state of maryland board of public works · 12/21/2016 * board of public works * 2 hunt reporting...

STATE OF MARYLAND BOARD OF PUBLIC WORKS

GOVERNOR’S RECEPTION ROOM, SECOND FLOOR, STATE HOUSE ANNAPOLIS, MARYLAND

December 21, 2016 10:08 a.m.

12/21/2016 * Board of Public Works * 2

HUNT REPORTING COMPANY Court Reporting and Litigation Support

Serving Maryland, Washington, and Virginia 410-766-HUNT (4868)

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PRESENT

HONORABLE LARRY HOGAN Governor

HONORABLE NANCY KOPP

Treasurer

HONORABLE PETER FRANCHOT Comptroller

SHEILA C. MCDONALD Secretary, Board of Public Works

ELLINGTON CHURCHILL

Secretary, Department of General Services

DAVID BRINKLEY Secretary, Department of Budget and Management

PETE RAHN

Secretary, Department of Transportation

MARK BELTON Secretary, Department of Natural Resources

ALBERT BULLOCK

Assistant Secretary, Department of Information Technology

HERBERT JORDAN, III Special Secretary, Governor’s Office of Minority Affairs

MISSY HODGES

Recording Secretary, Board of Public Works




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CONTENTS

Subject Agenda Witness Page

Grants to the Maryland Wine and Grape Promotion Fund

SEC 1, p. 1

Sheila McDonald Kevin Atticks

Bob White 8

DNR Agenda DNR Mark Belton 14

DBM Agenda DBM David Brinkley 15

Online Digital Advertising Placement and Media Buying Services for UMUC

USM 6-S, p. 55

Joe Evans George Shoenberger

Erika Orris 17

DoIT Agenda DoIT Albert Bullock 27

Electronic Bidding Fee Approval for SHA

DOT 13-GM, p. 88 Pete Rahn 28

Reconsider, Rescind Prior Approval, and Disapprove BPW Items related to Leases for the State Center Project

DGS 14-RP, p. 114

Ellington Churchill Nelson Reichart Troudy Vaughan

29

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PROCEEDINGS

GOVERNOR HOGAN: Good morning.

ALL: Good morning.

GOVERNOR HOGAN: Thank you all very much for being here

this morning. This is our last Public Works meeting for the year and I just want to

take a moment to extend to my colleagues, Treasurer Kopp and Comptroller

Franchot, our great staff, and to all of you here this morning a very happy holiday

season, a Merry Christmas, and Happy Hanukkah. And I hope everybody gets a

chance to get some well-deserved rest and gets to spend some quality time with

family and friends.

At this point I’d like to turn it over to my colleagues for any

opening comments. Madam Treasurer?

TREASURER KOPP: Just to echo the Governor and wish

everybody the best of the season. It’s been a big year. There’s another big year

coming. But a time, after having done all we can to pump up the small businesses

of Maryland with significant retail buying whenever I turned a corner, and I trust

that the Comptroller and Mrs. Franchot did the same. We have some great

independent book stores, some great toy stores, some great retail shops in

Maryland. And they are all better for having us walk down the street.

GOVERNOR HOGAN: And the Comptroller has visited every

one of them.




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(Laughter.)

TREASURER KOPP: Yeah, absolutely. They tell me that. I walk

in, and they say, where is he? He hasn’t been here for two or three days. But to

wish everybody the best of the season and look forward to working together on

the people’s business and protecting the people’s rights in the next year.

GOVERNOR HOGAN: Thank you. Mr. Comptroller?

COMPTROLLER FRANCHOT: Thank you, Governor, and thank

you, Madam Treasurer. And yes, I do tend to get out of Annapolis from time to

time. I’m not sure why but that is something that I’ve spent a considerable

amount of effort on. And frankly I meet so many hardworking Marylanders and

businesses that are the backbone of the State’s economy. And over ten years,

Madam Treasurer, you’re right, there have been a lot of them. And it’s a real eye-

opener and a privilege to visit hundreds of businesses and nonprofit organizations.

And obviously Maryland is still suffering from the events of the recession of

2008. But one thing is undeniably clear in Maryland, our economic bones remain

strong thanks to our highly skilled citizenry and world class universities and

institutions that call Maryland home.

All across Maryland we see our citizens’ innovative and

entrepreneurial spirit alive and well. From small start up entrepreneurs in

Baltimore to large high tech companies along the I-270 corridor, to restauranteurs

emphasizing farm fresh products, to nonprofit organizations employing unique




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strategies to stretch limited funds, our citizens’ creativity and ingenuity continue

to be our greatest asset. Which is why I’m proud this morning to announce that

my office is establishing a new award to recognize and celebrate true innovation

outside of the government sector, whether in business or the not for profit

industry.

The Bright Lights Award for Innovation and Entrepreneurship will

highlight our State’s thriving community of innovators and entrepreneurs who

successfully execute their organization’s mission despite today’s challenging

economic conditions. My office will be accepting nominations until January 31st.

And Governor and Madam Treasurer, I hope perhaps we can arrange our

schedules and you might join me in one or another of these recognitions of what I

think are going to be terrific individuals, enterprises, and organizations that

strengthen our State’s diverse marketplace.

And I’d also like to join the Governor and the Treasurer in

extending my warmest wishes for a joyous holiday season. Merry Christmas, a

very Happy New Year, Happy Hanukkah and everything else. I don’t want to

make a mistake here. But God bless our great State. Thank you, Governor.

GOVERNOR HOGAN: Thank you, Mr. Comptroller. And with

respect to the hardworking small business people you referenced, the good news

as we end this year is that this year was the best year for Maryland businesses in

15 years.




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COMPTROLLER FRANCHOT: Mm-hmm.

GOVERNOR HOGAN: It was our best year for job growth in 15

years. Our economy went from one of the worst performing in the nation to one

of the best. We went from losing 8,000 businesses and 100,000 jobs to adding

72,000 private sector jobs this year, over the, since I took office. And most of

them are small businesses --

COMPTROLLER FRANCHOT: Yep.

