July 14, 2011

Judge allows lawsuit blocking State Center to go forward; Institute refuses to rescind critical report of the project

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By Megan Poinski
Megan@MarylandReporter.com

A Baltimore judge has ruled that a lawsuit challenging the award of contracts to build State Center in midtown Baltimore will go forward, stopping construction of the $1.5 billion project until it is resolved.

At the same time, authors of a report from the Maryland Public Policy Institute that found taxpayers will pay $127 million for the public-private State Center redevelopment project are trading barbs with state officials about the report’s accuracy.

The day after the report was published last week, Department of General Services Assistant Secretary for Real Estate Michael Gaines and Department of Transportation State Center Project Director Christopher Patusky wrote a letter to Maryland Public Policy Institute President Christopher Summers, asking him to withdraw the report. Gaines and Patusky wrote that the report contained “serious misstatements of fact.”

State Center rendering

An artist's rendering of the finished State Center project.

“It is difficult for us to understand how an organization could seek to produce a credible report on this project without either contacting the state government or the private development team to verify its information,” the letter states. The letter goes on to refute several facts presented in the study.

Summers said that the institute was “absolutely not” going to rescind the report, and that nobody else had ever asked the institute to do such a thing.

Instead, report authors Gabriel Michael and Jeff Hooke responded by discrediting the arguments made by Gaines and Patusky.

“A careful estimate of the public subsidy for a proposed public project is a requirement for any cost-benefit analysis of that project, and obviously no public project should go forward without a careful weighing of the costs and benefits. The attention given to the Michael-Hooke report and contents of the Gaines-Patusky letter underscore the need for this report,” the response states.

While they may not have spoken to Gaines or Patusky, Michael and Hooke wrote that they researched the report with information from city and state officials, as well as by using public records about the project.

Cost vs. Benefits
One of the main points raised by Gaines and Patusky is that the report does not balance the costs and benefits adequately. The project’s cost to the public is overstated, and excludes mention of benefits, the letter states.

“Therefore, it presents a grossly distorted and factually inaccurate picture of the project,” Gaines and Patusky wrote.

Michael and Hooke responded that presenting a cost-benefit analysis of the project was not in the scope of their report, so they did not consider them. However, they wrote, costs and benefits depend on a lot of information that is not yet available, like new tax revenues, rents, and jobs that would move into the complex. Especially since, they wrote, right now the only known tenants of State Center are current state offices, which currently exist in other downtown locations.

Taxes and figures
Gaines and Patusky write that the report from the Maryland Public Policy Institute doubles the impact of tax-increment financing to help build the project, inflates the land value for the project, understates the construction costs, and is not entirely honest about what office rental costs are.

Michael and Hooke say that tax-increment financing – allowing the government to borrow against prospective increases in property taxes – is not double-counted because the complex will be filled with government tenants, and those government tenants will be paying a higher rate of rent than at their current offices. Therefore, the government will be responsible for those property tax increases.

They also write that every dollar spent on debt service for the TIF bonds is one that is not spent on other needs – such as libraries or schools.

As for the property values, Gaines and Patusky say that the land was appraised at $1.8 million – while the report says it is worth what Gaines and Patusky call “an unsubstantiated and unrealistic $11 million.”  Michael and Hooke respond that their figure comes from real estate data.

And, Michael and Hooke write, most of the construction will be funded by loans.

RFQ process
The report notes that there have been questions about the process used to select the State Center contractors. Gaines and Patusky respond that the “request for qualifications” process – and the changing of some of the entities involved – is all above board. They write that the state used “rigorous oversight … consistent with the overall transparency of the project which has included more the (sic) 270 public meetings and briefings of public officials, several approvals each by the Board of Public Works and legislative budget committees, and close oversight by the Maryland Attorney General’s Office.”

Michael and Hooke respond that they are just mentioning that there has been scrutiny. The two entities that left the project withdrew because of financial instability and accusations of bribery, they write, and the ability of one of the newer partners to work with the project was questioned by the Department of Legislative Services.

“It is hardly surprising that the less stringent RFQ process has attracted scrutiny from many parties,” they wrote.