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Maryland’s legislature is considering a bill that would encourage state agencies to seek private partners on big government projects, including building and maintaining public facilities like roads, bridges, and schools. Supporters claim the bill will provide funding for projects the state can’t afford. Critics worry it will lead to corruption in the awarding of contracts. We explore the potential implications of the expansion of public-private partnerships in Maryland.
- Anthony G. Brown Lieutenant Governor, Maryland
- Aaron Davis Washington Post Staff Reporter
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, an organized pushback against the NCAA's play for no pay structure. But first, it's something of a ground swell. A little noticed, but growing trend. A number of democratic run states and legislatures are passing laws, pushing public-private partnerships in which private money is used to build and in some cases run and maintain things like government buildings, schools and roads. What's unusual about that?
MR. KOJO NNAMDIIt's typically been republicans who supported bringing private entities into public projects. But now Maryland is one of several democratic lead states putting forward a bill to push public-private partnerships. Some say it's the smartest way to raise money for projects the government otherwise could not afford. Others say it means a return to the bad old days when there was no transparent bidding process and government contracts were handed out to cronies. Joining us to discuss this, by phone, is Anthony Brown. He is the lieutenant governor for the state of Maryland. Lt. Governor Brown, thank you for joining us.
MR. ANTHONY G. BROWNKojo, it's great to be on the air, talking about public-private partnerships.
NNAMDITell us about the specific public-private partnership bill that you're supporting in the Maryland state legislature right now, what would it do?
BROWNWell, the proposal that the governor and I have been working on and Martin O'Malley asked me to lead the administration's effort, is developing a streamlined process in Maryland. This would be a process where, you know, it's open and accountable where we could attract private investors to invest their dollars in Maryland's infrastructure whether it's roads or mass transit, whether it's schools or libraries. As you mentioned, there are a number of states that are looking to do this. And there are also a number of states that have already done it.
BROWNVirginia has been looking at public-private partnerships and they've been doing it not just under republican governors, but Tim Kaine was actively in pursuit of public-private partnerships. So it's really not a democrat or republican initiative, it's a good government initiative to build out infrastructure and particularly in a time where the public resources just aren't what they used to be.
NNAMDIWhen you say the public resources aren't just what they used to be, why do you find this both necessary and desirable?
BROWNWell, and I say that the public resources aren't what they used to be and I'll, just for example, Maryland's transportation trust fund which is the fund that we look to for investment dollars on our public transit systems and our roads and our bridges, it's about 2/3's what it was when the governor and I first took office. And the reason why it's not as robust as a fund is because the traditional resources that go into it, like, the titling and registration fees from automobiles and the gas tax, people aren't driving as much or they're getting better fuel efficiencies. They're not buying new cars like they used to be although that's a little bit on the upswing.
BROWNSo the traditional revenues have been down, so the resources haven't been available. What makes the public-private partnership attractive is that not only do we invite the private sector to invest private dollars and we do it in a way where we maintain public control over the infrastructure, but we also invite the private sector to bring their ingenuity, the creativity in solving the infrastructure challenges that we have. So it's more than just the investment dollars but it's also the creativity and the ingenuity.
NNAMDIIf you'd like to join this conversation, you can call us at 800-433-8850. Do you think privatizing some government projects and facilities is a good idea, 800-433-8850? If the government doesn't have the money for a big project, do you think it makes sense to partner with the private sector? You can also send us a tweet @kojoshow, email to email@example.com or simply go to our website kojoshow.org and join the conversation there. Lt. Governor Brown, it's my understanding that the state could lease public assets under this new law for up to 50 years, how would that work?
BROWNSure. The way it would work is that the state would sit across the table from a private investor and developers and we work out all of the terms of the agreement. For example, the Port of Baltimore, we recently completed a public-private partnership where the private sector invested $140 million in expanding the capacity of the Port of Baltimore. We have larger ships that will be coming through the Panama Canal because the canal is going to be widened. And we didn't want those ships to bypass the port. The port is a big economic engine in Maryland.
BROWNThe state didn't have the $140 million to invest in the port so we brought in a private investor and Port America, that's the name of the company, they've widened and expanded the port. We created 2,700 jobs in construction and they'll be about 2,300 jobs permanent full-time going forward. That's an example. And we still own the port. And that's a 30 year lease. We own the port, we will continue to own the port, yet we were able to attract the private sector to invest in that. There will be a return for the private sector and there's a real benefit to the public. We have a more vibrant port.