GOVERNOR HOGAN: -- like the ones you are out visiting. So

thank you very much. We’d like to get --

COMPTROLLER FRANCHOT: You brought that up, Governor.

I will add that my experts in the Comptroller’s Office believe that we are on the

cusp of what could be one of the great economic booms in the country. And it’s a

matter of timing more than anything else. But so much money has been parked

for so long on the sidelines because of this ongoing doom and gloom about the

recession. And now indications are from the banks and the corporations that a lot

of that is being moved into investment. And Governor, I couldn’t agree with you

more about the success and all I can say is stay tuned. Because there’s going to

be a lot of economic activity in the State of Maryland in the next several years.

GOVERNOR HOGAN: I sure hope you’re right and you’ve got a

crystal ball.

COMPTROLLER FRANCHOT: Yep.




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GOVERNOR HOGAN: Let’s get started with the Secretary’s

Agenda.

COMPTROLLER FRANCHOT: Of course we could be in the

trade war with China, so I don’t know --

(Laughter.)

GOVERNOR HOGAN: Yeah. Everything could go to hell, we

just don’t know.

TREASURER KOPP: That’s next year. We’re ending on a high.

GOVERNOR HOGAN: Madam Secretary?

SECRETARY MCDONALD: Good morning, Governor, Madam

Treasurer, Mr. Comptroller. We have 12 items on the Secretary’s Agenda. We

have one report of an emergency procurement. We are withdrawing Items 10, 11,

and 12 and anticipate that those three items will be back at your next meeting on

January 4th.

GOVERNOR HOGAN: Okay. I’d just like to point out Item 1. I

think we may have Bob White from the Maryland Grape Growers and Kevin

Atticks from the Maryland Wineries Association. Are they with us this morning?

SECRETARY MCDONALD: Would you come up to the dais

please?

GOVERNOR HOGAN: Yeah, I just --

TREASURER KOPP: Talking about great Maryland industries.




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SECRETARY MCDONALD: This is the Maryland Wine and

Grape Promotion Fund.

GOVERNOR HOGAN: Yeah, talk about great growing Maryland

industries, perfect timing, if everybody hasn’t gone out and bought your

Christmas cheer, maybe go out and buy some Maryland wines. Good morning.

MR. ATTICKS: Good morning.

SECRETARY MCDONALD: Could you all introduce yourselves

for the record again please?

MR. ATTICKS: Yes. Kevin Atticks, Executive Director of the

Maryland Wineries Association.


MR. WHITE: I’m Bob White, the current President of the

Maryland Grape Growers Association.

GOVERNOR HOGAN: Good morning. I thank you both for

joining us. I don’t have any tough questions for you guys. I just wanted to point

out the incredible stuff that you are doing and say that this item we’re approving

today hopefully grants $85,000 from the Maryland Wine and Grape Promotion

Council to the Maryland Grape Growers and Maryland Wineries Association, and

we were just together last week. It’s hard to believe that Maryland went from just

I guess a decade ago 13 wineries to 80 now. And I’ve got to say the quality level

has really been improving every year. They are fantastic wines so go buy some




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for the holidays. But this grant will assist the Vineyard Capital Assistance

Program to help our growers meet the increasing demand for Maryland grapes

and it will also fund an economic impact study for the Maryland Wineries

Association and assist in the rebranding of this thriving industry to highlight the

top quality Maryland made products that you produce. And just last week I had

the pleasure of attending the Governor’s Cup. Boordy Vineyards in Baltimore

County won the Governor’s Cup. I think I was the first time ever that the

Governor actually presented the Governor’s Cup.

MR. ATTICKS: That's correct.

GOVERNOR HOGAN: And I was happy to do so, and we gave

out awards to the best of the best of our Maryland wineries. And I just wanted to

call you up and thank you for all the great work that both of your combined

industries are doing. Our wine producers and our grape growers are really

contributing to our economy. They are doing great. They are creating jobs across

several sectors. And in agriculture and tourism, I think 250,000 people visit our

wineries, which is just incredible. And I just wanted to say that I strongly support

this item and you have a strong supporter of your great Maryland industry. So

thank you so much for being here this morning. Anybody else got any comments

on this one?

COMPTROLLER FRANCHOT: Did you bring any wine?

(Laughter.)




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GOVERNOR HOGAN: It’s a little early but --

(Laughter.)

MR. ATTICKS: I thought it was a little early, but there’s always

some in the car.

(Laughter.)

TREASURER KOPP: I actually, I actually --

GOVERNOR HOGAN: Hopefully it’s not open.

TREASURER KOPP: I do have a question. How tied in are you

with the rest of the tourism industry in terms of like bed and breakfasts --

MR. ATTICKS: Yes.

TREASURER KOPP: -- tours, that sort of thing?

MR. ATTICKS: Very tied in. Actually I just finished a two-year

term as the Chair of the Maryland Tourism Coalition, where we work with every

sector of the tourism industry to support the wine industry and vice versa, the

wineries supporting bed and breakfasts and restaurants and all the little shops in

the small towns around the Maryland.

TREASURER KOPP: Right.

MR. ATTICKS: So the wineries are very connected in tourism.

TREASURER KOPP: I have two cousins who came down from

upstate New York. And we sent them on a long weekend tour of Western

Maryland. And they stayed at the bed and breakfast towards some wineries and




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came away just blown away. Because they know they do that in upstate New

York but they had no idea we did anything in Maryland. I think there’s great,

great potential out there for this synergy.

MR. ATTICKS: That’s what we love to hear.

TREASURER KOPP: Yeah. No, it’s terrific.

GOVERNOR HOGAN: Well I remember back when Governor

Ehrlich first took over and they were serving some Maryland wines at the

Governor’s Mansion. And some people were not that impressed with some of the

quality. You know, they were like, Maryland wines? Now we serve Maryland

wines and they’re like, what is this? This is fantastic. So people can’t believe the

quality of the wines that we’re producing here. So congratulations.

MR. ATTICKS: Great endorsement. Thank you.

GOVERNOR HOGAN: Thank you.

TREASURER KOPP: Keep it up.

