State analysts raise doubts about State Center project

Legislative analysts raise concerns about State Center project.

The future of the long-delayed $1.5 billion redevelopment project at State Center in Baltimore is uncertain amid fresh concerns about the state's role in a newly structured deal.

Gov. Martin O'Malley's administration is expected to ask Maryland's spending board to approve the proposed changes in the state's master agreement with the developer at a meeting this month.

But legislative analysts say the proposal would cost the cash-strapped state more and may violate state borrowing limits. And a key lawmaker is questioning whether it is appropriate for officials to act just weeks before Gov.-elect Larry Hogan takes office in January.

"With just a month or so away from a new administration, should they play a role in it at this point?" said Sen. James E. "Ed" DeGrange, an Anne Arundel County Democrat who chairs a Senate budget subcommittee.

The project would renovate the existing state complex just south of Bolton Hill with a mix of office space, retail and residences — set on a 22-acre tract served by bus, light rail and the Baltimore Metro. The current state complex, which was built in the 1950s and 1960s, has badly deteriorated. And because the building only houses state offices, nearby streets are all but deserted at night and on weekends.

While the project has its origins in the Republican administration of Gov. Robert L. Ehrlich Jr., O'Malley adopted it enthusiastically when he took office in 2007. The Democratic governor saw it as a way to revitalize the area and to promote the use of mass transit.

Hogan, a Republican, declined to comment on the plan.

The original State Center master plan in 2009 won approval from the Board of Public Works, the state's spending panel, over the objections of legislative analysts who raised concerns about the cost and how much money the state would have to borrow to finance the project.

The project also aroused the ire of downtown property owners, including Orioles owner Peter G. Angelos, who were concerned that the development would compete with their buildings for tenants. The project stalled when a group of those owners sued the state, claiming the O'Malley administration failed to conduct a competitive bidding process to select the developers.

A Baltimore judge threw out the development contract in January 2013, ruling that the administration violated state procurement law when it awarded the job to a group led by Ekistics LLC.

The Court of Appeals overruled that decision in March on the grounds that the plaintiffs waited too long to sue, freeing the state to move forward.

Steve Cassard, the state's project manager for the State Center, said that since then the state and developers have negotiated changes to the project, including a downsizing of an underground parking garage, to reflect cost increases during the years the project was on hold.

He said that state has been working on the changes since the appeals court ruling and that the tentative plan to bring the matter to the Board of Public Works on Dec. 17 had nothing to do with the change of administrations. After that meeting, the board meets just once before O'Malley leaves office Jan. 21.

The Senate Budget & Taxation Committee has asked to be briefed on the changes at a meeting Tuesday. DeGrange said he hasn't made up his mind about the wisdom of the planned mixed-use project, but said one possible result of the committee briefing is that the panel would urge the board to defer action.

Meanwhile, legislative analysts are renewing their past objections to the project.

Warren Deschenaux, the top policy analyst for the Department of Legislative Services, warned in a letter to the budget committees that the state is projecting a $900 million revenue shortfall for 2018, the year Phase One of the new State Center is expected to open. He said the project agreement could charge the state $18.5 million in annual rent the state does not pay now.

"It is unclear whether the state can afford an additional rent expense of at least $18.5 million, increasing by 15 percent every five years, until the structural deficit is resolved," Deschenaux wrote.

The concerns about debt revolve around whether the state's long-term lease payments can be counted as operational expenses or must be classified as capital debt. If an accounting formula determines that it is capital debt, it would then likely breach the state's borrowing limit, Deschenaux wrote.

In recent years, Maryland has been taking on added debt and is now brushing up against those voluntary limits, including one capping state debt at 8 percent of annual revenues. Deschenaux said he can't be certain how State Center lease payments would be classified until final terms are decided.

If the state exceeds the cap, it could have consequences for a state that values its Triple A bond rating.

"Nobody goes to jail, but it is a credit negative, if you will," Deschenaux said. "It crowds out a lot of other things that could possibly be done within the limit."

Among the changes the board will consider are a reduction in the minimum number of spaces in the planned parking garage from 928 to 580. That would significantly reduce the number of spaces available in the garage for the proposed retail component of the project because 550 spaces would be reserved for state workers and fleet vehicles.

Instead of a grocery store in the office building the garage would serve, the new plan calls for a private charter school there.

Deschenaux notes that the state is proposing to relocate the grocery store to the old Fifth Regiment Armory building. He urged lawmakers to raise questions about the plan, such issues as whether the old armory, with its high utility costs, is suitable for a grocery store and who would pay to retrofit the building.

Ronald Kreitner, head of the nonprofit WestSide Renaissance and a longtime opponent of the project, seized on Deschenaux's letter to argue it should be scrapped. WestSide Renaissance is affiliated with Angelos.

"Hopefully it will be given very serious consideration by the legislative leaders," he said. "Given Gov.-Elect Hogan's concerns about the state's fiscal health, I think he would probably have serious problems with this project."

Baltimore Mayor Stephanie Rawlings-Blake has been a strong advocate for the State Center but had not seen any proposals to make changes to the project, spokesman Kevin Harris said.

"They devil's always in the details," Harris said.

John E. Kyle, president of the State Center Neighborhood Alliance, said his coalition of neighborhood groups remains hopeful the project will get under construction next year, spurring a transformation of the area into a 24-hour community. But, he said, the change in administration raises questions about its future.

"Especially because there's a change in party, there's certainly questions. ... It needs to be remembered that this project started under a Republican governor. It's already transcended party change and gubernatorial change and so hopefully it will again," he said.

Baltimore Sun reporters Natalie Sherman and Luke Broadwater contributed to this article.

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