A November ballot measure will ask voters if Baltimore should ban privatization of its conduit system, a 700-mile underground network home to wires for phone, electric and internet services.
On Wednesday, about a month out from the election, Mayor Brandon Scott’s administration proposed a $50,000 contract with a telecom consulting firm that current and former City Hall officials say puts the conduit system at risk of a sale. Citing those concerns, City Council President Nick Mosby deferred a vote on the contract until after the election, effectively kneecapping any potential sale.
“I have a major concerns and major reservations about the timing,” Mosby said.
The contract with FMI Capital Investors, a consultant firm that advises on conduit and telecom evaluations, specifies the firm would be paid “an upfront flat fee and a contingent one-time transaction fee equal to a portion of any profit from a future deal, should it be able to identify a profit-making venture that the City accepts.”
By offering the consultants a percentage of any sale the city pursues, the contract incentivizes them to recommend selling the conduit, Comptroller Bill Henry said. Tacitly acknowledging the speed the city would need to operate at to sell the conduit before the election, he added: “You don’t get the best market value in a negotiation with a gun to your head.”
He noted that more than 18 months have passed since the charter amendment was finalized. It looks bad to try and cut such a deal just before voters make the final call, he said.
Former Mayor Bernard C. “Jack” Young, who helped usher in the charter amendment during his time at City Hall, also criticized the contract language and lodged a formal protest at the meeting. “This is going on the ballot and the citizens are going to say yes or no. To circumvent that process is unconscionable,” he told the Banner.
“The time constraint is undeniable,” chief solicitor Hilary Ruley acknowledged during a presentation before the board.
The city’s spending board is effectively controlled by the mayor, whose appointees City Solicitor Jim Shea and Department of Public Works Director Jason Mitchell serve alongside him. Henry and Mosby also serve on the board.
The mayor issued a statement shortly before the board met, saying that his administration understands the significance of the conduit system.
“However, the maintenance costs of the conduit significantly outweigh any income derived from the system,” he said. “We are requesting approval to work with an advisor to properly assess the true value of the conduit and evaluate viable options that best serve the city.”
In 2015, amid discussions in then-Mayor Stephanie Rawlings-Blake’s administration to increase the cost of access, the Baltimore Gas and Electric Company tried and failed to buy the system for $100 million. Four years later, then-City Council President Young introduced legislation to ban the city’s ability to sell the system, saying the charter amendment would prevent the privatization of basic city services.
The council approved the measure in 2020. It will appear on November ballots as Question E and faces good odds: A Baltimore ballot measure has not failed in nearly two decades. Voters approved a similar piece of legislation to ban the privatization of Baltimore’s water system in 2018.
A century-old system maintained by city
Like much of Baltimore’s infrastructure, the conduit system, which dates back to 1898, is aging and requires steady maintenance by the Department of Transportation. According to Scott’s spokesman James Bentley, the costs of maintaining the system outweigh the revenue it produces by about $7 million to $8 million every year.
BGE, which uses about 80% of leased space, first tried and failed to buy the conduit system as city leaders mulled tripling the rates conduit users are charged. Ultimately, Baltimore increased the rates in 2015. The current rate expires at the end of this year. Rate changes must be approved by the Maryland Public Service Commission, which regulates utilities, and must also be negotiated with BGE.
Over the summer, the city tried to negotiate better rates with BGE, but discussions “fell apart because they’re simply just not able to pay enough,” Ruley said. She noted that telecom companies are less interested in leasing conduit space as more 5G towers are built.
Young called the conduit system a potential moneymaker, saying that raising the rates could bolster city coffers. He listed several assets formerly owned by Baltimore that were given or sold away, including the Baltimore/Washington International Airport. He also noted that the conduit system could be utilized in the mayor’s vision of widespread internet access and said a private sale may force that door shut.
Ruley argued that the city is handcuffed to the rates approved by both BGE and PSC and that establishing the costs of much-needed repairs to the system is up for debate.
“Do you need a gold plated conduit system or one that functions? Everything between those two extremes is fought over as to what maintenance is,” she said.
Council President Nick Mosby acknowledged that the challenges of owning and operating the conduit may be complex, but questioned the need for FMI to receive any additional payment should a sale go through.
“This should be done in a way that’s somewhat of a vacuum, where the person actually doing the evaluation is independent from any outcomes they’re going to suggest to us,” he said.
Ruley called the concerns valid, but repeatedly noted that the contract is meant to explore options for the conduit, not broker a sale. “We are incentivizing them to bring us the highest and best [recommendations] instead of throwing hourly rate money away,” she said. “You want them to find the thing that can make you the most money, because that’s where we’re lagging. But we can decide, at the end of the day, whether we want to prioritize that or not.”
Henry said the administration should wait and see if the amendment passes or fails and use that time to renegotiate the FMI Capital Investors contract.
“If it turns out that the best, most objective, long-term solution does involve selling the conduit, even after the voters of Baltimore City told us we shouldn’t, the administration will be free to make their case for a future charter amendment to facilitate that option,” he said.