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2 years later, slots money for minority businesses

ANNAPOLIS — A portion of slots money intended to benefit small-, women- and minority-owned businesses is inching closer to being distributed to such companies, nearly two years after Maryland’s first casino opened.

The Board of Public Works Wednesday approved a Memorandum of Understanding between the board and Department of Business and Economic Development, authorizing the agency to finalize plans to seek a contractor to manage the money, which is expected to balloon to $12 million by the end of fiscal 2013.

DBED Assistant Secretary Ursula S. Powidski said the framework should be in place to begin disbursing the money by the first quarter of 2013. A Request for Proposals will be sent out soon. The winning bidder would then need approval from the board.

About $5.2 million is already in the fund, which constitutes 1.5 percent of gross slots revenue in Maryland. The fund is the smallest recipient of the state’s Video Lottery Terminal revenues, which have totaled about $345.6 million in almost two years.

But the money for small-, women- and minority-owned businesses has sat untouched since Hollywood Casino Perryville opened in September 2010 and began allocating revenue to the fund.

DBED officials said the money totals were too small to bother with, until recently.

“We do transactions at DBED, but they tend to be at a larger scale,” Powidski said. “If you’re doing a mom-and-pop loan, that’s really best done at the local level, where people understand that market.”

D. Gregory Cole, head of finance for DBED, said it did not make sense administratively to disburse the money until the pot grew larger.

“It has not [happened] yet because … they’re small, small amounts of money,” Cole said. But the projected fiscal 2013 total of $12 million is large enough.

The June opening of the Maryland Live casino at Arundel Mills mall, still growing but already more than double the size of the slots parlor in Perryville, has been the catalyst for the fund’s growth.

“That will be a huge slug of money,” Cole said. “It’s time to stand up a program.”

Powidski said the fund should continue to grow as casinos in Baltimore and Allegany County open within the next 18 months, and potentially when a Prince George’s County casino, if approved by voters, comes on line in 2016.

The Board of Public Works, comprised of Comptroller Peter Franchot, Treasurer Nancy K. Kopp and Lt. Gov. Anthony G. Brown, standing in for Gov. Martin O’Malley, unanimously decided to approve the memorandum, authorizing the agency to conduct a competitive bid to find an external money manager to handle the business loans.

But Franchot appeared to vote reluctantly. He said he did not understand why DBED had to hire an independent contractor to make the loans, since part of the state agency specializes in such transactions.

“It seems to me like you could do this in house, with your own staff,” Franchot told Powidski and Cole during the meeting. Franchot called the cash paid to an independent contractor — perhaps as much as 8 percent of the total fund money — “a significant amount.”

After presenting his case to the state’s spending panel, Cole said the upfront payment to the money manager was mandatory to attract bidders, who might not see a return on their investment for more than four years.

“We recognize you’re going to need some upfront funding to stand up a program. … Someone has to take the job of getting the money out,” Cole said. “It has always been the practice of the department, that because these are small transactions, they’re better dealt with by the guy down the street that knows you, than me sitting in Baltimore.”

DBED will still incur some costs, Cole said. He hopes that one of two agency vacancies can be filled, with the person hired for that job taking responsibility of monitoring the business loan payment. The cost of administering the process is expected to be $50,000.

“We do want oversight on who gets the money and how they use it,” Cole said.