Chairman’s Message:
Questions Continue about 
State's Controversial Baltimore
Real Estate Project

Earlier this past week a Baltimore City Circuit Court judge cleared the way for a legal challenge alleging irregularities in the state approved support for the proposed $1.5 billion "State Center" real estate development in Baltimore. The plaintiffs claim that state officials broke the law when designating the project's developer.

"State Center" plans call for the construction of about 1 million square feet of office space for 3,500 state employees on a state-owned 28-acre property in mid-town Baltimore. The state's Board of Public Works had approved partial financing for the project last December by a 2 to 1 vote, with State Comptroller Peter Franchot opposing Governor Martin O'Malley and Treasurer Nancy Koop.

Project critics cite a recently released report by the Maryland Public Policy Institute and the Maryland Tax Education Foundation which estimates that the first phase of the project represents a $127 million handout from state taxpayers to the developers. The report charges that the state is leasing state owned land to the developers at a bargain valuation, paying for infrastructure improvements and then leasing office space from the developers at rates on average $10 per sq. foot above comparable Baltimore office rents.

The joint report, "State Center, Phase I: The $127 Million Taxpayer Handout" concludes that state officials have understated the true public cost of the project. According to the authors, the true cost does not only includes direct public financing of the building, but also "the state's agreement to pay above-market rents for office space, a state-financed parking garage, the use of state-owned land, the use of tax-increment-financing bonds for the project, and the handing out of tax credits."

One of the report's authors, Maryland Public Policy Institute Senior Fellow Gabriel J. Michael, emphasized that their $127 million subsidy estimate only accounts for the first phase of the project: "Detailed information is currently only available for the first phase, so our estimate is necessarily partial. If the later phases proceed, the actual taxpayer subsidy will be significantly larger."

The latest study adds to the list of skeptical analyses of the State Center project. Two reports, written by the Maryland legislature's nonpartisan Department of Legislative Services, concluded that the project "was not in the best interest of the State" and explicitly recommended against its approval. The "State Center's" developers also have had a checkered history.

Initially Doracon Contracting was designated by government officials as the "State Center" project's lead developer. However Dorcan was dropped after its President, Ronald Lipscomb, was indicted on charges of bribing Baltimore Mayor Sheila Dixon. The Mayor was convicted on these corruption charges and removed from office.

While Lipscomb is now gone from the project, a new set of developers have been designated. These include McCormack Baron Salazar, which enjoys a self-described "strategic partnership" with Goldman Sachs.(1)  According to the Center for Political Accountability, Goldman Sachs is a major funder of the Democratic Governors Association, chaired by Governor O'Malley. In recent years they have contributed $350,000 to the Governor's group.(2)

The law suit against the state being considered this week was brought by a large group of Baltimore property owners who contend that the subsidized project will hurt downtown real estate. The office market is already struggling with office vacancy rates in excess of 20 percent.

The State Center project is yet another piece of "crony capitalism" advocated by Governor O'Malley. Earlier this year he was pushing for the "Maryland Offshore Wind Energy Act" which would have added a surcharge on Maryland consumer electric consumer bills to subsidize a uneconomical offshore wind power production scheme being promoted by the Governor's former Chief of Staff. Utility analysts told the legislature that the cost was likely to be in excess of $84 per year per consumer or over $3 billion over the life of the project. Fortunately for Marylanders, the legislature declined to pass the Governor's bill.

With state resources already stretched, rather than committing to an expensive new office project in Baltimore, the state should take full advantage of excess Baltimore downtown space inventory to lock in longer term private office leases. Obligating the state to pay for unnecessary new office space construction is against the state's interests.

Mark Uncapher
Montgomery County Republican Chairman

(1) McCormack Baron Salazar And Goldman Sachs
(2) Political Transparency and Accountability Profile (2011): The Goldman Sachs Group, Inc. (GS)