Michael S. Steele, Maryland's lieutenant governor and the first African-American elected to statewide public office, is working with Gov. Robert L. Ehrlich Jr. to craft the state's economic development policy.

Since taking office in January, the pair's primary focus is getting legislation passed that would legalize slot machines at three racetracks in Central Maryland and at a new track proposed for Allegany County.

Besides helping to reduce a $1.3 billion budget deficit, the revenues from these machines, Ehrlich and Steele contend, would be used to revitalize the state's horse-racing industry and finance the Thornton Commission legislation adopted last year by the Maryland General Assembly.

The legislation seeks to reduce inequities among the state's public schools. It would pump $1.3 billion into schools by 2007.

Ehrlich's original proposal, presented in January, called for 10,500 slots -- slating 64 percent of the revenues for Thornton. It was heavily criticized by racetrack owners, legislators, anti-gaming interests, minority advocates, as well as by top Baltimore officials, including Mayor Martin O'Malley.

A long-awaited revised plan put forth last week increases the number of slots to 3,500 each at Pimlico, Laurel Park and Rosecroft racetracks and includes another 1,000 for a track planned in Allegany County. It also nearly doubles the share of proceeds to track owners to 46 percent. The Thornton share was cut to 44 percent.

In his second-floor office at the State House in Annapolis -- used by Thomas Jefferson when the Continental Congress met in the early days of the United States -- Steele, 43, discussed a wide range of economic development issues affecting Maryland, only hours before Ehrlich introduced his revised slots plan.

What are the economic development issues facing Maryland, especially as it grapples with a $1.3 billion budget deficit?

We've got in excess of $1 billion in debt. We have spent a lot more money than we have taken in. We have asked a lot of taxpayers in giving up those dollars. In return, there has been spotty success in leveraging those dollars into real economic opportunities for minorities, for women, for commnunities across the state.

My concentration will be in two areas: taking Maryland overseas, bringing the world to Maryland, and the other task is looking at our Minority Business Enterprise Program --looking at how the playing field is created for small, minority-owned businesses.

With that as a backdrop, my job is to leverage the assets and resources we have in the state, even in these tough economic times. The way we get ourselves out of this [budget deficit] is by measured spending, responsible spending. You have to spend for the needs of the people. We're not going spend on projects that make a delegate or a senator or a governor look good -- the pork barrel. You have to spend on the needs of the people. And the governor has set that out in his budget this year.

In addition, we have to take the assets that we have and leverage them -- to look at communities and to create the incentives for business, major players, to come in and help us develop a strategy for revitalizing Baltimore, East Baltimore or West Baltimore.

We're trying to look at the whole picture of economic revitalization, in light of what communities can do, what business can do -- and what the government can do in partnership with the other two to bring about real growth, to take a deficit and turn it into a surplus -- always mindful that the dollars that we leverage are dollars that the citizens of the state give us to create wealth.

In recent years, there's been many complaints about Maryland's Minority Business Enterprise Program, primarily surrounding how it really does not foster and grow minority companies. Is that your understanding, too?

True -- and rightly so. It has not been effective. It is a massive structure, but with no substance to it: No real economic incentives, a bureaucratic approach that, basically, takes the steam out of any new entrepreneur, frustrates them; that complicates very simple transactions; and that, all-around, does not deliver the goods. The goods are contracts, access to capital, access to credit and access to resources that will allow a company to grow. What I've decided to do is to junk that. We're looking to change the paradigm ... and then create, substantively, the mechanisms that will lead to real economic opportunity and growth.

We then must translate it back into the neighborhoods. It's not just enough to create these businesses, and give them access to credit and capital, but it's also our responsibility to make sure that the incentives are there for them to invest back in the neighborhood. We want to take the boards off those boarded-up buildings and homes and businesses in Baltimore and allow businesses to come in to create jobs for young people and to create a sense of community identity that's tied to the life and the quality of life of that community.

One major criticism of the MBE program, overseen by the state Office of Minority Affairs, is that participants cannot have a personal net worth of more than $750,000. This limitation easily could eliminate some entrepreneurs from the program. Do you agree?

Isn't that ridiculous? You get one contract and you're done. You're done.

We're looking at that. It's an inhibitor; it's a limiter, because you can have one contract -- boom! -- and that one contract could put you in a very good position, but then the next year, it's a bust.