ANNAPOLIS, JULY 22 -- Maryland legislators acted today to try to prevent the Schaefer administration from using a novel "creative financing" method to build state facilities, saying that such efforts circumvent the legislature and could threaten the state's coveted AAA bond rating.
A joint House-Senate committee on capital projects unanimously recommended that Gov. William Donald Schaefer seek legislative approval for any "lease-leaseback" projects he wants to build, including a $16 million state office building that has already been planned in Salisbury.
The Salisbury project, which includes state offices and a new district courthouse, would be the first of nine construction projects around the state funded through the lease-leaseback method, in which a developer would lease land from the state, then build and own the project and lease it to the state for 30 years. The state would have a purchase option at the end of the lease.
Because the state technically would be leasing such buildings, their cost is not included in the capital budget approved by the legislature. But representatives of New York bond rating houses have told state officials that they consider such leases long-term debt and would factor those costs into their annual assessment of the state's bond rating. A slip in the AAA rating, held only by Maryland and six other states, could increase the cost of state borrowing by millions of dollars a year.
Legislators termed the administration's creative financing method a gimmick designed to put favored projects on a fast track and get around state procurement and hiring regulations. They said they were especially concerned that such financial arrangements could proliferate without legislative oversight and increase the cost of state borrowing by increasing the state's long-term debt.
Schaefer, who has pressed state bureaucrats to come up with innovative ways to speed construction of some projects, expressed anger at legislators' reluctance to go along with his effort. "It's proper innovative financing," said Schaefer. "Anything that's new down here shakes the very dome."
He said he will hold up his plans for the Salisbury project, as well as a creative financing proposal that would speed construction of a new courthouse complex in Upper Marlboro.
If the legislature is afraid of innovative financing, he said, "We're going to stop that project in Prince George's . . . we'll stop it dead in its tracks."
As far as he is concerned, Schaefer said, the Upper Marlboro courthouse project can "dilly- dally along" in the regular state bonding and construction process.
He said he is well aware of the importance of preserving the AAA rating. "Every time I move my foot, they say watch the bond rating."
Schaefer, who frequently shows his disdain for bureaucratic red tape, presided over a mayoral administration in Baltimore that developed unusual methods for funding city projects and forging partnerships with private developers. He has been both praised for those efforts, which resulted in part in the rebuilding of the once-rundown Inner Harbor area, and criticized for short-circuiting the City Council and using city funds to bankroll private development.
Most Annapolis legislators favor the governor's emphasis on the need for economic development in the state, but many are worried about being bypassed by a governor who sometimes seems impatient with the legislative process.
Del. Timothy F. Maloney (D-Prince George's) said his position as cochairman of the Capital Projects Committee "may not have been entirely irrelevant" in Schaefer's singling out of the Upper Marlboro courthouse. But Maloney stressed that he believes the legislature and the administration will come to terms on the creative financing issue without a serious confrontation.
"I think after reflection the governor will not do anything to impede the Prince George's project," said Senate President Thomas V. Mike Miller Jr. (D-Prince George's).
Sen. Julian Lapides (D-Baltimore) said that the administration's ability to skirt the legislature on these projects "leads to favoritism and cronyism" in choosing projects and contracting with developers.
Creative financing, said Lapides, "is a yuppie word for gimmick."
Administration officials told the committee they are not convinced that all such leases should be considered long-term debt, and that they want a clearer reading from the bonding houses. They argued that lease-leaseback arrangements cut down red tape, allow for the construction of projects that might not be considered high enough priorities to make it through the capital budget process, and that unlike straight lease arrangements, the state ends up owning something at the end of 30 years.
A report prepared for the legislature by the Department of Fiscal Services termed the lease-leaseback plan "a significant departure from the state's traditional method of financing construction of state facilities," and officials from the agency urged today that safeguards be adopted if it is used.
The state has used some innovative financing methods in the past, but only on revenue-producing projects and never for construction that would normally be funded through general obligation bonds.