GOVERNOR HOGAN: Are there any other questions?

MR. WHITE: It starts in the vineyard, Governor.

GOVERNOR HOGAN: What’s that?

MR. WHITE: It starts in the vineyard.

GOVERNOR HOGAN: It starts in the vineyard, I know that.

Absolutely. You’ve got to get the right grapes or you can’t make good wine.

Absolutely.




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MR. ATTICKS: Absolutely.

COMPTROLLER FRANCHOT: What is your role again? You’re

--

GOVERNOR HOGAN: The Grape Growers.

COMPTROLLER FRANCHOT: You’re President of the Grape

Growers?

MR. WHITE: Yes, President of the Grape Growers Association,

yes.

COMPTROLLER FRANCHOT: Excellent. Keep up the great

work.

GOVERNOR HOGAN: Keep growing them. And keep stomping

on them.

(Laughter.)

MR. ATTICKS: Happy to.

GOVERNOR HOGAN: Thank you very much.

MR. ATTICKS: Thank you very much.

MR. WHITE: Thank you for having us.

GOVERNOR HOGAN: Any other questions on the Secretary’s

Agenda? Is there a motion?

COMPTROLLER FRANCHOT: Move approval.




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GOVERNOR HOGAN: Second? Motion seconded. Three-

nothing.

SECRETARY MCDONALD: Thank you.

GOVERNOR HOGAN: We move on to the DNR Real Property

Agenda.

MR. BELTON: Good morning, Governor --

GOVERNOR HOGAN: Mr. Secretary, good morning.

MR. BELTON: -- Mr. Comptroller, Madam Treasurer. For the

record, I’m Mark Belton, Secretary of the Maryland Department of Natural

Resources. We have 14 items this morning on our DNR Real Property Agenda

for your approval.

GOVERNOR HOGAN: Okay. Any questions on the DNR

Agenda? Is there a motion?


GOVERNOR HOGAN: Second? Three-nothing.

MR. BELTON: Thank you.

GOVERNOR HOGAN: Getting them of here. Up next we have

Secretary Brinkley is going to give us the DBM Agenda.

MR. BRINKLEY: Good morning, Governor, Madam Treasurer,

Mr. Comptroller.




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GOVERNOR HOGAN: He’s been busy, by the way. I want to

just say everybody has been working hard. But the Budget Office has just been

incredibly busy and working around the clock just preparing for next year’s

budget. They’ve done a great job. I want to thank you and your team for all the

hard work and effort.

MR. BRINKLEY: Thank you, Governor. I will certainly pass that

on. The department has submitted four items on today’s Agenda. We are

withdrawing Item 1-S leaving three items for your consideration. And I have

people here to address any concerns or questions you may have.

GOVERNOR HOGAN: Questions on DBM?

COMPTROLLER FRANCHOT: Yes. Item 5-S, please.

MR. BRINKLEY: Which one?

COMPTROLLER FRANCHOT: Five, I believe it’s 5-S.

MR. BRINKLEY: There is no five, but there’s three. Yeah, one, I

have 4-S.

COMPTROLLER FRANCHOT: Maybe you are withdrawing it.

It’s the automated health systems for Medicaid.

SECRETARY MCDONALD: Oh, it was not put on the Agenda.

That was not formally on the Agenda. It is not --

COMPTROLLER FRANCHOT: Oh, okay. Great.

MR. BRINKLEY: We took care of that.




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SECRETARY MCDONALD: Right. It’s not being withdrawn

because it was not --

COMPTROLLER FRANCHOT: Okay. Thank you.

GOVERNOR HOGAN: They just anticipated your concern --

COMPTROLLER FRANCHOT: Yeah, channeled me.

GOVERNOR HOGAN: -- and decided not to bring that one.

SECRETARY MCDONALD: It was that crystal ball that the

Comptroller --

GOVERNOR HOGAN: Yeah, exactly. Any other items? Is there

a motion?

COMPTROLLER FRANCHOT: No, move approval.

GOVERNOR HOGAN: Great. Three-nothing. We’ll go on to the

University System Agenda.

MR. EVANS: Good morning. Joe Evans representing the

University System of Maryland.

GOVERNOR HOGAN: Good morning, Joe.

MR. EVANS: We have six items on the Agenda. We’re here to

answer any questions.

GOVERNOR HOGAN: Great. I don’t have any questions. Mr.

Comptroller?

COMPTROLLER FRANCHOT: Item 6-S.




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MR. EVANS: I’d like to bring up George Shoenberger, who is the

Senior Vice President and Chief Business Officer.

COMPTROLLER FRANCHOT: Terrific.

MR. EVANS: Great.


MR. SHOENBERGER: Good morning.

COMPTROLLER FRANCHOT: Good morning. Thank you for

being here. I, does he have to identify himself or has he been identified for --

SECRETARY MCDONALD: Mr. Shoenberger, go ahead.

MR. SHOENBERGER: George Shoenberger, University of

Maryland University College.

COMPTROLLER FRANCHOT: Great. So we’re being asked to

approve a five-year contract to the Kepler Group out of New York City for

University College --

MR. SHOENBERGER: Yes, sir.

COMPTROLLER FRANCHOT: -- University of Maryland for

your online digital advertising placement and media buying services at a proposed

cost of $80 million, most of that being a pass through for advertising costs and the

remaining $7.41 million in service fee to the vendor. I am a huge fan of the

University College. I’ve defended it for years. I’m delighted that it remains a

separate part of the higher ed system. I recognize how critical online advertising




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is for an online academic institution like yours. In reviewing the background

materials I see that 14 firms responded to the initial solicitation, UMUC requested

detailed technical proposals from seven. Five of those were eventually short-

listed but only three were asked to submit financial proposals. Could you explain

why all of the short-listed firms, for example, weren’t asked to submit financials?

MR. SHOENBERGER: This is a highly specialized marketing

area, the digital marketing, and there are very few firms that do this well. So we

had a multi-step process where we looked into the firms’ experience levels and

weeded down to the three. These three can all do this job. We did not feel that

the other ones could adequately do the job.