NNAMDI800-433-8850, Maryland's Transportation Department already has the authority to engage in public-private partnerships. But critics of the bill, Lt. Governor Brown, say that the current procurement laws were designed to ensure a competitive bidding process and to ensure transparency. They say, both of those are likely to be lost if the new measure is passed. What say you?
BROWNWell, I'd say, I would invite the critics to take a closer look at the provisions of the bill that's proposed and what I mean is this, we set up a three phase process that does not exist today in Maryland law. We set up a process where in the first 45 days before you even go out to bid, a lot of analysis has to be done of the proposed project. We've got to look at financials. We have to look at the impact on Maryland's debt. We have to look at the benefits to the state. And we have to make this information available to the legislature and to the public. We have to post it on the internet and make it available to the public. That currently does not exist under Maryland law.
BROWNWhat we're proposing would have that 45-day process. Then you go out for bid and then there will be a negotiation with private sector bidders. And then after we have an intent to reach an agreement with one of the bidders, we have another 30 day review process which does not exist in Maryland law. And in that 30 day process, information will go to the comptroller, the treasurer, made available to the public and go to the legislature so they can evaluate the proposal before it's finally awarded. The other thing I want to point out is in the bill, it expressly requires that the state promulgates regulations before a public-private partnership program can go into effect in Maryland.
BROWNAnd those regulations not only have to be reviewed as they are today by the administrative review committee in the legislature but we now require, in this bill, that the budget committees in both the house and the senate have to review any regulations that are promulgated in further in some public-private partnerships. And that doesn't exist today. So there will actually be, I think, heightened scrutiny and governance of public-private partnerships in Maryland as a result of (unintelligible) .
NNAMDIBefore I let you go, Lt. Governor Brown, the state is currently involved in a lawsuit related to public-private partnership, a public-private project known as State Center in Baltimore. That would be the state's most expensive public-private project. Can you tell us about that?
BROWNWell, so right. It's called State Center. It's a large redevelopment project of state-government facilities. The bill that was proposed by me and the governor, which came out of the recommendations of a public-private partnership commission that I presided over last year, we did not look at State Center in terms of recommendations on addressing State Center.
BROWNOur focus was on going forward with infrastructure development projects that will create jobs and support growing communities going forward. The legislature has put out an amendment that would impact State Center and the governor and I, what we've been focused on is going forward, what do we do to encourage more private sector investment in Maryland's public infrastructure.
NNAMDIAnthony Brown is the Lieutenant Governor for the state of Maryland. Thank you very much for joining us.
BROWNThank you, Kojo.
NNAMDIJoining us in studios, Aaron Davis, he is a staff reporter for the Washington Post. Aaron, thank you for joining us.
MR. AARON DAVISThanks for having me.
NNAMDIAnd you just listened to what Lt. Governor Brown had to say. The current procurement process was set up to guard against abuses in awarding contracts. Can you remind us a bit about the history there?
DAVISYeah, Maryland's had a pretty decent record, I guess, in the past couple decades with procurement as far as, you know, has a pretty clear process. And there was a lot of changes made in the late '70s, early '80s, actually some pretty high profile cases pushed that to happen. The resignation of the former Vice President Spiro Agnew, former Maryland Governor was involved in a procurement scandal. You know, the former Governor Marvin Mandel. There were a lot of big time politicians in Maryland that were -- the laws weren't clearly written and, you know, I'm not going to go back and rehash a lot of history here.
NNAMDII remember a lot of it, though.
DAVISYeah, but here we are and there's been a pretty clear process for the past couple decades, you know, sealed bids, lowest bidder, those kind of really simply things that you expect to be the bottom line in how governments are -- contract and procure for big projects. That's been the system. This would change it so that there could be a lot of back and forth negotiation. What's best for the state? What's best for the developer? Well if we can turn a profit for this, you know, what could we get in return? It makes it a much more fluid process and it will be a little bit more difficult to really understand.
NNAMDIRight now, there's a competitive bidding process. And it's supposed to be transparent. The Lt. Governor seemed to suggest that even in public-private partnerships, there is going to be a competitive bidding process. How can we be assured of that?
DAVISWell, let me back up one step here...
DAVIS...and say that, what's going on here is, there is big money involved. Just take the case of the most recent attempt at public-private partner and that is the rest stops, the Maryland House, the Chesapeake House.
