

Martin O’Malley

It’s now official but it hardly was a secret Maryland’s former governor and Baltimore’s former mayor would be spending the next nine months trooping around Iowa, New Hampshire, South Carolina and other key Democratic primary states.

At the moment, he’s a long, longshot. Ireland’s largest bookmaker, Paddy Power, puts O’Malley’s chances at 25-to-1. (Let’s hope he plucked some four-leaf clovers when he visited the Old Sod recently.)

That’s better than the odds on Vermont Sen. Bernie Sanders (33-to-1) or former Virginia Sen. Jim Webb (50-to-1), but they’re not O’Malley’s problem.

Climbing to the Top

Mount Hillary is the former governor’s Mount Everest of a challenge. Hillary Clinton is given an even-money chance of winning the presidency by Paddy Power. (Her closest rival, according to the bookmaker, is Republican Jeb Bush. His odds are 7-to-2.)

The latest (May 28) Quinnipiac Poll shows Clinton with 57 percent of the Democratic primary vote. O’Malley is a whopping 56 percent points behind.

Sanders registered a respectable 15 percent, Vice President Joe Biden (who may not even become a candidate) had 9 percent of the Democratic vote, and O’Malley was tied at 1 percent with Webb and former Rhode Island Governor and Senator Lincoln Chaffee.

Clearly, Martin O’Malley has a huge, almost impossible, challenge in front of him.

But we’re talking politics, here, not statistical mathematics. Anything can happen. And sometimes does.

Remember 1976, when a little-known ex-Georgia governor surprised everyone and not only won the Democratic nomination but went on to defeat President Gerald Ford?

Jimmy Carter was such a no-name that when he campaigned in Annapolis in the summer of 1975, I wrote him off after listening to him deliver a mundane speech to a dozen or so retired officers at the Naval Reserve Club.

So much for my crystal-ball abilities.

That Arkansas Governor

And remember when a former Arkansas governor came from behind to defeat the likes of Iowa Sen. Tom Harkin and Massachusetts Sen. Paul Tsongas to win the Democratic presidential nomination?

Bill Clinton even lost the Maryland primary to Tsongas, 43-36 percent, but ran the table in southern primary states.  He went on to defeat a sitting president, George Herbert Walker Bush.

In politics, miracles can happen.

It takes high-voltage energy, intestinal fortitude, the guts of a burglar, a solid record in government, a strong message and the determination to succeed no matter how bleak the situation.

O’Malley has all those attributes. He proved that when he ran for mayor of Baltimore in 1999 as a distinct underdog — the only white candidate in a minority-majority city. He shocked a lot of people by putting together a flawless campaign and winning fairly easily.

Then in 2006, O’Malley took on an incumbent governor, Republican Bob Ehrlich, and beat him convincingly.

But running a successful presidential campaign is in another, elite category — especially when you’re running against an overwhelming favorite whose husband remains the most popular politician in the nation and who would be the first woman to hold the country’s highest office.

Unknown to Voters

Hillary Clinton’s name recognition is near-100 percent. O’Malley’s is near-zero outside of certain political circles.

But O’Malley has the edge in actually running a large government bureaucracy, first in Baltimore and then in Annapolis. He has dealt with the tough urban issues and fiscal crises; he has crafted liberal legislative agendas and then negotiated his way to victory.

He is from a younger, more energetic generation than Hillary Clinton. He can even strum and sing his way to the presidency, if need be.

On the minus side, O’Malley will have trouble outliving has “zero tolerance” policing tactics he instituted in Baltimore as mayor. While mass arrests for petty crimes did, indeed, bring down the city’s crime rate, it embittered generations of blacks who took out their anger in a wave of civil unrest this April.

Zero tolerance is offensive to most liberal Democrats, and O’Malley may have trouble explaining his past support for that policing policy.

He also could have difficult explaining the dozens of taxes he imposed on Maryland citizens during his eight years as governor. By the time O’Malley left office, his unpopularity stemmed from his reputation as a relentless proponent of tax increases.

Republican Larry Hogan was elected governor last year by running successfully against O’Malley’s heavy-handed tax record. While this may not be a major detriment for O’Malley during the primaries, it could kill his chances of winning in a national general election.

At the moment, O’Malley’s candidacy seems hopeless. But what if Hillary Clinton has health problems (she’s already had one blood clot)? What if the “get Hillary” media and right-wing frenzy persuades her to withdraw?

What If. . .?

Or what if O’Malley’s solidly far-left agenda gains momentum in the early primaries among Democratic voters and he becomes the cover-boy favorite of the media and liberal interest groups?

It’s also likely that O’Malley has a back-up plan: Campaign like crazy throughout Iowa and New Hampshire, but if Clinton still buries him in an avalanche of votes, gracefully withdraw.

Then declare your abiding support for Hillary and fanatically campaign for Clinton around the country as  a surrogate.

Under this backup plan, O’Malley would aim for presidential elections in 2020 or 2024. He’d still be a relatively youthful (for a president) 56 or 60.