COMPTROLLER FRANCHOT: Okay. And I take it there’s an

incumbent company that’s currently doing the job, a company called TBC?

MR. SHOENBERGER: Right. They are a generalist.

COMPTROLLER FRANCHOT: Mm-hmm.

MR. SHOENBERGER: And they do all of our advertising,

including digital. But we’re softening in terms of enrollments from the digital

sector. So we’re going for a company that specializes in digital, that’s why the

change.

COMPTROLLER FRANCHOT: Okay. It’s my understanding

that your enrollment growth is up four percent during the time that TBC has held

the advertising, both digital and --




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MR. SHOENBERGER: Right, our enrollments --

COMPTROLLER FRANCHOT: -- regular advertising?

MR. SHOENBERGER: -- have been growing at a modest level.

COMPTROLLER FRANCHOT: So it’s my understanding that the

online education industry generally is in decline. It seems that a four percent

increase, frankly, is pretty positive if in fact that included the digital advertising or

new recruits. So why wasn’t the incumbent asked to, since they are doing the

digital work now and you’ve had four percent enrollment growth, which sounds

to me, I’m not an expert, it sounds to me like it’s pretty good, why weren’t they

on the short list?

MR. SHOENBERGER: They did not submit a proposal.

COMPTROLLER FRANCHOT: Okay. So I guess that’s a

problem for me. Because I, as the Treasurer noted, I go all over the State saying

shop local, buy local, money stays in the State. And here we have a very

successful company in Baltimore, TBC. I don’t know them but just looking at the

background material. And they’ve been handling your digital advertising and all

of a sudden that’s taken away and you bid it to a New York City company. I’m

sure they’re terrific. But my understanding is TBC will be laying people off

around Christmas because of this.

MR. SHOENBERGER: I’m not aware of that. But I can tell you

that our digital advertising is not returning what it had been in the past. In spite of




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the fact that we have modest growth, it’s imperative especially as we move into a

national market that we shore this area up. And that’s why we want to get

someone in here that specializes in this. It’s kind of like a doctor. You go to a

general practitioner. If you have something wrong with your heart you might

want to go to a cardiologist. This particular firm is a specialist in this area. You

know, we’re aware of what you’re talking about and it is a concern because we’re

not looking to do business out of State. But this area is so specialized, as it

worked out the firm is from New York.

COMPTROLLER FRANCHOT: Well let me just suggest that

maybe we take a couple of weeks and you look at this to see whether your

incumbent company TBC, which did not bid for some reason obviously, unclear

to me, but let’s see whether they could perhaps have a partnership or something

with this New York City powerhouse company, which I find very hard to believe

there is not a similar expertise down here in Maryland.

MR. SHOENBERGER: Let me, if you don’t mind --

COMPTROLLER FRANCHOT: Please.

MR. SHOENBERGER: -- let me ask Erika to come up. Erika, can

you talk a little bit about our experience relative to this change?

MS. ORRIS: Good morning. My name is Erika Orris. I’m Senior

Vice President of Enrollment. Just to clarify a little bit about our growth, the

growth was driven by military, business to business, and community college. It




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was not drive by direct to consumer. The direct to consumer market actually has

been declining for the last five years. And about 65 percent of those enrollments

come from digital advertising. So I think that’s the part that we’re really trying to

correct. And this particular session that we have coming up, the overall is

declining because we don’t have the tailwind any longer behind us in military.

We, if there was a Maryland firm that could do this work we’d be happy to

consider it. There was no one who specialized in the digital area.

This might also help, that this is basically built on algorithms to

deliver internet content based on experiences that people have online. And

currently a traditional agency approach allows us to place about 100 to 200

placements per week. In the digital scaled approach, which is all built on

algorithms, engineers who build the algorithms, they allow us to place greater

than 4,500 placements per day. There is a huge difference in between what a

general agency can do versus a digital agency.

COMPTROLLER FRANCHOT: President Miyares called me

yesterday very nicely and I explained to him, and he had exactly the same

explanation about my concern. And I’m simply asking that we hold off for a

couple of weeks and you take a look at whether the TBC group, which is I think

producing terrific ads, I see them on the TV set, could not have some kind of a

partnership with this group so they are not laying people off around Christmas

time based on us shopping up in New York City. So maybe you could take a look




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at that and get back to us and happy to, you know, as I said, I’m a huge supporter

of University College. I just hate the idea that this incumbent company is, well --

MS. ORRIS: So the incumbent --

COMPTROLLER FRANCHOT: I mean, I obviously will defer to

my colleagues. But what bad things would happen if we didn’t approve this until

early January?

MS. ORRIS: We are losing our enrollment growth. We are at a

decline right now. We’re nine percent below prior year in our enrollments for the

next term. And TBC is a very good organization. We’re keeping them to do the

things that you are currently seeing, the creative they are keeping and all the

offline advertising they are keeping. So the ads that you are seeing on TV and

radio are still going to be with TBC. It’s only the digital component that we’re

pulling away from TBC.

COMPTROLLER FRANCHOT: Great. Well, I understand that.

But maybe my colleagues would defer for a couple of weeks if nothing bad is

going to happen, I can’t imagine your enrollment going down in the next two

weeks, but you might think creatively about partnering with the incumbent and

the New York City group so that we don’t have to go shopping outside the State

to receive this expertise. I mean, I love the word algorithm. I have no idea what

it means but and neither did President Miyares. He laughed when I asked him.

But the point is there are lots of people in Maryland that are very knowledgeable




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about analytics and algorithms. And I think it’s a shame at this point to

automatically head up to New York City. Maybe you guys can work something

out if, unless my colleagues don’t want to go along with postponing it for a couple

of weeks?

GOVERNOR HOGAN: So Mr. Comptroller, you want to make a

motion to delay this item for two weeks?

COMPTROLLER FRANCHOT: Yeah, I would move to defer this

to the next Board meeting.

TREASURER KOPP: Could I ask, this contract is to go into effect

when?

MS. ORRIS: January 8th, I believe.

