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Md. yet to distribute $3.6M in slots funds for small businesses

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Nearly two years after Maryland's first casino opened, the state has yet to dole out any of the $3.6 million in slots revenue that has accumulated for small, minority- and women-owned businesses, frustrating advocates and lawmakers.

State officials are still working on a program to distribute the money as capital investments or loans to small businesses, a process that Baltimore Sen. Nathaniel J. McFadden criticized as being too slow.

"What's taking so long?" asked McFadden, who inquired about the money last month in a letter to Gov. Martin O'Malley. "Everyone needs to benefit. I'm very concerned."

Small-business advocates and some lawmakers say the money is crucial because the credit market remains tight for small firms. Meanwhile, federal and state lawmakers are promoting small businesses and startups as a key component of a strong economic recovery.

In recent years, O'Malley has made investments in small business a centerpiece of his economic agenda.

State officials attributed the delay in distributing the small-business funds — a little more than $3.6 million generated by the state's two operational casinos — to operational and logistical difficulties.

The Maryland Department of Business and Economic Development is providing primary support to the Board of Public Works to administer the program. State officials hope to award the first slots-related small business grants "toward the end of the calendar year," said DBED Secretary Christian S. Johansson.

The state set aside 1.5 percent of all gaming revenue for an account benefiting small, minority- and women-owned businesses under legislation legalizing slots gambling that was approved by voters in a 2008 statewide referendum.

Of the five designated slots locations, two are open. Hollywood Casino Perryville in Cecil County opened in September 2010, while the Casino at Ocean Downs near Ocean City opened in January 2011.

A third slots parlor, which will be the state's largest, is scheduled to open Wednesday in Anne Arundel County. The venue is expected to generate tens of millions of dollars monthly.

Meanwhile, the state's slots location committee awarded a license for a casino at Rocky Gap Lodge and Golf Resort in Allegany County in April and is expected to decide on a license in downtown Baltimore later this month.

Revenue from Maryland's slots program also benefits the horse-racing industry, the state's education trust fund and other entities.

By way of comparison, McFadden noted that the racing industry since April has had access to $23 million to increase purses and help support the day-to-day operations of the Maryland Jockey Club, owner of the state's two major thoroughbred tracks.

"I'm very disturbed, concerned and upset that it's taking so long to make accommodations to small and minority-owned businesses when every other entity in the process has been taken care of," McFadden said. "I'm not happy at all."

Wayne Frazier, president of the Maryland Washington Minority Contractors' Association, said he was disappointed by the delay.

"The major banks are not lending. The community banks are not lending, and the smaller businesses have to resort to high interest rates if they can get [a loan] in order to fund their business," Frazier said.

Frazier said many small businesses have come to his group seeking advice on getting short-term loans under $100,000.

"If you have $3 million, that's 30 loans right there," Frazier said of the slots account for small, minority- and women-owned firms. "That's 30 businesses that could be helped right there."

Jim Henry, program director for DBED's Office of Finance Programs, said it has been difficult to set up the small business program because not all of the state's five casinos are open. Half of the money in the small business account must help firms in the geographically diverse communities surrounding the gambling facilities, he said.

"It becomes very awkward and difficult to put part of a program in place," Henry said.

"I don't want to use that as a defense of it," he continued, calling the situation an "operational difficulty" of the small-business program.

At the same time, Henry said, the state has made resources available to the small business community. Last year, he said, the state was awarded $23 million in federal funding to help small businesses and startup companies gain access to capital. The state received its first, $7.6 million installment last year, of which $3 million has been allocated so far, Henry said.

"The concern we would have is, 'Are our resources being held back from the small business community?'" he said. "If that were the case, I would be incredibly concerned. But it's not the case. The administration has done a Herculean effort to get resources to the small business community."

The Board of Public Works and DBED are expected to finish outlining each of their responsibilities in administering the program by the beginning of the 2013 fiscal year, which begins in July, DBED's Johansson said.

Soon after that, the state plans to put out a request for proposals for one or several experienced investment fund managers to provide capital and loans to small, minority- and women-owned businesses, the DBED secretary said.

"All parties involved in this process share your enthusiasm for this program and its long-term benefit to the Maryland small business community, as well as your frustration in the unexpected delays in the deployment of these funds," Johansson wrote in a letter to McFadden. The secretary replied on behalf of the governor.

State Sen. Catherine Pugh of Baltimore said she has talked to several potential fund managers who are waiting for the request for proposals.

"The longer we delay, another opportunity could leave us," she said. "There are many people in the state who want to expand their business or create additional business. The state should be moving forward. If not, we'll have to ask the question, 'What's the holdup?'"

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