Maryland Stadium Authority has bailed on the City of Frederick downtown hotel project. Its role as the major state financier is to be taken over by Maryland Economic Development Corporation (MEDCO.) City officials have said again and again that the Stadium Authority (MSA) was their favored lender. In their long quest for financial support they have now been forced to go downmarket from MSA to MEDCO. MEDCO’s only two ventures in conference center hotels have been spectacular failures — the Rocky Gap Resort (RGR) in western Maryland and the Chesapeake Bay Conference Center (CBCC) in Cambridge on the eastern shore.
Minutes of the City of Frederick’s Economic Development Advisory Council (EDAC) Feb 29, 2016 record comments during a City Project Update at a Frederick in Annapolis Day which states “Importance of Maryland Stadium Authority was shared” followed by notes on Richard Griffin saying MSA had “100% success” and that Griffin and Alderman Michael O’Connor “explained” that Rocky Gap, Cambridge Hyatt (aka Chesapeake Bay Conference Center) and the Baltimore Hilton “were not MSA projects.” The Hilton is a Baltimore City loser but the first two were MEDCO projects of legitimate concern to the EDAC questioner.
MEDCO is becoming financially unsustainable without infusions of taxpayer money. Current assets are put at $617m and its liabilities at $851m as of mid-2015. It is ‘in the hole’ $228m. Last fiscal year it had revenues of $132m, operating expenses of $115m and other net expense of $33m. Overall loss was $15m, about half of which was covered by grants from other government agencies, leaving it down for the year about $7m.
The General Assembly’s department of legislative services says: “MEDCO purchases or develops property that is leased to others under favorable terms.” TRANSLATION: MEDCO is an agent of crony capitalism/corporate welfare. It transfers business expenses and risk for favored companies from their owners and their lenders to state taxpayers.
It goes on: “MEDCO issues bonds to raise funds for its loans. The bond debt consists primarily of revenue bonds and notes payable to government agencies such as DBED. The debt represents non-recourse obligations because MEDCO is not liable to bondholders and lenders in the event of a project or a borrower default. Each project must have self-supporting revenues, and no projects are cross-collateralized. As a result MEDCO debt is not debt of the state, and there is no implied state guarantee or state obligation to protect bondholders from losses.”
MEDCO’s reliance on revenue bonds makes it much more costly as a state borrowing agent than the MSA which issues general obligation bonds of the state of Maryland secured against all the state’s assets. MEDCO’s bonds will be secured only to the pledged revenues of the City and County assets attached to the DH&CC. MEDCO being poorly regarded by the General Assembly because of its performance in Rocky Gap, Cambridge and elsewhere, has no assets to pledge and lacks the MSA’s access to general fund subsidies.
Rocky Gap fiasco
The 220 room Rocky Gap Lodge and Golf Resort cost $54m and opened in 1998, and ran losses every year MEDCO was involved in it. Sold for $7m in 2012, it is now a casino resort. MEDCO wrote off $55m in losses. But what about all those catalytic effects, jumpstarting, and spinning off adjacent development amid a rich slurry of mixed metaphors? The Baltimore Sun 2012.06.19 quoted Sen. George Edwards, a Republican who represents Allegany and Garrett counties, saying sadly: “Rocky Gap never developed the type of economic spinoff effect Western Marylanders were hoping to see.”
CBCC $165m in the hole
Chesapeake Bay Conference Center (CBCC) opened as part of the 400 room Hyatt Regency Chesapeake Bay Golf Resort, Spa and Marina near Cambridge in 2002 using $120m in MEDCO revenue bonds. CBCC is in the hole $165 million (liabilities $273m minus assets $108m) as of mid 2015, losing $13.8m in FY2015. It began to default on debt at the end of 2014.
on Rocky Gap Casino now: https://www.rockygapcasino.com/casino/
on Chesapeake Bay Conference Center: http://chesapeakeconference.com