TREASURER KOPP: So what is the impact of deferring it two

weeks, as far as the University and its enrollment program is concerned?

MS. ORRIS: It’s just two extra weeks. It’s not going to

significantly affect us. So if the operation is to be delayed then we will obviously

honor that.

GOVERNOR HOGAN: Any existing contractors will continue

until the, getting a new contractor may be selected? Is that the way the current

contract --

MR. SHOENBERGER: Yes. So the two weeks in and of itself is

not an issue.




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GOVERNOR HOGAN: Yeah.

MR. SHOENBERGER: We would prefer to go forward but it’s

not an issue. I’m just not sure, we have a procurement process, TBC did not bid.

I don’t know how we can now get someone that didn’t bid and try to hook them

up with the person that won it. It would seem to me that that would invalidate the

procurement.

TREASURER KOPP: I couldn’t agree more. My question was

what the impact on enrollment of a two-week delay is. A delay where you are

given direction to have the winning bidder bring in another company that didn’t

bid in order to help that company succeed financially I think is beyond. And

since they are not doing, just another question, since they are not doing that much

in the digital area right now but doing a great deal in other areas, I don’t know

how you tie the loss of hundreds of jobs to --

MR. SHOENBERGER: They will retain --

TREASURER KOPP: -- this digital contract.

MR. SHOENBERGER: I’m sorry to interrupt. They will retain

about a million dollars worth of business with us.

TREASURER KOPP: Yeah. Yeah. I just --

COMPTROLLER FRANCHOT: Well --

MR. SHOENBERGER: I mean I --




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GOVERNOR HOGAN: I also don’t know how you can say that

there’s a nine percent decline in enrollment because of the digital contract. I

mean, there’s got to be other reasons why the enrollment is down.

MS. ORRIS: There definitely is.

GOVERNOR HOGAN: I’ll defer to the Comptroller’s concerns.

COMPTROLLER FRANCHOT: Thank you.

GOVERNOR HOGAN: I mean, he’s not asking, he’s not directing

them to do anything. He’s asking you to take another two weeks, come back with

more information, address his concern. And I’ll second the motion and --

TREASURER KOPP: More information about what?

GOVERNOR HOGAN: About these contracts and why they made

the change --

COMPTROLLER FRANCHOT: Shop, shop local.

GOVERNOR HOGAN: -- why they didn’t get these bidders from

the local companies.

COMPTROLLER FRANCHOT: Buy local. Shop local where

possible.

TREASURER KOPP: But follow the rules.

GOVERNOR HOGAN: Yeah, of course.

COMPTROLLER FRANCHOT: Follow the rules. And we have

very smart people, Madam Treasurer, who are here to protect the State against




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anything that is, you know, you think might be a threat. But this is just, yeah, this

is, I’m asking you to take another look and I defer to your expertise and your

smartness and your sharp pencils, and figure out some way to, you know, not

have to go out of State if possible for all of this expertise.

TREASURER KOPP: Let me just go on record saying that I

appreciate your looking into whatever the Comptroller wants you to look into.

But you have gone through the appropriate procurement process. It’s been

awarded. The local companies did not bid and I am very concerned if you seek a

way to go outside of the process in order to simply give more money to any

company, whether they are local or not.

GOVERNOR HOGAN: Well I think everybody would agree with

that. But the procurement process is not over because you need the approval of

the Board of Public Works, too. That’s part of the process.

TREASURER KOPP: I meant the University System.

GOVERNOR HOGAN: So I’ve, there’s been a motion and I’ve

seconded it.

COMPTROLLER FRANCHOT: Thank you.

GOVERNOR HOGAN: I guess it passes two --

TREASURER KOPP: Two to one.




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GOVERNOR HOGAN: Two to one. Thank you. Any other

questions on the balance of the University System Agenda? Is there a motion on

the balance of the Agenda?


GOVERNOR HOGAN: Second? Three-nothing on the balance of

the Agenda. We’re going to move on to Information Technology.

MR. BULLOCK: Good morning.


MR. BULLOCK: Governor, Mr. Comptroller, Madam Treasurer,

for the record I’m Albert Bullock, Assistant Secretary, Department of Information

Technology. This morning we have two items on the Agenda and I have an

agency representative to answer any questions you may have.

GOVERNOR HOGAN: Any questions on IT? Motion?


TREASURER KOPP: Second.

GOVERNOR HOGAN: We’ll move on to the Department of

Transportation Agenda.

MR. RAHN: Good morning, Governor, Mr. Comptroller, Madam

Treasurer. For the record, my name is Pete Rahn. I’m the Secretary of the

Maryland Department of Transportation. We are presenting 13 items for your

consideration today, including Supplemental Item 13-GM.




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GOVERNOR HOGAN: Yeah, I wanted to discuss Item 13, the

Bid Express online bidding.

MR. RAHN: Yes.

GOVERNOR HOGAN: This item I believe represents a fee

reduction for contractors doing business with the State. Vendors bidding on SHA

contracts currently use a more expensive service to submit hard copy, hard copy

paper bids. And I, as I understand it Bid Express will save contractors time and

money in the bidding process and will provide more opportunity for more

competition. I think you can see from the many letters in our backup materials

that the entire business community strongly supports this and I do as well. So

thank you for that. Any other questions on any other items, or comments, or --

MR. RAHN: Governor, I could just simply add onto that that our

estimation is is that the contracting community collectively will save about

$800,000 a year --

GOVERNOR HOGAN: Which should help, which should

translate to taxpayers saving money, hopefully.

MR. RAHN: Sure hope so.

GOVERNOR HOGAN: You’d better sharpen those pencils, as the

Comptroller says. Any other questions? Is there a motion on Transportation?






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GOVERNOR HOGAN: Second? Three-nothing. And now we

move on to the DGS Agenda.

MR. CHURCHILL: Good morning, Governor, Madam Treasurer,

Mr. Comptroller. For the record, I’m Ellington Churchill, Secretary of General

Services. The department has 14 items on today’s Agenda, including one hand-

carried item. We are withdrawing Item 9. We would be glad to answer any

questions that you have at this time.

