Cheap Rent for Regulators Spurs Concerns

By John Wagner
Washington Post Staff Writer
Friday, May 4, 2007

The state commission that regulates Maryland's horse racing industry just moved its headquarters to bargain-rate office space: The lease calls for $1 a year.

But the new site, it turns out, is the Pimlico Race Course in Baltimore. And the landlord? The Maryland Jockey Club, one of the organizations that the commission is charged with regulating.

The arrangement drew no public attention when it was approved in January at the final meeting of the Board of Public Works chaired by then-Gov. Robert L. Ehrlich Jr. (R).

But yesterday, a lawyer for his successor, Gov. Martin O'Malley (D), said the lease will be terminated after new questions were raised about whether it suggests a too-cozy relationship between racing regulators and the industry.

"A regulatory body should not have its executive offices provided rent-free by the regulated entity," Ralph S. Tyler, O'Malley's chief legal counsel, said in an interview. "I think it was a mistake to enter into in the first place, and we will move to terminate it."

The 10-year lease calls for the Maryland Racing Commission to make annual payments of $1 to the Jockey Club, which owns and operates Pimlico, home of the Preakness Stakes. The Jockey Club is responsible for utilities and custodial costs in the 1,500 square feet of office space, according to a summary of the lease provided to the Board of Public Works, a three-member panel chaired by the governor that approves state contracts.

Attorney General Douglas F. Gansler (D) said officials in his office advised the racing commission last fall to avoid the deal because it created the appearance of a conflict, at a minimum.

"We told them it shouldn't be done, and they did it anyway," Gansler said yesterday. "There are plenty of other places they can be housed."

J. Michael Hopkins, the racing commission's executive director, said in an interview this week that the move was motivated by a desire for more space than was available at the state-owned building in downtown Baltimore where the commission was located until about a month ago. Hopkins did not return calls yesterday to respond to Gansler's comments.

Hopkins also pointed to a state regulation that requires racetracks to make space available to the commission to carry out its duties. But Tyler said that provision does not authorize a permanent move of the commission's office -- a development he said the governor's office learned about only this week after inquiries from The Post.

The state racing commission Web site now lists its office address as the street address of Pimlico.

The nine-member commission and its staff have far-reaching authority over the industry that includes licensing of people working at the tracks and the power to set admission prices and payouts. The commission also may revoke licenses of companies that violate racing laws or commission rules.

John B. Franzone, a commission member whom O'Malley nominated in February for another term, said the lease would have no bearing on commission decisions.

"I never really thought about it in terms of a conflict," Franzone said. "Quite frankly, I could care less about the lease arrangement. We would never take that into consideration."

Lou Raffetto, the chief operating officer of the Jockey Club, said the arrangement was suggested by Hopkins and that Pimlico was happy to provide the space. He said he did not consider the request unusual because racing commission staff, including veterinarians and stewards, are frequently on site anyway.

But several state officials spoke out against the arrangement in recent days during interviews.

"I don't see how you can be looked upon as not having a conflict of interest as a regulator when the entity you're regulating is your landlord," said House Speaker Michael E. Busch (D-Anne Arundel). "It's a conflict, and I can't believe the Board of Public Works would approve something like that."

Comptroller Peter Franchot (D), who joined the board after the lease was approved, said there is at least an appearance problem.

"It certainly doesn't look right," said Franchot, who suggested that the arrangement would be no different from having the state's utility regulators lease space from Maryland's largest power company at a bargain rate. "No one would accept that. That doesn't pass the smell test."

Ehrlich, through a spokesman, declined to comment.

A spokesman for state Treasurer Nancy K. Kopp (D), who was on the board at the time the lease was approved, said she posed questions in writing about the lease and received a reassuring response from one of the agencies involved.

But Kopp now thinks the lease is "questionable policy" and should be reexamined, said Howard S. Freedlander, the deputy treasurer for external affairs.

Both the Jockey Club and its minority owner, Joseph A. De Francis, have been active campaign donors in recent years, a period during which lawmakers have debated the future of the racing industry and the possible legalization of slot-machine gambling at tracks.

The Jockey Club has contributed nearly $190,000 since 1999 to Democratic and Republican politicians and party committees, including a $4,000 donation to O'Malley after he won the election, according to State Board of Elections records.

De Francis, as an individual, has given nearly $21,000 to Maryland candidates and party committees during the same period, including contributions to both Ehrlich and O'Malley. In 2002, De Francis also contributed $200,000 to a national committee then led by Maryland Senate President Thomas V. Mike Miller Jr. (D-Calvert) that seeks to elect Democrats to state legislatures across the country.