At the moment, O’Malley isn’t held in high regard in his home state. It’s not even certain he could win the Maryland primary.

Both U.S. senators and most of the state’s Democratic establishment are gung-ho backers of Hillary Clinton. The Clinton family is beloved in the state’s African American communities — a pivotal component in any Democratic primary.

Yet we’re nearly a year away from that election in Maryland. O’Malley has plenty of time to improve his position — and hope that the front-runner makes some fateful mistakes.

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Barry Rascovar’s blog is www.politicalmaryland.com. He can be reached at brascovar@hotmail.com.

Heartbreaking Failure of Leadership

By Barry Rascovar

May 4, 2015 — Baltimore deserves better. The citizens of Charm City, black and white, dutifully worked for decades to overcome obstacles of urban decline, including poverty and joblessness, with the goal of creating a thriving neo-urban, multi-racial environment attractive to residents and employers.

Those intent on achieving that dream have suffered a heartbreaking setback.

Failure of Leadership

Baltimore’s younger generation of African Americans decided anger and violence were more important than taking constructive steps toward empowerment.

They seized on a failure of leadership at multiple levels and drove their inflammatory actions, like a spear, through Charm City’s armor.

Partial Responsibility

The roots of this civil unrest will be analyzed for decades.

One obvious flash point could become a bone of contention in the Democratic presidential campaign. Another could dominate next year’s election for mayor.

History may record that both Martin O’Malley and Stephanie Rawlings-Blake, mayors past and present, bear partial responsibility for what went wrong in Baltimore over the last week.

O’Malley, who has set his sights on the U.S. presidency, won election in 1999 to Baltimore’s top position with the courageous support of Rawlings-Blake’s father, Del. Howard “Pete” Rawlings, one of the most influential power brokers in the Maryland General Assembly and a staunch defender of black Baltimore.

The O’Malley mayoral campaign of 1999 centered on the need for tougher police enforcement after eight years of a failed community policing policy under Baltimore’s first elected black mayor, Kurt Schmoke.

Indeed, O’Malley made a name for himself on the Baltimore City Council as a persistent critic of the soft, ineffective policing tactics put in place by Commissioner Thomas Frazier.

Discontent with Violence

Baltimore is a heavily African American city. For a white to win the city’s top elected post speaks volumes about the discontent with the violence and rising crime rate in 1999. Pete Rawlings’ endorsement of O’Malley over two major black contenders proved pivotal.

Martin O’Malley came into office promising a tough law-and-order stance that would deter crime. He initiated a zero-tolerance approach based on New York City’s successful “broken windows” theory — go after petty crimes, such as vandalism or a broken window, and it would prevent more serious criminal action. Young blacks simply congregating on street corners ended up in jail on suspicion of drug dealing.

Over 100,000 arrests were made one year (in a city of 650,000). O’Malley also embraced New York City’s statistical analysis, renamed Citistat, to pinpoint crime hotspots.

The two initiatives led to a dramatic drop in law-breaking. At the time, O’Malley was lauded for his tough stance that seemed to have made Baltimore safer. It also eased the way for his reelection as mayor.

Residue of Anger

But zero-tolerance sowed the seeds of discontent and bitterness among young black men. Much of the fury expressed on the city’s streets last week flowed from those mass-arrest sweeps and the targeting by police of young blacks during the O’Malley years.

His tough-on-crime approach as mayor stands in stark contrast to O’Malley’s current attempt to position himself as the ultra-liberal alternative to Hillary Clinton. Indeed, zero-tolerance policing is the antithesis of what Democratic liberals believe in.

His hard line on law enforcement could well dog O’Malley during presidential campaign debates and interviews.

His successor as mayor, Sheila Dixon, quickly discarded O’Malley’s zero tolerance strategy in favor of a more humanizing law-enforcement tool — increased on-the-street patrols and closer affiliation with community groups.

O-Malley and Rawlings-Blake

Mayors past and present in happier times

Rawlings-Blake has continued that less confrontational approach to policing.

Some now contend the mayor’s permissiveness on that first night of clashes encouraged young blacks to engage in looting, arson and attacks on policemen and firefighters knowing there would be no crackdown.

In hindsight, the mayor’s critics may have a point. But on-the-spot decisions are easily faulted after the fact.

No Rapid Response

Rawlings-Blake will be dogged over the next year and a half by those who point to her failure to go after the miscreants immediately — before the violence got out of hand.

Her mystifying refusal to request help from Gov. Larry Hogan Jr. in the critical hours leading up to the outbreak of lawlessness now looks like a tragic mistake. Her standoffishness from the governor since then defies explanation.

Prior to last week’s upheaval, Rawlings-Blake looked like an easy winner in next year’s mayoral election.

That’s no longer the case — especially with the hero-worshipping status accorded Baltimore’s new state’s attorney, Marilyn Mosby, who rushed to charge six police officers with a kitchen sink of wrondoing.

Winning convictions may prove infinitely harder, though, which could color the public’s perception of Mosby in the months ahead.

Former Mayor Dixon looms as a potential contender, too.

