State Center project tests Maryland's will to support Baltimore

July 24, 2011|By Jay Hancock

The battle over the State Center megaproject is widely seen as a conflict between developers. Downtown Baltimore landlords contend the midtown development will drain office tenants and spending from their harbor front.

But State Center, which could eventually command investment of $1.5 billion, also pits Baltimore against the rest of the state. The central question is whether Maryland taxpayers should subsidize a struggling Baltimore with State Center rents that are 40 percent over those for existing office space.

Few private tenants would do that deal. Everybody seems to agree that the 1950s buildings occupied by the state comptroller, budget officials, health regulators and other agencies — with 3,500 employees in all — have endured past their useful life. But a private renter, unconcerned about the vitality of one ZIP code over another, would simply look for the cheapest option. The State Center proposal is not it.

Landlords in and out of Baltimore would be thrilled to rent their empty floors to state agencies for $25 or less per square foot. The economy stinks. Vacancies are up. It's a buyer's market.

But Maryland has agreed to put employees in the new, cool, green-certified State Center for $36 a square foot. The Maryland Public Policy Institute, a nonpartisan, markets-oriented research group, figures the difference will cost state taxpayers $66 million over two decades in today's money for the project's first phase.

Well, that's what new construction costs, says Christopher Patusky, the official in Gov. Martin O'Malley's administration who has taken the lead in defending the proposal. Moving the agencies downtown or somewhere else would badly damage the neighborhood, says Patusky, the real estate project director for the Department of Transportation.

The new State Center would eventually include shops, restaurants, housing and commercial tenants, paying Baltimore millions in taxes, generating ground rent and profit-sharing for the state and reviving a locale perfectly located at the intersection of the Metro and light rail, he says.

State government is now Baltimore's tenant of last resort. While the city lost 100,000 private-sector jobs over two decades, it gained state employment. Forty percent of state government jobs are in Baltimore, although the city accounts for only 11 percent of Maryland's population. Pick an employee in Baltimore, and there's a one-in-eight chance that she or he works for the state.

Downtown landlords want to keep their share of Baltimore's shrinking pool of tenants, so they're fighting the plan. In any event, the state has fewer resources to blow on fancy projects. The rent Maryland would pay State Center is basically a fancy way of servicing a mortgage, which under impending accounting rules might push the state toward its self-imposed debt limit.

Baltimore is likely to have less support than ever in Annapolis after redistricting is complete. Other jurisdictions might not object just to paying high rents for a Baltimore project. They might also covet Baltimore's state jobs themselves.

Comptroller Peter Franchot, who is widely expected to run for governor in 2014, declared his opposition to State Center in a July 15 letter to state agencies. He's from Montgomery County, which, along with other localities, has complained over the years about subsidizing Baltimore.

Downtown landlords contend that the State Center deal violates procurement law. The state signed the contract after a "request for qualifications" gave exclusive negotiating rights to one development group. Instead, the landlords argue in a lawsuit, the state should have sought competitive bids for the best price.

Tom Murphy, a former Pittsburgh mayor and now a resident fellow with the Urban Land Institute, says no-bid requests for qualifications aren't unusual for complicated projects such as State Center.

"In this type of development, you're not simply looking for the lowest price like you're building a bridge," he said. But that doesn't mean the process follows Maryland law or that state negotiators got a good deal.

State Center opponents have damaged their credibility with a couple of stretchers.

"It makes no sense to squander over $1.5 billion taxpayer dollars on this ill-advised project," the group said last week in a statement.

But not all of the project would be built with taxpayer money. State Center would include about $30 million in state debt as well as various tax breaks. It also depends on hundreds of millions in government rent paid over two decades, but the state would have to pay much of that no matter where the agencies are located.

The financing would be largely private. But because the loans would be backed by the guaranteed revenue stream from state rents, lawyer Alan Rifkin, who represents State Center opponents, says they represent a "massive" state subsidy.

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