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State withdraws controversial bailout proposal


After a week of public criticism, the Glendening administration yesterday withdrew a controversial proposal to spend $1.5 million in taxpayer money to bail out a failing company owned by one of the governor's longtime political supporters.

In a letter to legislative leaders, James T. Brady, the state's economic development secretary, said he was dropping the idea after advisers determined "that a grant to firms experiencing financial stress is not an appropriate use" of economic development funds.

"Accordingly, I am requesting that further review and analysis of this project by the Legislative Policy Committee be terminated," Mr. Brady wrote. "It is no longer the intention of this department to pursue funding this project."

Gov. Parris N. Glendening, who proposed the idea in a letter to legislative leaders two weeks ago, had little to say about yesterday's decision. "The governor supports the conclusion of the secretary," said Charles F. Porcari, a spokesman for Mr. Glendening.

The withdrawal appears to mark the end to a politically embarrassing episode in which the administration asked legislators to approve a highly unusual grant to a strong supporter of Mr. Glendening.

A week ago, Mr. Brady asked legislative leaders to release $1.5 million to salvage Stephens Engineering Co., a software and networking firm in Lanham, Prince George's County.

The request raised eyebrows among some legislators because money from the state's so-called "Sunny Day Fund" is traditionally used to attract companies to Maryland, keep them from leaving or help them expand.

Stephens Engineering fit none of those categories.

The company had contributed $3,500 to the governor's campaign last year and its owner, Wallace O. Stephens, contributed $700 personally. Mr. Stephens, a prominent businessman, is also the president of the Prince George's County Chamber of Commerce and has known the governor since his days as the county executive there.

Republicans quickly seized on the political connection and accused Mr. Glendening of a conflict of interest. Yesterday, House Minority Leader Robert H. Kittleman said the Glendening administration had made the only decision it could.

"I don't think they had any choice," Mr. Kittleman said. "They realized they made a terrible mistake and didn't have any choice but to pull out of it."

Democratic leaders also supported yesterday's announcement. "They obviously, in my judgment, are doing the right thing," said House Speaker Casper R. Taylor Jr. of Cumberland.

The administration's decision to drop the bailout proposal could only be seen as bad news for Stephens Engineering. The governor has described the firm's financial situation as dire.

The company, which relied heavily on federal government contracts, has lost several recently and has seen its work force drop from 130 to 30, the governor said.

The company has also defaulted on a $900,000 loan and has pledged expected payments on remaining contracts to the lending company, according to Mr. Brady. Mr. Stephens did not return repeated phone calls this week seeking comment.

"Whatever is done to assist this company must be done promptly," Mr. Glendening had said in his letter to legislators.

Amid criticism, however, the administration began to retreat this week when Mr. Brady said he had intended to take no position on the proposal -- though in his own letter to legislative leaders, he had clearly asked them to support the bailout.

"The Department of Economic and Employment Development hereby requests that $1,500,000 be made available . . . for Stephens Engineering," Mr. Brady wrote in the May 26 letter.

In his letter yesterday, Mr. Brady said he based his decision to drop the proposal on the opinion of the state's new Economic Development Commission, a group of 21 private-sector leaders charged with helping the administration attract businesses to Maryland.

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