Thursday, December 22, 2016

Governor kills second Baltimore mega project

After cancelling the shovel ready $3 billion Baltimore Red Line transit project the Governor now pulled the plug on a $1.5 billion transit oriented development (TOD) project that had been initiated under Republican Governor Ehrlich.
Obsolete offices in a sea of underused land (Photo: Chrism Skyscraper City)

Yesterday the contract between the State Center development team and the State of Maryland was cancelled by the State Board of Public Works. The State now even goes to court to void the contract. The development team sees this as a breach of contract, the Governor sees it as the end of a project of which he says:
"It is obvious to absolutely everyone that the previous proposal makes absolutely no economic or development sense, which is why it has never moved forward and never materialized after all these years" (Governor Hogan)
 The economic argument is the same one that Governor Hogan made about the Red Line without providing any specifics that would support it. State Center was a private public partnership (P3) between the State that owns almost all the land at State Center and a private development team. The deal was that the private side would use the public land in a much better way through a high density urban development with a number of income streams including office that the State would lease back to accommodate the various departments that are now stuck with what is usually described as "functionally obsolete" buildings from the sixties. The P3 approach is what folks that want to see smaller government usually promote for cases where the government doesn't have enough money to build the facilities that are needed. P3 is what the Hogan administration uses to fund the Washington area "Purple" transit line with minimal capital expenditures by the State for initial construction and a long-term lease in which the State essentially pays the money back as operating expense with interest.
Rendering of redeveloped site by Mithun architects

The community is stuck with a failed urban renewal project that plopped the State offices into the middle of a sea of parking without proper connectivity which acts as a big barrier between neighborhoods and Mount Vernon.

The termination of the contract sends a terrible signal all around:

  • to Mayor Pugh after not even two weeks in office: We don't care that you want a strong City-State relationship we will kill a huge long vetted project on which the City and the surrounding communities  have worked for ten years anyway
  • to businesses that want to work with Maryland to invest here: We don't even follow though on our own contracts, we will string you along and then drop you like a hot potato
  • to the State owned MTA and its existing transit assets: We don't care about TOD and better use of the land where the stations sit to achieve a better mode split, not even if we own it ourselves and have full control over it.
  • To the communities that were looking forward to see deserted tracts of land being converted into a pleasant development with walkways, services, green spaces and activity: What the community says isn't important to us. How about an Arena instead?
This last idea, pulled out of the hat by Democratic State Comptroller Peter Franchot, is really the ultimate insult. It lacks even the slightest insight into what the driving elements for the State Center proposal were in the first place. The Arena idea is completely unreasonable, as developer David Cordish immediately realized when, according to the SUN, he commented that the proposed State Center location would be a "disaster." He said it was a poor location with inadequate road access. 

Cordish also called the lease rate for the State offices in the proposed development "insane". However, there are lots of opinions about those rates, especially considering that they are meant to be a subsidy to the project as an economic development tool. The project would replace a very poor current development that produces no revenues with one that would increase the tax base for City and State.
Overall rendering showing the extent of the redevelopment proposal
The State run Department of General Services (DGS) analyzed the project in 2011 and concluded:
The State Center complex is owned by the State and, therefore, currently generates no taxes for the City or the State. By transferring leasehold interest of the property to the private sector, Phase One of the State Center Project will generate tens of millions of dollars in new taxes for the City and for the State during just the next twenty years, and hundreds of millions of dollars from the entire project over the next few decades. In an effort to discredit this immense benefit to the City, some have incorrectly stated that the project plan includes $314 million in tax increment financing (TIF), that such funds would be paid to the developer to subsidize the project, and that the City cannot afford this alleged subsidy. None of this is true. The facts are that Phase One of the project is estimated to generate $50 million in City taxes of all types during the next twenty years with a portion of these taxes going toward repaying a $10-$15 million TIF bond that will be used to pay for City-owned public infrastructure, including improvements to streets, sidewalks and utilities – these funds do not go to the private developer. Therefore, the City will receive significant new net tax revenues and improved infrastructure that are much needed at the site. Although future phases are not yet defined or approved, the same magnitude and principle will be true for each phase of the project. (DGS)
Responsibilities for the demise of another promising project for Baltimore rests on many shoulders. Governor O'Malley did not clear his desk and finalize the deal before he left office but left it to his successor to deal with. Newly elected Governor Hogan then dragged this along for a full two years stringing the development team along, increasing the stranded cost that the team had incurred to date (according to the Ekistics, about $25 million to date). When it was clear that the administration wasn't deciding the matter in a reasonable time, the developer invoked the arbitration clause in the contract. The arbitrator's compromise at the end of that period was rejected by the State according to the SUN. The then following cooling off period of 30 days was not used to improve the contract but to file the cancellation with the State Board. 
The development team vowed to sue the State over breach of contract.

While opinions on the validity of the economics of the project vary, there is no doubt that at this point there is no obvious good way forward. The Governor 's vow that "Our administration is absolutely committed to the redevelopment of the State Center project," rings hollow when it is obvious that the administration did nothing in the past two years to develop a constructive solution or alternative. In that it is just like the Red Line, a huge project gets pulled and the City of Baltimore is left with nothing. 

Klaus Philipsen, FAIA

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