Friday, Aug 13–Md. Will Spend $32M To Buy Ocean Downs Slot Machines

BERLIN – The state’s
Board of Public Works on Wednesday agreed to shell out $32.7 million for the
first 750 slot machines for Ocean Downs, but not before a discussion about the
contractors failing to meet the mandated 25-percent minority business
participation and the overall distaste of one member with the concept of the
state forward-funding private enterprise.

The three-member Board
of Public Works, which includes Governor Martin O’Malley, Treasurer Nancy Kopp
and Comptroller Peter Franchot, on Wednesday approved the $32.7 million sale or
lease of the first 750 machines for the slots venue at Ocean Downs, which is
now targeted for a mid-December opening. The board voted 2-1 to approve the
expenditure spread out over eight different vendors, with Franchot the lone
dissenting vote.

Franchot based his no
vote on a variety of factors including the fact two of the eight vendors
receiving the contracts did not meet the state’s 25-percent minority
subcontractor participation mandate, also known as MBEs. Six of the eight
subcontractors met the goal with one achieving 41 percent. However, the largest
of the vendors, IGT, which is set to receive about $14.6 million of the total
$32.7 million allocation for 520 of the 750 machines, fell significantly short.

“Why are we not
recognizing those six vendors by saying to the other two you’ve got to meet the
25-percent goal?” he said. “What kind of message are we sending to the six that
achieved the goal if we give the other two a waiver?”

State Lottery Director
Steve Martino, who presented the proposal to the board, told Franchot IGT met
the 25-percent MBE goal on most aspects of their bid, but fell short on certain
other elements, which resulted in the under 25-percent mandate.

“We are satisfied that
all of their interstate spending, spending done within the state of Maryland on
subcontracting for maintenance, warehousing, transportation etc. meets the
goal,” he said. “We’re working with IGT to increase that goal. I had a meeting
with them just yesterday.”

Going into Wednesday’s
meeting, the failure of some of the bidders to meet the minority participation
mandate rankled some in the community including Maryland Washington Minority
Contractors Association President Wayne Frazier, who characterized it as “total

Martino told the BPW on
Wednesday the bidding process was complicated and competitive and the decision
to go with larger subcontractors, despite their falling short of the MBE goal,
was made in the interest of maximizing the state’s revenue from slots.

“Ultimately, what we
want to do is make sure these contracts authorized by the legislature in 2007
and approved by referendum in 2008 are competitive,” he said. “We want to
achieve what the state of Maryland wanted to and we believe to generate this
revenue and produce the economic development that we hope that they will, that
we need to compete in this hyper-competitive gaming environment.”

Franchot asked if the
state’s lottery commission decided which vendors to choose or if the decision
was made by the operator, in this case Ocean Downs.

“We received a
recommendation from the operators and essentially that is what we drew upon,”
said Martino. “The operator felt IGT gave us the best chance to generate those
revenue goals.”

Franchot also questioned
the relatively low number of machines for Ocean Downs included in the
allocation. Ocean Downs’ initial application included a request for 800
machines to start, with the potential to expand to as many as 1,500 in the
future. However, the allocation approved for the Berlin track on Wednesday
includes just 750 machines.

“The operator had
decided on 750 machines at this time, which is 50 fewer than what is
authorized,” he said Martino. “They want to see what the market demand is
before they add the other 50 machines.”

In the end, the board
approved the $32.7 million allocation for the purchase or lease of 750 slot
machines for Ocean Downs, but Franchot could not be persuaded to go along.

“Governor, I’m going to
vote against this,” he said. “The sales fail to meet the MBE goals, but I just
have a general conceptual problem with the state of Maryland buying slot
machines for facilities. I know the legislature thought that was the right
direction to go in, but it certainly puts us in an awkward position. We’re
certainly spending much more money right now than we’re taking in because we’re
taking in nothing.”

However, Kopp attempted
to point out a flaw in Franchot’s argument.

“You can’t take it in until
you have the machines,” she said.

Franchot, however, stuck
to his guns.

“Yeah, but no other
state does this kind of forward funding,” he said. “I find it very difficult to
swallow the state eating these millions of dollars being paid out. I understand
we still don’t know what the financing plan is for this and that’s still under