Clearly, Rawlings-Blake has some serious repair work to do politically, once things return to normal in Baltimore, if she hopes to remain in the mayor’s office for another term.

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Barry Rascovar’s blog is www.politicalmaryland.com. He can be reached at brascovar@hotmail.com.

Taming MD’s Structural Deficit

By Barry Rascovar

April 27, 2015 —  Can Republican Gov. Larry Hogan Jr. tame Maryland’s long-standing structural budget deficit? Judging from his first stab at it, he’s more than halfway there.

But high hurdles lie ahead if he is to reach the point where the state’s ongoing revenues far exceed annual spending.

Taming MD's Structural Deficit

Hogan may grumble to appease conservative groups about the remaining $206 million structural imbalance in the budget that’s been approved for the fiscal year starting July 1.

Yet that is a sharp reduction from the deficit anticipated back in November of a $525 million shortfall under Democratic Gov. Martin O’Malley.

Not Too Shabby

The General Assembly’s Department of Legislative Services (DLS) says Hogan is 68 percent of the way toward wiping out the structural imbalance — and if he continues to hold firm in denying state workers a 2 percent pay raise starting July 1, he will reach 82 percent of his goal.

Not too shabby for a Republican governor facing an overwhelmingly Democratic legislature.

Those deficit numbers will grow somewhat if Hogan decides to give Democratic lawmakers some of the $202 million they asked him to restore to various education, health and wage programs.

Still, Hogan begins preparation for his second budget in remarkably good shape.

It’s no secret that the Big Three growth items in Maryland’s budget are: 1) soaring debt service payments; 2) continually rising education aid, and 3) ever-rising health-care costs.

Too Many Bonds

Debt service alone will jump by $167 million next year. Payments on general-obligation bonds has tripled in the last three years. Hogan needs to take a hard look at ways to reduce or slow Maryland’s issuance of those bonds, including the always popular school construction allocations, which in July’s budget hits a record $380 million.

Complicating matters for the governor is Maryland’s too-slow economic recovery from the Great Recession. DLS estimates state revenues in fiscal year 2017 will grow a modest 4 percent. Yet it will take a 5.7 percent growth rate to balance spending with revenue.

More economic development is the key. That’s a long-term proposition, though.

Hogan’s aggressive “Maryland is open for business” theme won’t result in major tax gains for the state any time soon. So the governor will have to continue cutting back on state agency spending while finding areas where deeper cuts can be made without creating a harsh backlash in the legislature.

Ratcheting down the structural imbalance is Hogan’s best course. The problem is that he’s also determined to deliver on his main campaign promise — lower taxes.

Thus, balancing the state’s books isn’t enough. He’s got to go further so he can justify a tax cut that does not create a new structural deficit.

More Daunting Problems

That’s where Hogan’s problems multiply. Aid to local governments is a likely target, until you start to pull the plug on specific spending programs, like money for schools, police, fire-fighting, the poor, libraries and parks.

MD's Structural Deficit

Indeed, almost every area of state government spending affects huge numbers of Maryland citizens. Hogan must take care not to antagonize too many of them. If he does, it could jeopardize his re-election

Looking down the road, Hogan faces even more daunting budget difficulties, Indeed, DLS puts the state’s combined deficit for fiscal years 2019 and 2020 at $1.165 billion .

As bad as this sounds, it is a huge improvement over what O’Malley left behind: a combined estimated deficit for those two years of nearly $2 billion. Hogan reduced that future imbalance by 41 percent in his first budget.

Fundamental spending changes won’t be possible with Maryland’s Democratic legislature acting as a brake on Hogan’s budget-cutting tendencies. That’s why the slow-but-steady approach makes so much sense.

It won’t please Hogan’s absolutist supporters, but gradualism could prove the most practical and politically astute path to follow.

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Marylander of the Year

Gov. Martin J. O'Malley Martin Joseph O’Malley

By Barry Rascovar

Dec. 31, 2014 — Sometimes the most important man in the room isn’t there. That was the case with 2014’s Marylander of the Year, Gov. Martin O’Malley.

The state’s 61st chief executive dominated events throughout 2014, even when he often wasn’t present.

He was the centerpiece of the summer-fall gubernatorial campaign — though his name didn’t appear on the ballot and he was rarely spotted on the campaign trail.

He forcefully took control of Maryland’s fatally flawed health insurance internet exchange, assigned his best technology aides to take over — and didn’t say much after that.

As he has done in past years, O’Malley won nearly all his fights with the 2014 General Assembly — a much-needed higher minimum wage, marijuana decriminalization, domestic violence laws, expanded pre-kindergarten, education investments and public safety overhauls. Yet he did much of his work quietly this time.

He ended the year with a splash, too, grabbing headlines by commuting the death sentences of the last four inmates in Maryland on death row.

O’Malley also dominated what proved one of the state’s biggest stories — the ever-expanding billion-dollar budget deficit — by hesitating and then taking a meek step to tamp down expenses. He absented himself from stronger executive action that could have proactively reduced the troubling deficit for his successor.

