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NewsOpinionEditorial

Learning from the Grand Prix's mistakes

FinancePublic OfficialsStephanie Rawlings-BlakeAuto Racing

Baltimore did the right thing in setting and sticking to a deadline for Baltimore Racing Development, the financially insolvent company that put on last year's Grand Prix, to pay its taxes and other debts or have its contract to put on this year's race canceled. The fact that the company was unable to agree to a deal with an outside investor to restructure and recapitalize by the end of the year was emblematic of the dysfunction that got it more than $12 million in debt to begin with. Now the city is looking for a new vendor to come in and run the race this year and in the future. That's also the right thing to do, but it must be accomplished in a way that shows the city has learned from the failings of last year's event.

The race weekend was outwardly a success. Some 160,000 people attended the three days of trial heats and races, and if the impact was nowhere near as high as organizers promised, the $47 million boost to the local economy wasn't insignificant either. Hotel rooms were booked in what otherwise might have been a slow weekend, some restaurants in the area of the race did well (though others, not as well as they had expected), and spectators generally reported having a great time.

City officials say the financial troubles that have become so obvious in the race's aftermath were not apparent beforehand. The city had limited access to BRD's balance sheets, and officials say that leading up to the race, the group met the financial benchmarks laid out in its contracts. What they did not know at the time was that BRD was able to pull off the race only by borrowing $1.1 million on onerous repayment terms from a Virginia businessman two months before the event. That money has been repaid — plus hefty interest, fees and penalties — while the city, state and private creditors have been left wanting.

Even if that transaction was kept from the city and the public until after the fact, Mayor Stephanie Rawlings-Blake's administration should, in retrospect, have seen some warning signs. The group's failure to line up a title sponsor was troublesome, as was a governance structure in which a group of five managers had to be consulted on major decisions. The inexperience of those managers at putting on major events, much less an IndyCar race, should also have been a red flag.

That said, the important thing now is not to judge whether City Hall should have seen this coming but to find a path forward that continues a popular event and increases the likelihood that taxpayers' initial investment in the race pays off. The $1.2 million the city is owed in taxes and reimbursement for police and fire services, among other things, is just a fraction of the investment Baltimore made in this race, including millions in traffic-clogging street repairs. The only way Baltimore can recoup its investment is if the race goes forward for the next several years.

To that end, city officials have had some discussions with a few groups that are interested in taking over the race. The mayor doesn't have much time to seal a deal with one of them — perhaps two or three months at most, if this year's race is going to happen. But that doesn't mean the city shouldn't subject any new agreement to extensive public scrutiny, or that it shouldn't make some additional demands of the new race managers. The city should require additional oversight of the race's finances and that any new vendor come up with a plan to pay the back taxes and other debts to the city.

Deputy Mayor Kaliope Parthemos has said a new agreement would not have to be awarded through a formal request for proposals process but that it would need to be approved by the Board of Estimates. Because the mayor controls the Board of Estimates, that's not a particularly significant safeguard. The mayor needs to announce all the terms of a prospective agreement and the identity of new managers well before submitting the deal for approval, so the public can have confidence that we aren't repeating last year's mistakes. All that may increase the difficulty of coming to an agreement in time to salvage this year's race, but it's better to risk having no race at all than to put on another entertaining but costly event.

Copyright © 2014, The Baltimore Sun
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