State Center plan re-emerges, raises concerns

and Adam Bednar//December 3, 2014

State Center plan re-emerges, raises concerns

By Bryan P. Sears

//and Adam Bednar

//December 3, 2014

A $1.5 billion plan to redevelop the State Center government complex has re-emerged and so have concerns about the costs of the project, its timing and its potential effects on the state budget.

The proposed mixed-use, transit-oriented development project combining government office space with a retail component at the site of a current state government building and the Fifth Regiment Armory building could come up for approval by the three-member Board of Public Works on Dec. 17.

But one state legislative leader has requested that action on the project be deferred and has asked that budget and transportation officials appear at a Dec. 9 hearing to discuss changes in the project and the potential fiscal impact.

“The costs have had to go up in four or five years,” said Sen. Edward J. Kasemeyer, D-Howard and Baltimore Counties and chairman of the Senate Budget and Taxation Committee. “What’s the increase to us? We want to see if this project is something that is within the state’s means and if it still makes sense for us, is it a good deal for us.”

A decision on the project by the Board of Public Works could come during the waning days of the outgoing O’Malley administration, which since the November election has sought more than 30 regulatory changes, including a controversial pollution management requirement that has angered Eastern Shore poultry farmers. The O’Malley administration also is considering some of the strictest fracking regulations in the nation.

These decisions have angered Gov.-elect Larry Hogan who described the actions as “midnight decisions.”

The Board of Public Works is made up of the governor, comptroller and treasurer. Hogan would replace O’Malley after he is sworn in to office on Jan. 21.

Kasemeyer, in a Dec. 3 letter obtained by The Daily Record, asks state Budget Secretary T. Eloise Foster, Department of General Services Sec. Alvin C. Collins and state Transportation Sec. James T. Smith Jr. to attend a hearing next week to address his committee’s concerns.

Kasemeyer wrote that “the committee has a number of concerns with the project, and the Department of Legislative Services has raised several issues that the committee wishes to consider. This includes the project’s costs and its potential effects on the states operating and capital budgets. The state’s finances have changed considerably since the Great Recession of 2008.”

The costs of the project to the state, including lease payments, could push the state to the legal limit set on debt and be an additional billion dollar-plus expense on top of the proposed Purple and Red transit lines that have a current combined cost of more than $5.5 billion, Kasemeyer said.

“This is another tremendous outlay,” he said, adding that the increased costs could require the state to raise its portion of the property tax and limit its ability to borrow for other projects since the debt limit is set by law.

“Once you set the limit in law, you are hesitant to exceed that and then change the law to fix the situation that you have gotten yourself into,” Kasemeyer said.

The effects of the project could also hurt the state’s ability to borrow for other important projects, according to one legislator.

“To me, signing this deal on Dec. 17 puts in jeopardy the capital budget that Gov.-elect Hogan will have to present the legislature after taking office,” said Sen. Joseph M. Getty, R-Carroll County and a member of the Senate Budget and Taxation Committee as well as a member of Hogan’s transition team. “Prince George’s County Hospital, city schools, legislative initiatives — if we go up against the debt limit, we can’t do any of them.”

Getty said he was speaking about that project as a member of the Senate committee and not on behalf of the incoming governor.

One of the issues Hogan will have to address over the long term is how to pay for the increased use of state borrowing since 2008. Gov. Martin J. O’Malley has used some bonding authority as a way of repaying cash taken from dedicated funds such as Program Open Space to help balance his budgets. But there is a growing gap between what the state property tax rate — which is dedicated to paying off state debt — will cover and what has to be paid for out of the general fund.

In fiscal 2018, the state could be staring down a more than $5oo million gap in debt payments. That gap could require an increase in the property tax rate. An increase of 1 penny equals roughly $60 million in additional revenue.

Additionally, running afoul of the debt limit could jeopardize a triple-A bond rating that allows the state to borrow at low interest rates.

“We might be able to protect the triple-A bond rating by eliminating the capital budget for a year,” Getty said sarcastically. “It’s pretty severe.”

Smith, the transportation secretary, said his agency only has a small portion of the total project — the garage. He said that while the garage is now expected to be smaller than the original proposal that the contribution from his department will remain the same. He referred questions to Collins, the secretary of the Department of General Services.

In an emailed statement, Caron Brace, a spokeswoman for Mayor Stephanie Rawlings-Blake, said the mayor remains a strong supporter of development at State Center. She also said that surrounding communities back Rawlings-Blake’s goal to see the current parking lots on the site transformed into a project that creates jobs and generates a stronger tax base for Baltimore.

“With or without the project, the Mayor remains committed to positive development projects that will spur job creation in the area and any efforts from the state on that front would be supported by her Administration,” Brace wrote in the email.

Caroline Moore, CEO of Ekistics LLC, managing member of State Center LLC, could not be reached for comment on this story.

This spring the project appeared to have regained momentum when the Court of Appeals ruled that opponents of the project, which included businesses and property owners funded by attorney Peter G. Angelos, waited too long to challenge the procurement process in court. That decision vacated a ruling by a trial judge that the project had not been competitively bid.

State Center initially was proposed in 2005 as a way to revamp state office space on the city’s West Side. But in 2008, the now-defunct Struever Bros. Eccles & Rouse, at the time State Center LLC’s managing member, withdrew from the project during the depths of the recession. Instead of rebidding, the state selected Ekistics LLC to take over as the project’s managing partner, which resulted in opponents filing a lawsuit.

After the lawsuit was dismissed Moore said her team was ready to to pick up the project where it had left off. In June, Moore said she was working on a timeline for building the project with the state and that they had hoped to have a plan “defined and agreed shortly.”

“Ever since 2005, when we first started with project, all we wanted to do was take an obsolete, kind of desolate office project, and convert it into a mixed-use vibrant community,” Moore said after the Court of Appeals decision.


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