Since the election of Republican Larry Hogan Jr. as the next governor, O’Malley has pretty much disappeared from view — except for his frequent forays to early primary states in his quest for the presidential nomination in 2016.

Most puzzling was the governor’s political vanishing act during the summer and fall.

This came as Hogan started pounding away at O’Malley’s tax-raising, big-spending record — the prime theme of the successful Hogan campaign.

By removing himself from the political fray, O’Malley thought he was doing Lt. Gov. Anthony Brown a favor. How wrong he was. Brown never seized control of the campaign.

Brown turned out to be a terrible defender of the eight-year O’Malley-Brown administration. The lieutenant governor essentially ran away from his own administration’s record.

Instead of trumpeting the good the Democratic team had achieved, Brown chose to ignore it. That left Hogan with the perfect opening to drum into voters’ minds the “evils” of the O’Malley-Brown years — dozens of new taxes, rampant overspending, open hostility to job-creating businesses and meager economic growth.

Without effective push-back from Brown, and with O’Malley missing in action, Hogan’s message resonated in the empty room.

By failing to take the field to defend his eight years in office, O’Malley damaged his reputation with voters.

Ironically, the governor is one of Maryland’s best-ever campaigners. When he rolls up his sleeves and plunges into crowds, when he pours out his story and tells what he’s been able to accomplish, Martin O’Malley is a powerful persuader.

Yet this time he failed to heed the clarion call to battle. He allowed Hogan to speak at length about the negatives of the O’Malley years without anyone raising a vocal, convincing counter-argument.

The governor also wasn’t present to energize the Democratic Party’s base. No wonder turnout was abysmal in key Democratic strongholds. Brown turned people off instead of turning them on.

It will be years, or even decades, before historians place Martin O’Malley’s record into proper context. The negative image of O’Malley’s years in office,  planted in Marylanders’ minds by Hogan, will remain with them for a long time.

“The evil that men do lives after them, the good is oft interred with their bones.” (Shakespeare, from Julius Caesar)

This is the case with O’Malley’s years in the State House. His good deeds aren’t what’s being talked about.

It need not have been this way. There was ample time for the governor to mount an effective counter-argument, but he fixed his attention firmly on what comes next after he leaves Government House on Jan. 21.

For his continuing role as the most dominant presence in the Free State’s political drama — even when he wasn’t on the stage — Martin Joseph O’Malley has justified his selection as 2014’s Marylander of the Year.

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Needed in MD: Truth-in-Campaigning

By Barry Rascovar

Aug. 25, 2014–Do Maryland’s gubernatorial candidates in the November election take voters for fools?

Do they really think they can con the electorate with promises of vast spending programs (Democrat Anthony Brown) eclipsing $1 billion a year or sweeping tax cuts and givebacks (Republican Larry Hogan Jr.) also topping ten figures?

Larry Hogan Jr. (left) and Anthony Brown

Larry Hogan Jr. (left) and Anthony Brown

What’s lacking from each nominee is truth-in-campaigning.

The only thing in doubt is which nominee is being more deceptive with voters.

At the moment, Hogan has the lead, though Brown isn’t far behind.

The Republican nominee for governor pledged at an event at Charlestown Retirement Community in Catonsville to drop all state income taxes on pensions. (He already had said he’d do the same for police pensions and for veterans.)

Cheers from the seniors.

How’s he going to pay for this?

Silence.

Transportation Promises

A few days earlier, Hogan pledged to county officials meeting in Ocean City he would immediately restore $350 million in transportation funding to subdivisions once in office.

Cheers.

Which transportation programs will be stripped of $350 million to make that happen?

Silence.

Brown, of course, felt he had to match – or come close to – Hogan’s outrageousness at the Ocean City meeting. So he told county officials he’d also restore the lost Highway User Revenue – but it would occur gradually.

No Funding Plan

Does Brown have a plan for stripping state transportation programs of $350 million to pay for this fund transfer or for hiking driving fees?

Silence.

Irresponsible might be the kindest way to describe the performance of these two politicians. They keep promising the impossible, as though voters take what they say as gospel.

Any citizen who believes promises of massive tax cuts or giant new spending is living in a fool’s paradise.

Government Spending

It’s not going to happen.

Seniors already receive big tax breaks from Maryland: Their Social Security checks are free of state taxation (but not federal tax).

They also get an extra $1,000 personal exemption on their state income tax return each year.

And if their Social Security amounts to less than $27,800 a year, their other pension income is exempt up to that level.

Lots of bills have been proposed by Republicans and Democrats in recent years to expand these retirement exemptions, but none has gotten out of committee.

Why? The enormous cost involved.

Pulling It Off

With the state of Maryland facing a minimum of $400 million in revenue shortfalls, how is Hogan going to pull off this prestidigitation?

Well, he’ll cut the shreds out of state spending like any good Republican.

But wait a minute – isn’t the vast bulk of state expenses mandated by statute?

Yes, indeed.

So slashing state taxes by a billion or so isn’t realistic – certainly not for a Republican governor in a state where liberal Democrats have a stranglehold on the Maryland legislature.

