Del. Jared Solomon (D-Montgomery), left, and Sen. Shelley Hettleman (D-Baltimore County), co-chairs of the Joint Audit and Evaluation Committee, confer during a hearing about an audit of recent leasing practices by the Department of General Services. (Photo by Bryan P. Sears/Maryland Matters)
Members of a legislative oversight committee expressed concerns Wednesday about what they see as a shift in state policy that could sharply curtail, if not end, the Department of General Services’ role in operating state government office buildings.
Members of the Joint Audit and Evaluation Committee left the nearly three-hour hearing frustrated at a large-scale move of state offices from owned to leased space, with no documentation that the moves will save taxpayer money and are in the state’e best interests. The hearing raises the specter of potential legislation in the 2026 legislative session.
“We have a lot of follow up to do,” Del. Jared Solomon (D-Montgomery), co-chair of the committee, said after the hearing.
Solomon said he expects “a lot of additional conversations around the process when moving from ownership to lease,” making sure lawmakers and the Board of Public Works have adequate oversight and understanding of the shift. “It’s a big policy change, and I think we need to make sure that we’re doing it correctly,” he said.
General Services Secretary Atif T. Chaudry tried to assuage lawmakers’ frustrations by noting the hiring of a chief compliance officer to ensure cleaner future audits. And he told legislators his agency will work to develop a master plan for the state’s 30 million square feet of office space.
General Services Secretary Atif T. Chaudhry told lawmakers he takes a recent audit seriously, then blamed the audit’s findings on “a misalignment” between his agency and auditors and decisions made under a previous governor. (Photo by Bryan P. Sears/Maryland Matters)
“This is the first time ever that the state is looking at all its leased and state-owned facilities holistically to make sure we as a state are spending the right resources in the right location,” Chaudhry said after the hearing. “Are we providing services in the right places?”
Chaudhry promised the plan would be “continually updated over time.”
“It’ll be a lot of work to do, but I want this to go on and sort of outlive us,” he said.
“There’s a clear … misalignment”
Wednesday’s sometimes contentious hearing followed a scathing 71-page audit that said DGS “could not support that $410.9 million in leases to relocate State agencies to downtown Baltimore were in the State’s best interest.”
Former Gov. Larry Hogan (R) finalized plans to move state agencies out of a decaying Baltimore office complex, and current Gov. Wes Moore (D) has said he hopes to take advantage of a large amount of available commercial office space to negotiate “very aggressive lease rates.” Moore said those moves could save an estimated $326 million over 20- to 25-years, but auditors told lawmakers in July that they found no documentation to back up those claims.
The audit also raised significant questions about a lengthy lease for the Maryland Department of the Environment. Auditors questioned the 20-year term as well as the decision to forgo standard language that would let the state escape the lease and its annual rent increases. The report also questioned how $10 million in office improvements were rolled into the lease and how only the first-year costs of the agreement were specifically laid out to the Board of Public Works.
Chaudhry and the department rejected the report and its findings as “factually inaccurate.”
“There’s a clear … misalignment here between OLA [Office of Legislative Audits] and DGS on findings and our own assessment of things … particularly regarding the accountability mechanisms for real estate grants and construction,” said Chaudhry, who used the term “misalignment” nine times in his testimony.
More documentation “to buy my Corolla … and that’s frustrating”
Legislative Auditor Brian Tanen decided to forgo a presentation of the audit in his testimony and focus instead on the lengthy DGS response to it, which accounted for half the report.
Legislative Auditor Brian Tanen said his decision to buy a car, rather than lease, had more documentation than DGS provided for its decision to enter into a long-term lease for office space. (Photo by Bryan P. Sears/Maryland Matters)
“Thirty-five pages filled with ‘not factually accurate, not factually accurate, not factually accurate,’” he said of the response. “What you do not see is one single number contradicting the specifics that we talked about.”
Tanen said he stood by the report “100% — not 99 — 100%.”
One example Tanen cited from the report was a 15-year lease at a cost of $200 million to move the Department of Health.
“We’re about to commit — not us, not the people on this committee, but my children and grandchildren — to a long-term lease,” Tanen said of that deal. But he said DGS did not provide documentation that the lease would save the state money.
“I have more documentation to support my decision to buy my Toyota Corolla than my team was able to find during the course of the audit to support a $200 million lease for the health department, and that’s frustrating,” Tanen told the committee.
Tanen, a 30-year veteran of state government, called the decision to move state government en masse to leased space “a once-in-a-lifetime, or once-in-my-career, experience, where we’re moving state agencies that historically have been in state-owned buildings. And it’s a complete change.”
“It’s the last guy’s fault”
Chaudhry testified that leases for departments moving out of the soon-to-be-vacated State Center complex were finalized under the Hogan administration, but that fell flat with Democrats and Republicans alike on the panel.