GOVERNOR HOGAN: Well thank you, Mr. Secretary. Item 14

pertains to consideration of items with respect to the State Center project. As I

understand it no leases have ever been executed and will not be executed with

respect to this proposal. The Department of General Services and the State’s

longstanding real estate advisors conducted an analysis of the proposed

occupancy leases and the analysis determined that these leases are capital leases,

which would negatively impact and affect our debt affordability. By law the

Board of Public Works cannot approve the execution of capital leases without

authorization by the Capital Debt Affordability Committee or action by the

General Assembly. I believe that you have some representatives from the

department and/or the consultants here to explain their analysis to us?

MR. CHURCHILL: That is correct, Governor. I would call

Nelson Reichart, Deputy Secretary of General Services; as well as Turhan




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Robinson, Principal Counsel, DGS; John Kuchno with the AG’s office; and

Troudy Vaughan with CBRE.


MR. REICHART: Good morning, Governor, how are you?

Madam Treasurer, Mr. Comptroller, I’m Nelson Reichart, Deputy Secretary for

DGS. Any questions in particular to --

GOVERNOR HOGAN: Thank you for being here.

MR. REICHART: -- the Board item?

GOVERNOR HOGAN: Well I think we want to explain the

analysis of how we came to the point that these would be capital leases and how

they would impact the debt affordability.

MR. REICHART: Okay. Mr. Vaughan? Do you want to come up

with Turhan?

GOVERNOR HOGAN: Good morning, Mr. Vaughan.

MR. VAUGHAN: Good morning.

MR. REICHART: This is Troudy Vaughan with CBRE. They

have been under contract with DGS for about six and a half, seven years. Mr.

Vaughan works in our office working on real estate items with us.

GOVERNOR HOGAN: Very good. And Mr. Vaughan,

approximately how many of these real estate transactions have you advised the

State on?




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MR. VAUGHAN: Over 200, 219 items have come to BPW for

approval since that time.

GOVERNOR HOGAN: So you’ve been a busy guy.

MR. VAUGHAN: Very busy. I have help.

GOVERNOR HOGAN: Yeah, you and your company, I should

say.

MR. VAUGHAN: Yes.

GOVERNOR HOGAN: I don’t think you did it all by yourself,

and DGS probably chipped in on some of the legwork. But what discount rate

have you used for these projects?

MR. VAUGHAN: So for all of the leases that we work on, we do

a financial analysis with or to show the Office of Real Estate to help them with

their decision making. And so for all those transactions, all 219, we would use a

four percent discount rate.

GOVERNOR HOGAN: Every single one of the 219 have used a

four percent?

MR. VAUGHAN: Every single one that we present internally to

the Office of Real Estate. That really just facilitates the decision making so we

can evaluate proposals to see which ones may be in the State’s best interest.




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GOVERNOR HOGAN: And with respect to this particular

situation, what was it that DGS asked you to do regarding the potential State

Center leases?

MR. VAUGHAN: You know, generally we performed a

calculation to look at the present value of the State lease for State Center and

compare it to the developer’s net cost on the project.

GOVERNOR HOGAN: And what did your analysis show as to

the present value of the leases at Parcel G and one and two?

MR. VAUGHAN: At those two parcels it showed that the value of

the lease was 117 percent of the developer’s net cost for those two projects. And

I should say that it was the State’s portion of the developer’s cost of those two

projects. So the State envisioned --

GOVERNOR HOGAN: Which is what requires it to be capital

leases? The 117 percent?

MR. VAUGHAN: Yeah, the FASB threshold is 90 percent.

GOVERNOR HOGAN: Ninety percent?

MR. VAUGHAN: That’s correct.

GOVERNOR HOGAN: Any questions, Mr. Comptroller or

Madam Treasurer while we have the experts up here?

TREASURER KOPP: Yeah, I do have a question.

MR. VAUGHAN: Sure.




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TREASURER KOPP: And I’m not sure exactly whom to ask. I

appreciate all the great work you do.

MR. VAUGHAN: Thank you.

TREASURER KOPP: And the department does, and I know the

department’s longstanding support for the State Center, in quotes, project. That is

doing something in that area to either improve or completely change those

buildings and to allow our State employees to work in circumstances that are a lot

better than they are now, with the rats and the dirt and all the other problems we

have. But I’m a little concerned at this point about the rationale. Because it was

my understanding as a public-private partnership that the conclusion which you

have drawn within your department is the conclusion to be drawn subsequent to

the Treasurer, the Comptroller, and the people putting together the contracts,

looking at the contracts and coming to the conclusion about cost. A second part

of that question -- which is not to say the Board of Public Works can’t take action,

negative action, without it, couldn’t take positive action without it, that’s my

understanding. The other one is whether you’ve looked at the new GASB/FASB

accounting standards, some of which are still in process, in terms of this question

of capital and operating lease anyhow?

MR. VAUGHAN: I did not. I solely based my calculation on one

of those four criteria for capital versus operating lease, the one being the present




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value of the lease, whether it meets that 90 percent threshold of the fair value of

the asset that’s being leased.

TREASURER KOPP: Okay. So you’re not actually looking at the

accounting issue, or the disclosure issue?

MR. VAUGHAN: I’m not an accountant.

TREASURER KOPP: Right. No, I appreciate that.

MR. VAUGHAN: And so in that respect I can’t offer an expert

opinion.

TREASURER KOPP: You’re telling us how much you think

something would cost.

MR. VAUGHAN: You know, what I did was took inputs provided

to me by the State and presumably the developer and just ran the calculation --

TREASURER KOPP: Okay.

MR. VAUGHAN: -- to do that.

TREASURER KOPP: So that really doesn’t answer at all the legal

requirements for a public-private partnership under the law. But we’re not

apparently pursuing one at the moment. So it’s not --

GOVERNOR HOGAN: No, and as you pointed out previously,

Madam Treasurer, in some of the original voting, this had to, you know, had to

come back --

TREASURER KOPP: It’s coming very close to, yes.