Tax Cuts

Nor is Brown’s pledge of a countless new program spending any more realistic.

The lieutenant governor, for instance, claims he can pay for $108 million in affordable housing appropriations through budget cuts suggested by state employees.

Is he serious? A hundred million in savings via the suggestion box?

If he’s lucky, these ideas might lead to savings of one-one-hundredth of that amount. Or maybe an optimist might aim for one-tenth of Brown’s wild-guess of what employee-prompted savings would bring in.

Wonderland

It’s all an adventure in fantasy budgeting.

Let’s call it, “Larry and Anthony in Wonderland.”

If a conservative Republican governor like Bob Ehrlich couldn’t rein in state spending by billions of dollars, how is a more moderate Larry Hogan Jr. going to pull that off in a solidly Democratic state?

Bob Ehrlich (left) and Hogan

Bob Ehrlich (left) and Hogan

And if a liberal Democratic governor like Martin O’Malley couldn’t find the means to launch massive new spending initiatives – despite raising taxes over 40 times – how is Anthony Brown going to carry out a far more ambitious agenda?

Neither candidate is leveling with the Maryland public.

The state’s economic recovery remains uneven. State finances are falling short of projections due to federal spending hold-downs and weak job growth.

Unrealistic?

Both Hogan and Brown are setting up supporters for bitter disappointment. Neither candidate can deliver on their sweeping promises.

At best, the November winner will muddle along pretty much the way Ehrlich and O’Malley did in far more difficult economic times.

Ehrlich moderated state spending growth during his term and left a fat surplus,  but he failed to achieve permanent government downsizing.

O’Malley will leave office in January having raised lots of taxes and raided a variety of funding sources to keep social programs intact during the worst recession in 80 years. He failed, though, to dramatically expand government social services affecting working families.

Brown (left) and Martin O'Malley

Brown (left) and Martin O’Malley

Neither governor proved a miracle worker.

Brown and Hogan aren’t political magicians, either.

It’s time for them to start speaking the truth to Maryland’s electorate.

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O’Malley’s Folly, Part II

More on the ex-Mayor’s Hotel Fiasco

HOW DEEP IS the hole former Mayor Martin O’Malley dug for Baltimore City by insisting that the city put up its own money to build the now-struggling Hilton Baltimore convention hotel?

Here’s what an acquaintance with years of commercial real estate expertise messaged (in an edited form):

“Without getting too technical, there is an old rule of thumb in hotel finance circles, especially when the facility is of scale (i.e., not just an extended-stay hotel but has meeting spaces, etc.).

Hilton Baltimore

Hilton Baltimore

” ‘Break-even’ operations (enough cash available to pay debt service) equals about 1 percent of room costs with an average daily rate (ADR) of 70 percent occupancy.

“So by that math:  $300 million in bonds, 757 rooms requires $396,000 per room. (Yes, the City is in for almost $400,000 per room just in financing alone.)

“One percent of room cost is $396 per night.

“2012 figures show the Hilton Baltimore booked 161,469 room nights, or 58 percent occupancy.

“There is a long way to go on this one.

“Can we have a sidebar on the hotel’s architecture?”

Nowhere Near ‘Break-even’

Here are more comparisons: Projections called from the Hilton Baltimore to post average daily room rates of $214.70 last year. In reality, it reached an average daily rate of only $170.79.

That’s not even close to the $396 per room rate or the 70 percent occupancy rate needed to break even and keep pace with the hotel’s enormous, overhanging debt burden.

Want to know why cities don’t own convention hotels themselves? It’s self-evident.

Why O’Malley as mayor insisted on such a high-risk venture that saddles Baltimore with a money-losing hotel for years to come is still an open question.

It’s one he may have to answer, though, if his national campaign for higher office develops any momentum.

Architectural White Elephant

As for the request for a sidebar on the Hilton Baltimore’s plain-vanilla, view-blocking (from Camden Yards) architecture, I leave that to others with more credentials.

Suffice it to say the building is antiseptic and lacking in redeeming architectural value.

It adds nothing to the city skyline, even as its finances sink the city deeper and deeper into debt.

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O’Malley’s Folly

By Barry Rascovar

BALTIMORE CITY has a white elephant on its hands, a $301 million, deep-in-debt convention hotel it owns because of the folly of its former mayor, Martin O’Malley.

Back when the city was desperately trying to boost its sagging convention business, then-Mayor O’Malley and his economic development team insisted the answer was a convention hotel directly linked to the meeting facility.

He was right, but his method for getting the Hilton Baltimore built has put his City Hall successors in a frightful financial bind that will only worsen with time.

The Lure of the Buck

O’Malley and his inner circle got sucked into the misguided belief that Baltimore could reap a badly needed bonanza by owning the convention hotel itself.

Martin O'Malley

Martin O’Malley

They fell for the preposterous estimate by one developer group that the city could earn a profit of $300 million over 30 years by owning the hotel, and that Baltimore then could sell the facility for $400 million more.

It was buncombe, as H.L. Mencken might say.

Anyone with a whiff of skepticism could smell the hype and spot the puffery of such an outlandish prediction.

