Bill would let Maryland seek out private partners for public projects

Maryland Gov. Martin O’Malley has joined a little-noticed wave of Democratic governors gravitating toward the privatization of government facilities — a practice once anathema to blue states and their often-powerful public employee unions.

A bill proposed by O’Malley and being shepherded through the legislature by Lt. Gov. Anthony G. Brown (D) follows laws approved recently in California and Illinois and under consideration in a half-dozen other Democratic-controlled states. In the name of job creation, it would make it Maryland’s policy to seek out private partners to build, operate and maintain roads, bridges, schools, government buildings and most any other public asset.

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The practice, long supported by lawmakers in more conservative states such as Virginia, could allow Maryland to move forward with billions of dollars in projects that, because of debt limits, the state could not otherwise afford.

But Maryland’s methods would make the process ripe for corruption, critics say, and even upend an existing lawsuit challenging one of the state’s biggest plans.

To appease labor, the shift would come in a distinctly Democratic mold. Under legislation expected to come to a vote Monday in the House of Delegates, any jobs generated as the state hands off public assets would carry requirements that private enterprises pay living wages, ensure minority business involvement and put in place other labor-friendly protections.

With that, the legislation has gained unlikely allies. The American Federation of State, County and Municipal Employees and nearly every other major public employee union in Maryland has lined up in support of the bill.

But in another reversal of traditional roles, the plan has drawn fire from Republicans and the state’s chamber of commerce. They say it would jettison decades of legal precedents that ensure a fair and open bidding process and would return Maryland to a murky set of contracting rules.

The bill would give the state broad powers to negotiate deals outside the established procurement system and to decide how taxpayer money would be sent to developers to pay for large, upfront investments.

‘Dangerous retreat’

“It would let state agencies circumvent competitive bidding altogether simply by having a government official designate a project as a ‘public-private partnership,’ ” said Scott Livingston, a lawyer who helped write Maryland’s procurement laws after a series of corruption scandals — including one that led to the 1973 resignation of Vice President Spiro T. Agnew (R), a former Maryland governor. “This is a dangerous retreat from established safeguards.”

Publicly, O’Malley has maintained an arm’s length from the legislation, which gained momentum Saturday when it advanced in the House. Brown has led a series of public hearings and has testified before legislative committees in favor of the measure.

But behind the scenes, the concept is one on which O’Malley has worked closely. And with the potential for contracts lasting 50 years, the partnerships could amount to one of the most enduring legacies of O’Malley’s administration.

O’Malley and New York Gov. Andrew M. Cuomo (D), who has been seeking legislation to let private investors help fund billions of dollars in transportation projects, hosted a closed-door meeting this year with fundraisers and government contractors to discuss public-private partnerships.

If the Maryland Senate signs off on the legislation moving through the House, the plan could quickly affect how hundreds of millions of dollars in taxpayer money are spent annually.

Under current regulations, only Maryland’s Transportation Department has the authority to pursue public-private partnerships. The measure would expand that power to the state’s Department of General Services — the umbrella agency responsible for nearly all procurement, buildings and construction.

It would allow the state to lease public assets for up to 50 years and would set up a process for companies to make unsolicited proposals to take over management of state facilities.

In exchange for constructing roads or buildings or upgrading existing ones, the state would guarantee investors a stable return or free them to operate the facilities as for-profit businesses if they share with the state a percentage of earnings.

Developers building roadways or bridges would most often turn a profit with a share of tolls, although other arrangements could include the state entering long-term leasing agreements to pay back investors.

House Democrats, however, have not stopped there. Last week, they amended the bill multiple times, adding another controversial element that would make it easier for the state and private investors to proceed quickly once they agree on a deal.

The House version of the legislation imposes deadlines for court challenges from losing investors or others objecting to such arrangements. It also gives the state and its private partners new powers to seek the dismissal of such lawsuits.

Retroactive effects

The most controversial revision was the House Democrats’ vote to apply the restrictions retroactively. Maryland has entered four public-private partnerships under current law. One of the partnerships has successfully created thousands of construction jobs and upgraded facilities at a Baltimore port terminal in exchange for turning over long-term control of the facility to private enterprises. The other three have been or are being challenged in court.

This month, the state approved a $500 million plan to turn over control of two Interstate 95 travel plazas — Maryland House and Chesapeake House — to a Spanish company for 35 years. The company will construct buildings and manage them for what an executive said is expected to be a return on investment in the “mid-teens” over the life of the contract. The company that currently operates the two rest areas charged that the state unfairly let the Spanish company change its proposal in private negotiations with state officials.

State Center controversy

More consequentially, the bill could short-circuit a recent decision by a court-appointed special master to force the O’Malley administration to produce thousands of documents justifying its decision to bankroll an eight-city-block development in Baltimore that would house thousands of state employees.

Known as State Center, the potential $1.5 billion project is Maryland’s most expensive foray into privatization. The administration has maintained that the development is needed to get workers out of aging and, in some cases, unsafe state buildings. But opponents, including Baltimore Orioles owner Peter G. Angelos, have charged that the state will waste untold millions of dollars by paying roughly 40 percent more per square foot in rent than the going rate for vacant space in many office buildings.

Critics maintain that O’Malley has sought to use the State Center project as a way to subsidize redevelopment of a large swath of the city.

Aides to Brown, the administration’s point man on the bill, said he had not taken a position on the amendment that would affect State Center.

Del. Luiz R.S. Simmons (D-Montgomery), a defense lawyer, blasted the amendment Saturday, saying it had made the bill a “Trojan horse for the worst kind of special interest.”

Del. Maggie L. McIntosh (D-Baltimore) began the effort to amend the bill to limit court challenges. On the House floor Saturday, she urged lawmakers to move forward with the revision, arguing that it didn’t prescribe whether the state would win or lose, but only that the court must rule quickly “because time is money in development. Time is money when you’re trying to get a business in Maryland.”

 
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