Tag Archives: State Center

Re-imagining State Center

By Barry Rascovar

Jan. 2, 2017–As an early New Year’s gift to Maryland taxpayers, Gov. Larry Hogan, Jr. delivered the final blow to an outrageously priced scheme to turn over to private investors the 28-acre State Center complex in Baltimore for redevelopment.

Re-imagining State Center

The $1.5 billion State Center plan rejected by the Board of Public Works.

Hogan’s predecessor as governor, Martin O’Malley, had pushed hard  forthe State Center deal in a way that benefited the developers but left the state with unconscionably high rental payments for the next half-century – beginning at $30 million or more per year and escalating by 15 percent every five years.

O’Malley’s proposal also would have threatened the state’s triple-A bond rating by smashing through Maryland’s debt ceiling.

Additionally, the deal hinged on the state constructing for the developers a high-priced underground garage, costing $28.3 million. The money to pay for the 20-year bonds on the garage would come out of the state’s struggling Transportation Trust Fund at roughly $2 million a year.

As an extra kick-in-the-pants, state workers would have to pay to park in the underground garage even though they now get free parking on surface lots at State Center.

It was a boondoggle of immense proportions disguised as a mixed-used redevelopment of State Center to help revive midtown Baltimore.

Public-Private Partnership

The initial plan, worked out by former Gov. Bob Ehrlich in the early 2000s, made sense as a model for smart transit-oriented development. It was the sort of public-private partnership that would benefit Baltimore, the state and the developers – office space, retail, apartments and community amenities centered around two mass-transit lines.

Then came the Great Recession. What had been feasible plans for State Center’s re-birth crumbled. As lingering effects of the recession dragged on, the State Center proposal took on more of a Mission Impossible cast.

When O’Malley revived the concept with new developers and a new set of financing figures, what had been a good deal became more and more suspect.

The legislature started asking questions and looking at the proposal’s details. Analysts for the General Assembly didn’t like what they discovered.

The state was being asked, essentially, to underwrite this massive $1.5 billion project. There would be only one prime tenant in the developer’s lone Phase One building – the state of Maryland, occupying nearly all of the office space.

Even worse, the developers wanted to charge the state unheard of water-view rental rates for a mid-town building in a tenuous neighborhood overlooking other mid-town buildings, a hospital and a public housing project.

Then the underground garage was added to the state’s to-do list by the developers. As the Department of Legislative Services put it, “A significant amount of private investment has been continuously stripped out of the plan.” It was replaced by state taxpayer dollars.

Kopp, Franchot Skeptical

Comptroller Peter Franchot bailed out as a State Center supporter some five years ago, complaining about the exorbitant rents and the fear of losing Maryland’s money-saving triple-A bond rating.

Treasurer Nancy Kopp kept worrying about breaching the state’s borrowing limit by undertaking the capital leasing costs of the State Center project.

Thus, O’Malley no longer had the votes to gain Board of Public Works approval to complete the revised deal with the developers.

When Hogan entered the picture, he tried to work out a fair settlement that would not leave the state holding the bag and the developers reaping all the rewards.

He even turned to mediation with the developers. But the numbers wouldn’t work unless the state contributed heftily to the privately built project.

So Hogan pulled the plug on the State Center arrangement just before Christmas and then sued the developers to leave no doubt the deal has been cancelled.

What Next?

The fate of State Center after the legal finger-pointing ends is an open question.

It would cost in excess of $200 million for the state to replace its office buildings on the site. That’s capital money the state lacks at the moment.

More sensible would be leasing deeply discounted office space for state agencies in nearly empty downtown high-rises while working with the city on a new residential-and-retail plan for the State Center acreage.

Franchot even proposed a pie-in-the-sky idea: a large sports arena for Baltimore at  State Center. Hogan immediately asked the Maryland Stadium Authority to investigate this remote possibility.

It’s unfortunate a prolonged recession cut the economic legs out from under the original State Center development plans.

But it did.

Now it’s time to start all over.

Let’s re-imagine what State Center could become a decade from now: A catalyst for strengthening midtown neighborhoods, creating a new corridor of residences and shops, and givng state workers quality office space for state workers on the current site or at a more affordable location somewhere in Baltimore’s downtown area.

Hogan faced reality and pulled the plug because the deal on the table didn’t work. His next move will be even more important: defining the future uses for this valuable 28-acre property.

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Will O’Malley’s Folly Become Hogan’s?

By Barry Rascovar

March 28, 2016—The State Center boondoggle is back on the table.