Yet it left the then-mayor salivating for a big payoff for his struggling city.

It was a high-risk gamble that required extensive deal-making with doubting City Council members to gain approval on a 9-6 vote.

And then things fell apart.

What Went Wrong?

The Great Recession wiped out all those rosy forecasts for the convention hotel.

This was predictable.

A convention expert from Texas pointed out that cities too often fall into the trap of believing a headquarters hotel will simultaneously increase convention center business and generate enough revenue to pay off bonds.

It rarely works that way.

Pie-in-the-sky economic projections for convention hotels fail to take one pivotal factor into account, he said – the virtual certainty of a sharp economic downturn once or twice a decade that devastates hotel business.

Red Ink Every Year

Hilton Baltimore lost $17 million in its first, partial year during the Great Recession. It lost in the vicinity of $11 million in each of the last two years as the economy continued to struggle.

Hilton Baltimore

Hilton Baltimore

All told, the hotel’s losses top $50 million.

The city will owe $18.5 million on the Hilton Baltimore’s debt next year and $28 million by 2039. The hotel’s revenue last year, not counting expenses, was only $17.4 million.

And if Baltimore decided to get out of the hotel-ownership business, a consultant says it would lose as much a $90 million in a sale.

Thank you, Martin O’Malley.

Was There Another Choice?

Early in the convention hotel discussion, O’Malley said, “We want to do this with as little exposure as possible for the citizens of Baltimore.”

Indeed, there were other options besides city ownership.

One of the three bidders, the prestigious Portman architectural group from Atlanta, offered three different alternatives, including private financing.

But the lure of a giant windfall for Baltimore city proved too powerful.

O’Malley should have listened to one of the wisest voices on the City Council, the veteran urban advocate, Mary Pat Clarke, whose husband is a developer.

Mary Pat Clarke

Mary Pat Clarke

“Should we really be in the hotel business?” Clarke wanted to know.

“Let [private investors] take the risk.”

Another insightful councilman (now a state delegate), Keiffer Mitchell Jr., noted:

“The city should not be in the business of owning a hotel. We have a hard enough time trying to manage our housing stock and our school system. This is one more headache we don’t need.”

Baltimore’s Dilemma

In a premonition of what was to come, Clarke worried that once the hotel starts losing money, “we would really be cutting into revenues the city expects to use for other uses.”

So now Baltimore is stuck with an antiseptic, view-blocking albatross of a convention hotel that diverts millions in city tax revenue away from schools, housing and neighborhood services.

But the person primarily responsible for this debacle is nowhere in sight.

He lives in Annapolis, across from the State House, and spends his days campaigning for national office.

Baltimore’s on-going convention hotel mess is no longer on his agenda.

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The MD State Pension Debate Rolls On. . . .

September 24, 2013

SOME ISSUES never lend themselves to permanent solutions. Government-run pension plan projections fall into that category.

I posted a pension column on July 31, which spurred historical recollections from former state Sen. Bobby Neall (August 7), state Treasurer Nancy Kopp  (August 8) and  former Ehrlich budget director Cecelia Januszkiewicz (August 8), followed by Del. Andy Serafini’s plea for a more cautious approach to estimating future rates of return, and state pension director Dean Kenderdine’s explanation of why the state pension trustees opted for a gradually reduced rate, but not by as much as some urged.SRPS_Logo

Now Serafini delivers another essay that lays out more reasons why the state should further lower expectations of investment returns in the years ahead.

Economic Puzzle

His point echoes conservative economists, who see the glass as half-empty rather than half-full. This is an age-old conundrum: Should the Federal Reserve encourage or discourage higher interest rates and if so by how much? Should the Fed reduce its quantitative easing policy or maintain it? What’s the proper projection for pension investment returns?

No one has a crystal ball that is accurate all the time. Only after the fact does someone suddenly claim “genius” status for predicting a bull or a bear market — until the next time.

Del. Andy Serafini

Del. Andy Serafini

Serafini, a financial planner, notes there are political reasons for Maryland maintaining a much higher expected rate of investment return than he would like.

That was made clear when the pension trustees opted to gradually lower the projected rate of return a tad. Len Lazarick, ace reporter/publisher of MarylandReporter.com, covered the pension trustees meeting and noted that when the state’s actuary said it would be wiser to drop the projected rate right away to lower levels, state budget secretary Eloise Foster responded: “I don’t know whether we could afford it right now.”

It would cost hundreds of millions of dollars each year to drastically scale back Maryland’s assumed rate of investment return. That money would have to come out of the general fund budget, forcing major cutbacks in social programs and aid to the counties.

Democratic Gov. Martin O’Malley isn’t about to ruin his reputation for preserving and strengthening social programs just to fortify the pension program’s financial underpinnings . Even Republican Gov. Bob Ehrlich didn’t pursue that course.