Del. Steven J. Arentz (R-Upper Shore) criticized that “it’s the last guy’s fault” defense, noting that many employees — including staff under Chaudhry — are holdovers.
Del. Steven J. Arentz (R-Upper Shore) criticized Department of General Services officials for their “it’s the last guy’s fault” defense. (Photo by Bryan P. Sears/Maryland Matters)
“You sat back and said it was a previous administration,” Arentz said. “It’s not the previous [if] you have the same people working for you, sir, that you had before.”
Chaudhry was hired to the Maryland Department of Health during the Hogan administration, while other DGS employees were holdovers, including Wendy Scott-Napier, assistant secretary in the Office of Real Estate.
“I’m not interested in finger-pointing,” said Del. Andrea Fletcher Harrison (D-Prince George’s). “I really don’t care about what the past administration did and who did it, why they did it. What I do know is that in each level of government, regardless of who changes at the top, the majority of the people who are there have been there for years, and so they transcend administrations.”
Sen. Clarence Lam (D-Anne Arundel and Howard), said he didn’t think the finger-pointing was “an approach that the committee really appreciated.”
“While it’s easy to kind of throw the prior administration under the bus — and I think there were a lot of things that didn’t go right then — I don’t think this is wholly under their responsibility,” Lam said. “I think there were a lot of decisions made here that were more recent than that. I’m not sure that we have better clarity in terms of steps moving forward to make sure this doesn’t happen again.”
A lack of documentation
In other cases, Chaudhry said auditors didn’t ask for documentation and he contradicted auditors at the hearing who said they were never given any documentation. Solomon, in an exchange with Chaudhry, expressed frustration over a lack of documentation relating to the Health Department move.
Moving agencies out of State Center did not mean they had to move into leased properties, he said, and did not give DGS the right to not do its job and do a proper evaluation of “the cost benefit of a move versus a lease versus purchasing a new building elsewhere.”
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Chaudry and his staff repeated claims of cost savings resulting from leases for departments moving out of the aging and decrepit State Center property in Baltimore. But lawmakers and the Office of Legislative Audits said they have nothing but the department’s word.
“I think what OLA is contending is that they did not find a lot of the documentation to back up a lot of those decisions,” Lam told Chaudhry . “And while you pointed out earlier that this documentation, I guess, was provided to OLA back in June of this year … in looking at Mr. Tanen, his reaction behind you, that misalignment seems like he doesn’t believe that they received that documentation.”
A three-page analysis of the health department move was eventually provided to the audit committee late Tuesday night. But committee members said it did not explain how the 15-year lease was cheaper for the state than purchasing and renovating another building.
A “workaround” for renovation costs
Also drawing scrutiny from the committee was the Department of the Environment’s 20-year lease at Montgomery Park in Baltimore. The deal — a renewal of an existing lease — locks the state in for two decades with no ability to terminate for convenience, a standard in most state leases.
In addition to a higher base lease rate and automatic increases, the lease included $10 million of renovation costs, including new cubicles. The costs of the work will be amortized over the life of the lease.
In its response to auditors, the department justified the adding the renovation costs into the lease because “the agency was unable to consider directly paying $10 million to reimburse the landlord for renovation costs due to budget constraints. The agency did not have a capital improvement budget available to support this expense but only had operating budget funds established in accordance with the prior lease.”
Sen. Clarence Lam (D-Howard and Anne Arundel) said adding $10 million of renovations to a lease was “a workaround” to avoid the standard capital budget request process. (Photo by Bryan P. Sears/Maryland Matters)
Lam balked at the department’s reasoning.
“It seems like this is a workaround on the part of the department and the agencies that are your clients to be able to get the renovations that they want without having to go through the regular capital process,” Lam said.
Chaudhry responded that it was common to ask a landlord for renovations and include them in the cost of the lease.
“I would say that this is actually industry best practices, and this is a very good way to aggressively negotiate lease rates so we are able to pay fair-market rates for leases, or below fair-market rates, the rates and allow the landlord to build, to spend the money to build out the space for exact specifications,” he said.
Chaudhry, during and after the meeting, said the statement his department provided to the auditors was “taken out of context.”
Auditors published the statement as provided without additional comment.
After the meeting, Chaudhry said the “audit team” had taken the statement out of context.
But when asked if the department could have provided a better answer, Scott-Napier interjected saying, “We could have.”
Chaudhry then spoke over her.
“I think it’s a misalignment between OLA and DGS, and what I mean by that is they take information and they run with it, not being real estate experts,” Chaudhry said.
“Well, we are answering these questions and coordinating with them, with a lens of the real estate experts,” he said. “And I think part of that is translation, right? Translating into layman’s terms to be able to translate so non-real-estate experts can understand where we are coming from.”