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GOVERNOR HOGAN: -- we would have to come back to the

Board of Public Works to approve leases. And our experts and the ones handling

real estate and the advisors handling real estate are saying these are capital leases

and we don’t have the authority to review them. So we can’t take action, and then

have them go back and look at it. We just can’t, we’re not --

TREASURER KOPP: That’s the question.

GOVERNOR HOGAN: -- they’re saying we can’t take this

action. So Mr. Comptroller --

TREASURER KOPP: But I have --

GOVERNOR HOGAN: -- any questions of these guys?

TREASURER KOPP: -- one other.

MR. VAUGHAN: Sure.

TREASURER KOPP: So this leaves, and this may not be for you

but it’s for, this leaves the master lease, the master development lease in place?

MR. REICHART: The master development agreement is still in

place. And it has its own procedure for winding itself down either, you know,

amicably or otherwise. So there’s terms in there --

TREASURER KOPP: So we’re --

GOVERNOR HOGAN: The action we’re taking today has

absolutely nothing to do with the development agreement.

MR. REICHART: The master agreement.




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TREASURER KOPP: Right.

GOVERNOR HOGAN: This is simply about the leases.

MR. REICHART: Leases --

TREASURER KOPP: Under the --

GOVERNOR HOGAN: Yeah.

MR. REICHART: Under that, yes.

GOVERNOR HOGAN: That’s --

TREASURER KOPP: And --

GOVERNOR HOGAN: The other, the development agreement is,

you know, subject to litigation, as I understand it. So we won’t be discussing that

today.

TREASURER KOPP: And my last question is for the Governor. I

understand the step we’re taking here. I also understand that you remain firmly in

support --

GOVERNOR HOGAN: Yes.

TREASURER KOPP: -- as I am --

GOVERNOR HOGAN: Absolutely.

TREASURER KOPP: -- of doing a project, have spoken to the --

GOVERNOR HOGAN: Totally committed. So --

TREASURER KOPP: -- the City --

GOVERNOR HOGAN: Absolutely.




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TREASURER KOPP: -- and this is a way of moving forward to

achieve the --

GOVERNOR HOGAN: Exactly. I’ll let, Mr. Comptroller, any

comments, and then I’ll --

COMPTROLLER FRANCHOT: Yes, thank you, Governor.

GOVERNOR HOGAN: -- get into more detail about that --

TREASURER KOPP: Yes. Thank you.

GOVERNOR HOGAN: -- and my discussions with the leadership

of the City.

COMPTROLLER FRANCHOT: Thank you. I’ve watched the

progression of the State Center project since my first year as Comptroller, ten

years ago, when the initial MOU between the State and the original development

team was presented before this Board. With that initial MOU and more than a

dozen subsequent Agenda items that followed I’ve seen the tremendous effort and

dedication that so many have put into this project in an attempt to make what was

always an ambitious undertaking a reality. And I’ve said this before, I’ll note it

again, my sincere appreciation to the public servants who have worked on this

project over the past decade, particularly the men and women of the Department

of General Services, and also Transportation, and I assume at some point the

Stadium Authority was involved. But the significant time and effort that all of

you put in is a reflection of the uniqueness and order of magnitude of what was




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proposed, along with the significant economic and local market changes over the

course of this endeavor, and the extraordinary amount of taxpayer dollars at stake.

As everyone here is aware, I voted in favor of the initial MOU in

2007, along with the State’s master development agreement. With the revised

project team in 2009 I voted on several occasions to allow the project to progress

to its next phase. I’ve also at times cast the sole vote in the previous

administration, dissenting vote on this Board, such as when I opposed the

recommendation in December, 2010 to incur $33 million in additional taxpayer

debt to construct a parking garage on the State Center site.

Despite my support of the well-intentioned goals of this ambitious

endeavor I have continually raised concerns about the pragmatism of undertaking

a commercial real estate venture of this scale and magnitude in the midst of the

new economic realities following the impact of the worse economic downturn

since the Great Depression. I have consistently questioned the efficacy of a

project that has been billed as a model public-private partnership but which could

not survive and would not exist in the absence of the State government serving as

by far the largest occupant of leased office space.

So I wholeheartedly support as my colleagues do the worthy goals

of this project, to bring good paying jobs to Baltimore City, to reinvest in long

overlooked neighborhoods, to support the obvious benefits of smart growth

policies and principles, and transit oriented development. However, after




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examining the acknowledged and future costs and the amount of debt associated

with this project in these market conditions, and in the context of our State’s fiscal

challenges, I concluded in 2011 and I continue to believe that this project in its

current form is simply the wrong approach to those worthy goals. It would be

hard to justify to our taxpayers who have been asked to make tremendous

sacrifices during the life of this project that we have indeed done everything

possible to contain spending and operate more efficiently at the same time

proposing that the State of Maryland pay well above market rates for government

agencies in order to make this project viable. Besides the fact that this project

effectively asks for the taxpayers to pay for approximately 90 percent of the

developer’s costs without any equity stake for the State of Maryland in the project

or any apparent reduction in rents, this project raises deep concerns about the

State of Maryland's debt load and in turn our hard-earned reputation in the

financial community for sound fiscal stewardship.

Based on the guidance of national accounting standards it has

become increasingly clear that the parking garage and the long term leases

themselves meet the recognized characteristics of capital obligations, which

means that this project as proposed would take the State of Maryland well in

excess of our existing standards of affordability. I had every hope this project

could and would succeed and it would accomplish its goals without jeopardizing

the fiscal health of the State. And perhaps if the national economic climate,




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according to my wishes and hopes, fervent hopes, and the local market conditions,

if they had been different since 2007, it might have. But given the significant

fiscal and economic challenges and mounting debt service we face as a State, it

simply isn’t fiscally responsible to move forward with this project.

But while the current project is no longer viable, I still strongly

believe in the need to find a fiscally responsible way to achieve its goals of

bringing good paying jobs to Baltimore City, reinvesting in long overlooked

neighborhoods, and honoring smart growth principles with transit oriented

development. I have every confidence that the Departments of General Services

and Transportation, the Maryland Stadium Authority, any other agency involved,

can find a path forward that supports these goals in a prudent way.