Dissatisfied Conservative Voices

Given this fact of life in Annapolis, the pension trustees voted to take a gradual approach in shaving projected investment returns. It doesn’t satisfy Serafini and other conservative voices, as he makes clear in his latest essay:

Dear Mr. Rascovar,

I read with great interest [Dean] Kenderdine’s recent response to my comments. Unfortunately for Mr. Kenderdine [Executive Director of the Maryland State Retirement and Pension System] I have kept him very busy responding to my various letters to the editor or other past commentaries.  I should say that I have tremendous respect for members of the Board of Trustees as well as Mr. Kenderdine.  They have a very difficult job to do.  It is made more difficult having to put up with politicians.

Currently, there is a great debate occurring across our country regarding the proper basis for valuing liabilities in pension plans.  Whether it is the bond rating agencies, Pension Benefit Guaranty Corporation or the American Academy of Actuaries, the opinions vary greatly.  Corporate defined-benefit pension plans are federally required to use an index tied to corporate bond rates, which allows them to use a rate in the 4% to 6% range (with certain exceptions).  Many public pension plans justify their current rates in the range of 7% to 8% based upon past experience.  However, the current assumptions are forward-looking and few believe the next 25 years will prove to be as favorable to investors as the past 25 years.

I particularly found Mr. Kenderdine’s comment that Moody’s “arbitrarily” selected a lower rate in calculating the unfunded liabilities of states such as Maryland to be interesting.  If we are supposed to trust that the AAA rating Maryland receives to be well-earned through the august body of analysts such as Moody’s, why would we expect that they would be arbitrary in choosing such a significant method for determining pension liabilities?  For the record, they use an indexed rate based upon a corporate bond rate that is duration specific and relevant to most plans, including Maryland’s.

To remove all the clouds and esoteric conversations, we need to consider what is really going on here. If we consider what is known as the “prudent man rule,” it may shed a different light. This is a requirement of all fiduciaries that states that any one exercising control over assets for another person (i.e. the pension participants as well as the taxpayers) should exercise the care and prudence acting in the beneficiaries’ sole interest. The problem is that if we use a lower assumed rate like private pensions and the others are suggesting, that would lead to significantly higher annual contributions.

What Mr. Kenderdine did not say is it is politically uncomfortable to lower the expected earning rates because of these significantly higher annual contributions. These increases could be as much as several hundred million dollars or more over the years if we were to lower the rates just by a percent or two. Compounding matters, the annual growth in contributions to these plans is currently restricted by Maryland law, which precludes contributing an amount recommended by the actuaries.  Such a practice would be illegal in private sector pension plans. While it may create significant budget strains, I believe as fiduciaries the lower rates tied to an index is acting in the best interest of the plans. Keep in mind that if there are shortages the taxpayers and participants ultimately bear the risk. Just ask the people in Detroit.

They will argue that public plans can use higher rates due to the past performance and that, unlike corporations, they do not risk going away. In my previous letter I explained why future results will struggle to match the past 30 years. Warren Buffet has also said that anyone expecting over 7% is foolish.

Rick Dreyfuss a senior fellow with the Manhattan Institute and pension expert argues there is another problem with the current funding methodology.  Most of the current employees that have significant accrued pensions will retire in the next 15 years. We are planning to pay off the unfunded liabilities for these individuals over 25 years. This would be like buying a car that you plan to own for five years and taking out a ten-year loan. This means that we will be paying for the liability well after the people retire. Not a prudent approach in my opinion.   Moreover, such a demographically driven accounting policy for pensions was recently revised and adopted by the GASB as their formal accounting standard. Bond rating agencies such as Moody’s also analyze credit risk with such a concept in mind.  Both entities also favor the use of the market value of assets to determine annual pension cost versus the rolling average approach used by most public sector plans including Maryland’s.  The use of the market value of assets is also a federal requirement of private sector defined benefit plans. This approach, while arguably creating somewhat more volatile results, better ensures costs are properly recognized rather than deferred to future generations.

The bottom line is, as I said in my earlier correspondence, a more cautious rate is more prudent to properly fund the pension plan. If the performance is better that would mean future contributions could be reduced once the funded status reached appropriate levels of 80% or more. Using higher expected interest levels reduces the mandatory contributions and passes the risk not only to pension participants but to the taxpayer who is the ultimate backstop. As a public official, taxpayer, and financial adviser I cannot support that type of approach.

Andy Serafini

Maryland’s New Taxes: Why Now?

By Barry Rascovar / July 2, 2013

TAXES ON GASOLINE in Maryland went up 3.5 cents on Monday; crossing toll bridges and tunnels got a lot more expensive, especially for truckers. Fees to combat stormwater pollution kicked in as well in the greater Baltimore-Washington area.

Higher gas taxesIt’s a big pill to swallow, even in a state whose leaders have felt no compunction about raising over 40 taxes, especially on businesses and the well-too-do, during the O’Malley-Brown reign in Annapolis.

Yes, the fees and taxes that commenced July 1 are necessary over the long run. We may not like it, but progress comes with a price.

Land of Toxic Living?

Would we rather watch bridges collapse, beltway congestion mushroom and pollution of streams, rivers and the Chesapeake Bay turn Maryland into the “Land of Toxic Living”?

It’s the timing and the size of these tax increases that are so terrible.

