City slots site deal: Negotiating behind closed doors costs Baltimore $1.2 million

Baltimore's $1.2 million settlement agreement with a group it had picked to develop a parcel the city now wants to make available for a slots casino was the right thing to do. There was no indication that the Gateway South sports/office complex originally slated for the site was going to come to fruition anytime soon, and it was important to resolve any legal entanglements over the parcel — which fronts Russell Street between M&T Bank Stadium and the Westport development — before bids are due for a city slots license later this summer. Uncertainty about that parcel's availability may have tamped down interest in the state's first attempt at soliciting bids for a city casino, which yielded only one applicant, a development team that was later rejected. Getting a robust set of bids for the license this time will be worth well more than $1.2 million to the city in the long run.

Still, $1.2 million is $1.2 million, and Baltimore should never have been in the position to owe that money to the Gateway South development team — headed by Samuel Polakoff and including Raven Ray Lewis. The fact that the city was on the hook at all is yet another example of the down side of the Baltimore Development Corp.'s arms-length relationship with the city government.

In 2006, the BDC asked for proposals for developing the waterfront stretch just south of the stadium complex, and in December of that year, it voted behind closed doors to select the Gateway South team, which promised a $250 million development including 600,000 square feet of office space and 90,000 square feet of indoor and outdoor athletic fields, a health club and retail space. The BDC's decision required the approval of the mayor, and Sheila Dixon, who took over a month later when Martin O'Malley became governor, approved the deal in March.

But as is typical of "exclusive negotiating privilges" agreements between the BDC and a developer (the precursor to an actual development agreement) the deal never went through the Board of Estimates, and it was never vetted by the city's Law Department.

The Board of Estimates is a unique Baltimore institution and a key safeguard to make sure city business is being handled properly. In general, contracts valued at above $5,000 are supposed to go before the board, but the BDC, a quasi-public agency, sometimes operates outside of that system — even in a case like this, when 11 acres of city-owned, waterfront property are at issue. That is a mistake, and this deal shows why.

The contract between the BDC and Gateway includes what BDC President M.J. "Jay" Brodie and City Solicitor George Nilson call a highly unusual clause saying that if the city terminated the deal, Baltimore would reimburse the developer for its expenses, such as environmental surveys, marketing studies and legal work. Mr. Nilson said it is customary to include a clause allowing for the reimbursement of a fee paid as part of the exclusive negotiating privileges agreement, but one that is minimal and clear cut, not open-ended and subject to dispute, as this clause was. The range of possible city liability in this case ranged from $40,000 to $4 million, depending on how the contract was interpreted.

The origin of the clause is somewhat murky; Mr. Nilson said a review of the records gave little insight into how it was drafted, though it appeared that it was part of negotiations with the developers. Mr. Nilson said a young employee of BDC had apparently been the one to approve the terms, though Mr. Brodie said he was aware of it and is ultimately responsible for it.

Mr. Brodie said there were unusual elements of this particular development that warranted some additional guarantees from the city to the developer, such as the possibility of contamination from previous industrial users and delays in the city's assembly of the parcel. In hindsight, he says he doesn't see a way that the city could have avoided liability or an argument with the developer over the value of that liability. Vetting by the Law Department and scrutiny at the Board of Estimates would not have precluded the inclusion of a clause for limited reimbursement, if that was truly necessary, but it might well have resulted in a contract that specified more precisely what the city could be on the hook for.

The city could have argued that the lack of approval for the agreement at the Board of Estimates made the contract unenforceable, but that would have both sent a terrible message about how the city does business and likely resulted in litigation, as opposed to a settlement. Given the timetable for city slots bids — and the fact that every day that goes by without a slots parlor in Baltimore is another day its residents go without property tax relief — that wasn't a realistic option. Under the circumstances, Mayor Stephanie Rawlings-Blake did the right thing. But if the original deal had been handled with more transparency, the city might never have been in this position in the first place.

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