And I’d be remiss, Governor and Madam Treasurer, if I didn’t

once again beat the drum for the possibility of an arena that would house a

professional basketball team and a professional hockey team, just like we have

very successfully down in Washington, D.C., the Verizon Center. We see the

explosion of private sector redevelopment in Washington as a result of Nationals

Park and Verizon Center Arena. These were once neighborhoods that had long

been neglected and are now thriving with the addition of these stadiums and with

their immediate proximity to Metro. And we know it works in Baltimore with all

that Camden Yards and M&T Stadium have meant for the Inner Harbor. An




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anchor like that would be a similar game changer for the communities

surrounding State Center.

Some of my critics when I voted for the Ravens Stadium didn’t

like it when I was in the Legislature. They picketed my house down in Takoma

Park and they said we want you to fund schools, not stadiums. My point was

stadiums bring economic growth, which funds schools, but they still didn’t like

me.

GOVERNOR HOGAN: That’s because they were Redskins fans.

COMPTROLLER FRANCHOT: Yeah.

(Laughter.)

COMPTROLLER FRANCHOT: I kid some of them because they

come now to me and they’re not picketing, they’re asking for tickets to the

Ravens games. But that’s okay. These items are not without controversy. But I

happen to think Baltimore City is a major league city. I believe it’s a world class

city. I believe we need to think bigger and better and bolder for Baltimore City.

And a state of the art, world class, basketball/hockey arena, like the Verizon

Center, would be an enormous catalyst, I believe, to neighborhood and economic

development. And I would just ask, Governor, perhaps as you assign your

agencies to look at this, perhaps you could ask the Stadium Authority to just look

at that possibility. Because I believe it will attract people, attract capital and

investment, attract all sorts of quality of life improvements in that particular area.




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And perhaps when they report back to you they could talk about the possibility of

that.

GOVERNOR HOGAN: Maybe the Wizards are doing so bad in

Washington, they might want to come back to Baltimore.

COMPTROLLER FRANCHOT: Yeah. Well the myth is that

Baltimore and Washington can’t support joint teams. Of course they can. The

Redskins and the Ravens are two of the wealthiest NFL teams in the country.

GOVERNOR HOGAN: And the Nats and the Os are doing pretty

good, too.

COMPTROLLER FRANCHOT: The Nats and the Os are also

similar. So I think a hockey and a basketball team would be pretty special. And

would spark the imagination of the State of Maryland as to what can happen in

Baltimore. Thank you.

MR. REICHART: Thank you.

GOVERNOR HOGAN: Well thank you, Mr. Comptroller. After

years and years of inaction, procrastination, and stagnation, today we finally have

the opportunity to move forward with the redevelopment of State Center. Today

we can finally take action to rectify the flawed State Center proposal which has

thwarted progress of this State for nearly a decade.

Our administration is absolutely committed to the redevelopment

of the State Center property. I’ve had conversations with both Mayor Pugh and




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Council Chairman Jack Young about finally making the redevelopment of this

property a priority and finally taking action to move us forward. They both

expressed their strong support of these steps and we are all looking forward to

working together and I believe that by working together with Baltimore City

leadership, we can develop a new plan that is in the best interests of the residents

of the City, one that will be a centerpiece in the revitalization and transformation

of Baltimore City.

It is obvious to absolutely everyone that the previous proposal

makes absolutely no economic or development sense, which is why it has never

moved forward and never materialized after all these years. The fiscal realities of

the proposed project make no sense and would simply be a terrible burden on the

taxpayers. Our administration has attempted to negotiate in good faith to reach a

compromise with the proposed developers to no avail. Taking this action today

will finally enable us to break the log jam and allow us to move forward as

expeditiously as possible.

The failed plan has proven itself to be totally unworkable and

unacceptable. If we were to proceed with this flawed project as proposed, it

would count against our debt affordability, puncture our debt ceiling, wipe out all

of the rest of our debt capacity, and necessitate a property tax increase to cover

our debt payments. That would be totally irresponsible and certainly not in the




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best interests of the State or our taxpayers. Mr. Comptroller, these are some of

the very reasons that you rightfully opposed the project.

Our administration is absolutely committed, Madam Treasurer, to

developing something truly great at the State Center property. The City leaders

are as eager as I am and you are to move forward on a new path and we will work

very closely with the City, we’ll get community input from stakeholders, and we

will put together the best planning and development expertise available to design

a new plan that does make sense. And I am also going to immediately direct the

Maryland Stadium Authority to do a fast track on a feasibility study to review all

of the potential uses of the State Center site. Mr. Comptroller, we will ask them

to also consider the option of a professional sports arena. And if there is no

further discussion, let’s move on to approve this item and the balance of the DGS

Agenda. Is there a motion?

COMPTROLLER FRANCHOT: So move.

GOVERNOR HOGAN: Second?

MR. EDNAY: Excuse me, Governor?

GOVERNOR HOGAN: Second?


MR. EDNAY: The developer would like to be heard on this item.

GOVERNOR HOGAN: Actually because you’ve threatened

litigation, we’re not going to be able to have you speak. You should talk to our




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lawyers instead. And the motion has been made and seconded, and the vote is

three-nothing. So thank you very much for coming.

MR. EDNAY: -- statement and we’d like it to be included in the

record.

GOVERNOR HOGAN: Well you can certainly submit a

statement. But really you should be talking to the attorneys.

MR. EDNAY: One would have thought that $26 million would

have earned us five minutes before this Board.

GOVERNOR HOGAN: Yeah, well, we cannot bring the litigation

into this discussion. And we're not talking about your agreement, we’re talking

about the leases. So thank you very much for coming. Three-nothing on the vote.

And I think that’s the end of our Agenda. Thank you all very much for coming.

This session of the Board of Public Works is hereby adjourned. Merry Christmas

and Happy New Year.

(Whereupon, at 10:56 a.m., the meeting was concluded.)

state of maryland board of public works · 12/21/2016 * board of public works * 2 hunt reporting...

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