Subsidized Projects Struggling, Audit Finds

Several projects subsidized by Maryland's economic development agency are in financial trouble, legislative auditors reported yesterday, citing, in particular, a resort in Western Maryland and a golf course in Calvert County.

Rocky Gap Lodge & Golf Resort, the state-subsidized retreat built for $45 million a decade ago to revive an economically depressed area, has operated in the red for years and is $27 million in debt, the auditors said.

Chesapeake Hills, a golf course that the Maryland Economic Development Corp. took over from Calvert County five years ago, is running a $1.3 million deficit and cannot pay its operating costs without help from the county, the auditors said.

Also, two Baltimore nursing homes defaulted on payments to bondholders last year.

"We're just trying to inform readers of these troubled projects," said Bruce A. Myers, the state's legislative auditor. He called Rocky Gap's troubles "an annual discussion in Annapolis" during the legislative session. "We thought we'd lay it all out."

Agency officials said they agree with the findings of the report, which will go to the General Assembly. The audit analyzed the agency's operations from 2003 through 2006.

Rocky Gap was a much-heralded investment by the economic development agency, created in 1984 to issue bonds for statewide projects. Lawmakers envisioned the 215-room hotel outside Cumberland, with its Jack Nicklaus Signature 18-hole golf course, turning the impoverished but scenic corner of Maryland into a tourist destination.

But the resort has lost money since it opened in 1998 and is in deep debt, despite grants and loans from the state and local governments, Myers said. The state cannot make its $2 million in annual interest payments to bondholders, who have agreed to delay receipt until next month. Although the agency and bondholders are in discussions about a financial restructuring, the audit notes, no plan is in place.

"The biggest difficulty has been that we built a hotel where there was no market," said Robert C. Brennan, the agency's executive director. "Our task has been to create a market."

With an improving economy in Allegany County and some recent capital investment, the resort is on track to take in $12.5 million in operating revenue this year, compared with $7.7 million in 2004, Brennan said. The project is not in danger of foreclosure, he said.

The resort's financial problems could revive interest in Annapolis in locating a slot-machine operation at Rocky Gap. Slots, after rejection by the General Assembly several years ago, are back on the table as a remedy for Maryland's looming $1.5 billion budget shortfall.

Although Gov. Martin O'Malley (D) has said he favors granting gambling licenses to horse-racing tracks, Senate President Thomas V. Mike Miller Jr. (D-Calvert), a strong backer of slots, said yesterday that an additional venue at Rocky Gap could put the hotel in the black and help the state budget by drawing customers from neighboring West Virginia and Pennsylvania.

"Rocky Gap has been a problem for years," Miller said. "It would be an ideal location for slots." House Speaker Michael E. Busch (D-Anne Arundel) has long opposed slots.

The state has made $2.5 million in improvements to Chesapeake Hills since Calvert officials asked for help five years ago, Brennan said. "It's in a whole lot better shape than when we bought it," he said.

But without a residential community around it, the course -- once one of the premier golf courses in Southern Maryland -- has not attracted enough golfers to be self-sustaining.

Brennan said the troubled projects represent a fraction of the agency's projects, many of which are successful.

Referring to two other struggling projects, Brennan said the Rock Glen and Ravenwood nursing and rehabilitation centers in Baltimore take patients without private insurance. The homes ran into debt after Medicaid reimbursements were declined. He said he is working with investors to restructure the debts.

The audit also criticized the economic development agency's accounting controls. About $30 million in checks for leases and other payments that the headquarters received last year were not immediately deposited in the bank, leaving the agency open to fraud. Brennan said he has addressed the problem.