General Assembly appropriates $16m for DH&CC, Governor may Impound

Hotel supporters have won the battle for state funding for the Downtown Hotel and Conference Center (DHCC) in the current session of the General Assembly. $16 million (m) is being appropriated by way of state grants to support the total of $31m upfront public subsidy to the $84m project. The question remains: Will the Hogan Administration release the funds?

Governor Hogan has said flatly that “no state funds” will go the Frederick hotel project. And under the state constitution he does have full power to withhold funds – so-called ‘impoundment.’ (see later in this report)

Regardless, supporters of state funding have won a major victory in the General Assembly this year.

Four grants totaling $16m were added to the state capital budget late in the session,

First grant is free and clear this year. No MSA required.

avoiding the formal appropriations process in which the case is argued and public testimony taken.

And this time the money appropriated is free and clear of any conditions. Last year a grant was made conditional on a MOU being signed with Maryland Stadium Authority. Funds were unable to be drawn because the Authority decided the project had too many problems, and refused to team up with the City of Frederick. Efforts to enlist MEDCO (Maryland Economic Development Corporation) failed too.

This year the wording used in the appropriation is: “Downtown Frederick Hotel and Conference Center. Provide a grant of $xyz to the Mayor and Board of Aldermen of the City of Frederick for the acquisition, planning, design, construction, repair, renovation, and reconstruction, of the Downtown Frederick Hotel and Conference Center, located in Frederick County (Frederick County).”

(NOTE: the state grant recognizes the project is a single integrated business, a hotel with a conference center, not as propagandists for the project often misleadingly claim, an investor-funded hotel business and a local government conference center.)

Lots of lobbying and advocacy but sealed as a single two-man deal

Senator Ron Young

There was extensive lobbying and advocacy both for and against the funding. County Executive Jan Gardner spent a day in Annapolis walking the corridors and pitching the project yet again. Delegates Karen Lewis Young and Carol Krimm were also active.

But prime mover for the hotel funding was Senator Ron Young, whole closed a deal with majority leader and Senate President, Thomas ‘Mike’ Miller for the $16m in his office last week. According to an aide present at the Young-Miller meeting, Miller agreed to the $16m reluctantly, and with some annoyance.

Young had told the Senate boss the hotel project has “wide support” in Frederick County and claimed its funding was essential to getting Democrats re-elected in 2018.

The aide said that in agreeing to the funding Miller told Young: “Consider this your campaign contribution for 2018!”

Miller and Young discussed the $16m as political ‘pork’ that he could take home amid local acclaim, that would help get a Democrat re-elected in 2018.

Senate president Mike Miller

(NOTE: It is quite unclear that taxpayer funding of the hotel is popular. There is no doubt support for the idea of a major hotel or hotels downtown. But there is broad opposition to tax dollars being used, in part the notion that it represents a giveaway to a developer (‘corporate welfare’) in part the belief there are higher priories for use of scarce public funds. A poll in the Frederick News-Post March 29 to April 2 showed 51% support for a Gov Hogan veto of state hotel funding against 44% wanting state funds to be allowed to flow to the hotel.) Anyway what counted was that Senate president Miller believed that the state $s would help him maintain his political hold on the Senate.

The $16m state money is allocated this way:

$1,000,000 re-authorization of last year’s conditional grant, without conditions available July 1, on (FY2018)

$4,000,000 grant also available July 1, on (FY2018)

$7,500,000 pre-authorization of grant for FY 2019, available July 1, 2018

$3,500,000 pre-authorization of grant for FY2020, available July 1, 2019

http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2017rs-budget-docs-capital-senate-budget-taxation-report.pdf

Line item veto contemplated

At one point last week word was Governor was going to line item veto these additions to the budget, and preparations were made for speeches in support in order to try to deny Miller his over-ride of the vetoes. But come Friday that had changed. The

Gov Hogan, David Brinkley right – Balt Sun pic

Governor’s number counter said he would not get the 40% or two-fifths needed to stop Miller’s over-ride of his vetoes. The numbers were just as bad in the House of Delegates so the Governor had decided to let it go through. Democrat supermajorities assured them of passage.

Governor Hogan has been opposed to the funding since about last summer. He is concerned that it is wrong to reward a City-chosen hotel developer at the expense of other hotels. Plus he has the sense that there is the smell of political favoritism hanging over the project. Third he has heard it is mismanaged and unnecessarily expensive. All this despite having a hotel supporter at his elbow in the person of David Brinkley, director of Management and Budget in his administration.

Hogan budget zeroed out hotel funding

Hogan moved decisively against state funding in his budget. It de-authorized previous commitments and envisaged cancellation of any further state support. He told everyone who asked him about the project that “no state funds” would go to the hotel project. That included me when I spoke one-on-one with him for a couple of minutes at a Maryland Public Policy Institute reception at the Westin Hotel in Annapolis last November 3.

He still has a couple of options under the Maryland Constitution to stop the money. A Maryland Governor has extraordinary control over state finances. The comparative texts on state government say a Maryland Governor has more budgetary power than the governor of any of the other 50 states. And like governors of about 43 of the 50 states he has the power of “impoundment” of funds where he simply orders the appropriated money not to be disbursed, but held by the state Treasury.

Back to Jefferson and 1801 gunboats

President Jefferson famously used his powers of Impoundment in 1801 to stop money the Congress had appropriated for gunboats for the young US Navy, and presidents right through to President Nixon in the 1970s impounded appropriated funds from time to time. But Watergate saw President Nixon’s impoundment powers heavily curtailed by an Impoundment Control Act of 1974 that has so far survived legal challenge, and attempts to repeat it.

https://en.wikipedia.org/wiki/Impoundment_of_appropriated_funds

Roy Meyers professor of political science at University of Maryland Baltimore County told us, in a telephone interview, the impoundment power has not been used much by Maryland governors. He thinks there could be successful legal challenges to impoundment of Frederick hotel grants. Impoundment when it has been used has usually been part of a package of economies in a year in which there is a serious budget shortfall. It would be unusual, he said, for the Governor to impound on account of disagreement with the legislature on the subject of the spending. But he could do it.

Maryland its unusual in having a Governor-controlled Board of Public Works (BPW), and any impoundment of a capital item would likely occur via the BPW. It consists of the governor, the comptroller and the treasurer. The BPW reviews, and may disallow expenditure of general obligation bond funds, which are being used to fund the $16m for the Frederick hotel among about as thousand other projects. Also it reviews all capital improvement spending, exclusive of roads, with state money regardless of funding. The hotel project is doubly eligible for review by the BPW.

The BPW job is summed up as “protecting and enhancing the State’s fiscal integrity by ensuring that significant State expenditures are necessary and appropriate, fiscally responsible, fair, and lawful.”

http://bpw.maryland.gov/Pages/default.aspx

State law (2013 paragraph 7-213) specifically gives the Governor with the approval of

Rendering proposed conference center hotel looking northeast

the BPW the power to reduce spending on any appropriation by up to 25% “that the Governor considers unnecessary.” That is sufficiently a matter of judgment for the Governor to get good legal cover. (Exempted from this are appropriations for conduct of the judicial or legislative branches themselves, interest on state debt, public schools and certain salaries.) In either case there would likely be law suits to overturn any impoundment of funds, and possibly moves against it in the General Assembly.

Bottom line

So the Governor still could stop all or some of the $16m appropriated funds flowing to the hotel project, and it might be a temporary stoppage only. We won’t venture a guess as to the odds.

2017.04.10

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