This controversial deal, involving state buildings on 28 acres in midtown Baltimore, was tailored for developer-allies of former Gov. Martin O’Malley. It ended up on the back burner in December 2014 when the extent of the giveaway persuaded Comptroller Peter Franchot and Treasurer Nancy Kopp to put a hold on the last approval necessary.

Since then, Gov. Larry Hogan, Jr. has kept the project on the shelf – where it belongs.

Will O'Malley's Folly Become Hogan's?State Center vision

Developers’ $1.5 billion State Center vision in midtown Baltimore

But in the last few weeks, Hogan’s economic development chief, Mike Gill, said the administration was reviewing the $1.5 billion project anew. A decision on what to do at the Baltimore workplace for thousands of state employees could come before January.

There’s no question government workers deserve better quarters. The 60-year-old State Center complex is badly out of date. New accommodations need to be pursued. The worst course of action, though, would be to proceed with O’Malley’s white elephant.

Outsized Rents

Under the deal worked out by the former governor, the state, which now pays no rent at State Center, would be charged sky-high monthly rates for occupying space in a new, privately owned structure. The lease payments of $18.5 million a year would escalate every five years over the next two decades.

Such high rental rates are comparable to Inner Harbor, water-view office space.

The state also would be responsible for maintenance and security expenses, bringing payments to $30 million annually just in the first five years.

Additionally, the state would lease the entire 28-acre State Center property to the developer for a ridiculously low ground rent. A prime parcel near downtown would be virtually gifted to the development team.

The developers also want the state to pay for a costly underground garage in the first new office building. This $28.5 million expense would deplete the Transportation Trust Fund just when demand for road and bridge improvements is in high demand.

In another twist, state workers who receive free surface parking at State Center, would have to pay to use those underground spaces.

Bond Rating in Peril?

The most troubling aspect for Hogan is that the State Center plan could cost Maryland its coveted triple-A bond rating.

Because the developers want to use the state’s locked-in rent payments – nearly $500 million over the next 20 years – to obtain private financing for the massive project, the payments qualify as a capital project.

As such, the State Center development would blow the lid off Maryland’s debt ceiling. It would mean cutting other projects from Hogan’s construction plans and could lead to higher interest rates when Maryland goes to the bond market.

It’s a bad deal for taxpayers, and for Hogan, who inherited this mess from O’Malley (and from Republican Gov. Bob Ehrlich, who announced the heavily subsidized state-private sector project prior to the Great Recession).

Joe Getty, Hogan’s chief legislative officer, was in the state Senate when his budget committee reviewed the State Center project in late 2014. He concluded that the excessive rent charged the state “sets us up to cut [other] projects that have strong commitments in other areas,” such as money for Baltimore City school construction and bond money for a new Prince George’s County hospital.

The Department of Legislative Services noted at the time that the State Center undertaking “will require a significant amount of annual general fund appropriations that could be avoided if the State instead constructed new or renovated space to replace the aging State Center infrastructure.”

Moving Downtown

Another promising avenue for Hogan: Move State Center workers into modern, renovated office space in Baltimore’s Central Business District.

Huge vacancies exist there – upwards of 30 percent and growing – which translates into deeply discounted rents. The state could lock in long-term leases at excellent prices and avoid paying future maintenance costs.

At the same time, DLS suggested the state could sell State Center’s buildings and 28 acres to the highest bidder. This would partly offset the cost of renting new office space downtown and avoid costly repairs at the current buildings.

That seems to make more sense than going forward with a sweetheart arrangement concocted by Hogan’s predecessor.

Here’s another oddity: The Ehrlich administration never bothered to seek competitive bids for the State Center project. After the initial development group dissolved during the Great Recession, O’Malley renegotiated the same deal with a slightly different group of developers.

Now may be the time to see what State Center’s 28 acres bring on the open market and what imaginative uses other developers suggest for the site – using their money, not the state’s.

No Termination Clause

That likely would require a payment to the current developers to terminate their contract with the state.

Here’s why: O’Malley’s State Center deal lacked a “termination for convenience clause.” This is routinely inserted into every state contract – but curiously not this one. Thus, the state is locked into 20 years’ worth of lease payments – pure gold for the builders – unless the developers are bought out.

For Hogan to endorse the current project makes little logic. It would saddle the state with unnecessary additional debt and exorbitant annual lease payments for two decades, endanger Maryland’s bond rating and squeeze other state construction priorities.

It also would amount to an endorsement of a questionable state subsidy pushed through by his Democratic predecessor.

Proceeding in a new direction might be Hogan’s best option.

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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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