DAVISYou may have stopped on those on your way up 95.
NNAMDIFor years and years.
DAVISRight. So those are going to be turned over to a private group called Areas. It's a Spanish company. And, you know, we're talking about, if you unlock a government asset like this, you have a private company that can make a profit, it expects over 35 years in the mid teens, a very solid investment return on anything in this day and age. And it's pretty well documented that that could be a, you know, a steady rate of return. So the company makes a lot of money, the state makes a lot of money. There's enough money wrapped up in something like this that the state can say well, if we let you do this, we want you to hire employees who make living wages. We want you to follow our environmental rules.
NNAMDIThey always say that stuff.
DAVISWell, yeah. But then they want you to, you know, allow for union protection. So there's enough for the democrats who will run the state of Maryland here and taking this unique step for the democrats to get what they want as far as, you know, to appease a lot of their constituencies. And at the same time, build something that the state -- it's way down on the totem pole of what the state could afford to do right now which is, you know, build two new rest stops.
NNAMDIBut with the Chesapeake House and the Maryland House, was there a transparent competitive bidding process.
DAVISWell, that's the interesting, you know, what the law does that the Governor and the lt. Governor have pushed here and that will come up for a vote tonight in this date house is it would essentially make it state policy to do what they did in the case of the rest stops. In the case of the rest stops, there was originally a procurement. They said, why don't we do this through standard bidding process? And they put it out a couple years ago. And that proposed contract was 700 pages long. Very detailed, explained everything.
DAVISWell, they said, well, that didn't work out very well. There was only one company who responded to that, the current company runes them. Let's do this as a public-private partnership. Well, they put that out and it was only seven pages long and it left a lot more to the imagination of how this would unfold. And there were essentially three criteria which the state said, you need to fulfill. There needs to be a benefit for the state and money wise. There needs to be a benefit for the consumers to use it. It needs to build new infrastructure. Well, there was a lot of interpretation. One company said, we'll do this way. Another said, we'll do it that way.
DAVISAnd it left the state open to some criticism that they simply pick the one that they liked. The design that they like better, you know, wasn't as clearly stated as what they're really after. So, that's the situation. And the state now wants to do this with buildings, with other things and they say that they'll have this process where you have to write the regulations to be evaluated. None of those have been written yet.
DAVISAnd I think that's what's interesting about this bill. The bill does, as the lieutenant governor said, he's got together a big coalition of people behind this, labor unions, Democrats, people who would normally -- usually subscribe to this idea has gotten together, a lot of support to get this. And it's very clear after there's a deal, we'll tell the legislature, we'll tell the comptroller, we'll tell the treasurer, all these things and we'll let them take a look at it for 30 days or 45 days.
DAVISIt's not so clear in the front end. A lot of things have yet to be determined how they'll evaluate contracts. And so, could they narrowly tailor one? You know, really, only one company could fulfill. Could they make it so broad that it's really hard for companies to, you know, unless some company already has an inside track to, you know, understand what the state is really after. So those are the kind of questions that are unfolding here.
NNAMDIOn to the telephone. Here's William in Columbia, MD. William, you're on the air. Go ahead, please.
WILLIAMGood morning, Kojo, or good afternoon, I'm sorry. Yeah, I've been the chief financial officer for three large government agencies. And I've been in charge of procurement. I've done public-private partnerships in the U.S. Department of Veterans Affairs. It worked very well under their enhanced leasing.
WILLIAMBut this is very powerful medicine and it can kill you. And the state doesn't have a good track record. And this is something we'd look at the State Center project in Baltimore to provide mixed use buildings and so forth and state offices. The state is giving up very valuable property and entering into a lease for the most expensive office space they have ever rented. The other thing that Lieutenant Governor Brown said about revenues being down in fees or car registration and gasoline tax, that is true.
WILLIAMHowever, the legislature and the governor has consistently raided the transportation fund over the last eight years. And they take about $700 or $800 million out of it. So, what's to ensure that money that we get from these public-private partnerships won't be misappropriated also?
NNAMDIThose are among the questions that are being raised, Aaron Davis. I'd like to go back to the issue that William raised about the State Center now providing the government with the most expensive office space it's had in history. The irony of the pushback against this proposal is that it's coming from Republicans who generally support private investment in development over public investment.