The burden imposed on businesses and non-profits is harmful and counter-productive. Critics have a right to mock the state’s chief executive by cynically shouting: “Pile high the taxes, Martin!”

Wait Till Later

Even worse, the first stage of the gasoline tax in Maryland pales compared with future increases dictated under the new law that could total 65 cents. The cries of anguish and anger will dog the next administration in Annapolis — a gift from the departing governor.

It didn’t have to play out this way.

A thoughtful, practical and courageous approach by political leaders in the Maryland State House would have led to action much sooner. That would have meant smaller levies phased in over time and two decades of transportation and environmental upgrades.

A Better  Way

It’s no surprise that more must be spent today to stem pollution caused by stormwater runoff. If Maryland had acted sooner, the fees would have been more modest and the remediation would have been cheaper.

Instead, O’Malley & Co. waited . . . and waited . . . and waited until the Environmental Protection Agency strong-armed Maryland and other nearby states to commit to big pollution cleanups.

It also was no surprise Maryland needed more money to repair dilapidated bridges and highways. Yet no governor and no legislature in the last 20 years had the courage to do the right thing..

Gone With The Wind

Instead, they took the Scarlett O’Hara approach: They put off difficult decisions until Maryland faced a transportation crisis and construction costs had soared.

As a result, Marylanders face a raft of gas tax increases that eventually will make this state one of the costliest in the nation at the pump. The new tolls for some truckers are so severe it may put their businesses in jeopardy.

Governors and legislators also dramatically raised the cost for fixing transportation and environmental shortcomings by waiting.

Parris Didn’t Get It

Had Gov. Parris Glendening overcome his political trepidation and acted in the best, long-term interests of Maryland he would have insisted in the 1990s on a gas tax increase tied to inflation. He also would have imposed modest fees to stem sewage plant and stormwater pollution of the Chesapeake.

The same can be said of Bob Ehrlich, who jacked up transportation licensing fees instead of biting the bullet with a far larger tax increase at the pump. He deserves credit, though, for imposing an unpopular “flush tax” to modernize sewage treatment plants. It didn’t win him points with conservatives — and hurt his reelection chances — but it was the right thing to do.

O’Malley failed to seize his moment (“carpe diem”) in 2007 when he had a golden chance to ram through a gas tax increase along with slots legalization. A small environmental cleanup fee could have been tacked on at that time, too.

So Many Missed Opportunities

We could have averted the current round of tax hikes but no one in the State House took the high road. They worried about re-electability instead of Maryland’s long-term viability.

We would have had better roads and bridges, too, and a cleaner Chesapeake Bay had our political leaders acted wisely in the past. Two decades of progress in transportation and the environment were lost.

Our leaders haven’t been very courageous. We’re paying the price for that today.

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Towson University leaves teams abandoned

By Barry Rascovar/ The Community Times/ May 1, 2013

If your son excels at baseball or soccer and is looking to play that sport in college, you can forget about sending him to Towson University.

In a comedy of errors, Baltimore County’s largest higher education institution disbanded the two men’s teams, despite the popularity of each sport.

President Maravene Loeschke wielded the ax. She bought the logic of her athletic director that Towson must divert sports revenue to turn its basketball and football programs into regional powers.

Unfortunately, her public explanation also involved the need to bring equity to women’s sports at Towson. She picked an odd way to make that happen.

Especially cruel was the university president’s delivery of the bad news. On short notice she summoned the two teams, showed up with security guards, made her announcement and left without answering questions from the stunned audience.

It was a heartless display of authority. The students were treated more like discarded furniture than confused, emotionally upset individuals. Loeschke shattered their college dreams yet couldn’t take time to show any empathy.

No wonder she ended up in hot water with both the governor and state comptroller. No wonder her actions precipitated vocal protests from some alumni.

Baseball won a two-year reprieve when the governor found $300,000 to rescue the program while supporters try to raise funds to make the reprieve permanent. Soccer, the world’s biggest sport, got no such relief.

Critics have pointed out that shifting resources to the football and basketball programs won’t turn Towson into the UCLA of the East.

Even if every seat in Towson’s new arena and Unitas Stadium is filled, the crowds will be puny next to the College Park teams that join the Big Ten athletic conference next year.

Towson will never be — nor should it be — a training ground for athletes who turn pro after a few years in college. Loeschke is throwing money at a vision that isn’t realistic.

At the same time, complying with federal equal opportunity regulations need not come at the expense of existing sports programs. Wallace Loh, president of the University of Maryland, College Park, roiled that suburban Washington campus when he disbanded eight men and women sports teams last year for lack of funds. But he did so with a great deal of compassion, calling his decision “heart-wrenching.”

In both cases the affected students felt betrayed. Their college lives had been ruined by administrators who couldn’t balance their budgets.

Many are transferring to other schools. But that will be traumatic and expensive.

It is a sad story, which will reverberate for years at Towson University. These student-athletes deserved a better fate.

Barry Rascovar is a Reisterstown writer and communications consultant. He can be reached at brascovar@outlook.com.