DAVISRight. There's a couple of things going on here. But to turn to the State Center, which has become -- the explosive part of this bill has become State Center. Now this was an amendment that was done last week. And I was in the room when it was proposed and it was read very briefly. And there are about 12 people in the audience, all of them were either lobbyists, renters in the group, in the bill, and then it passed out to the floor very quickly.
DAVISAnd it's since, you know, become this element that would essentially allow the state to retroactively apply this law and say that, well, we need to do these -- these are big, important projects. We've determined they're big, important projects. So therefore, we are going to put a timeline in the court that they will have to make a decision, if there's any objections to these within a certain number of months.
DAVISAnd then on top of that, it will allow a state -- in the State Center case, the state has asked for a dismissal. Judges refused and in fact said, well, no, you should actually turn over all the documents to justify how you made this decision.
NNAMDIBut if this law is passed and it is effective retroactively, what does that do to the State Center lawsuit?
DAVISWell, it would allow the state to take its appeal for dismissal, which it lost, all the way up to the state's second highest court and again ask for that dismissal. And if they refuse, it could go down to a lower court. And critics say it could just allow them to ping-pong this issue back and forth into the courts to the point where there's no use of objecting to it. And this is a big project, eight city blocks in Baltimore, $1.5 billion.
DAVISThis is -- Peter Angelos and a lot of the other, you know, big time businessmen in Baltimore say the state would be paying 40 percent more per square foot than it could in a half million feet of open office space right now in Baltimore. You know, the interesting part here is, Republicans have long been criticized for taking public money and allowing to line the pockets of private enterprises who want to participate in government, you know, enterprises where there's a stable rate of return.
DAVISWhat this is doing, critics say, is that Democrats can also work on its ulterior motives that maybe we want to redevelop downtown Baltimore, maybe we want to do something else. Well, we can essentially, through this public-private partnership, accomplish a goal that's our party priority and at the same time, you know, unlock this public asset. So that's the issue. And that's why Republicans have come out against this.
DAVISThe way Maryland is set up with the Democratic-controlled legislature and governor, they're not going to have any say who gets to have these projects and how they're set up.
NNAMDIAnd the public employee unions have signed on. But in Maryland, as we've heard, it's the Lieutenant Governor's Office that's been pushing this bill. What have we seen about Governor O'Malley's involvement and why does it seem to be well reticent?
DAVISWell, it's interesting. You know, O'Malley was the mayor of Baltimore, was, you know -- he's got ties to some of these, you know, understands a lot of these projects very deeply in Baltimore. But on the state level, he's left it up to Brown to be the point person on this bill. You know, this is one of the lieutenant governor's position that he will likely expect to run for governor in a few years based on these and some other things that he's been working on very closely.
DAVISBut that's not to say that Governor O'Malley has not been involved or supportive of these. The part that's really benefited him and the administration is that this public-private partnership, commonly known as P3, which maybe I'll just use then instead of the tongue twister.
DAVISSo, this P3 deal that they did at the port has been held up as a great model. It worked really well. And so they've got one really good one under their belt. They may have other ones that are in lawsuits, but they have this one that they can stand up and say this -- see, we can do this well. And so, O'Malley has pushed this a lot on the back. He's got a lot of other hot-button issues that he's pushing this year. I think, he's...
DAVIS…leaving it with Brown. I mean, he's been out there in front on gay marriage and on the gas tax.
DAVIS…proposal and other things. But, you know, he did have a meeting in New York with -- he's also the chair of the Democratic Governor's Association this year.
DAVISAnd held a meeting in January in New York with Andrew Cuomo, the governor there. Six other governors were in the room. And anybody who sat on a panel who are discussing public-private partnerships, there was a teacher's union representative there with some others. Each paid $50,000 a pop to sit next to these guys and talk about public-private partnerships. So there is a lot of money, there's a lot of interest, there's a lot of discussion behind the scenes.
DAVISWe haven't sent the governor out in front on this one as much. But he does support it. I would say so as much.
NNAMDIAll of which, it seems to me, indicates that this should receive greater scrutiny, the P3 issue, public-private partnerships in Maryland. Aaron Davis is a staff reporter for the Washington Post. Aaron Davis, thank you so much for joining us.
DAVISThanks for having me.
NNAMDIWe're going to take a short break. When we come back, Dave Zirin joins us. He's going to be talking about the pushback against the NCAA against the play for no pay structure. I'm Kojo Nnamdi.
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