House Speaker William J. Murphy sees "endless possibilities" for the state in the purchase. Governor Carcieri calls it "absolutely ridiculous."

01:00 AM EDT on Thursday, September 22, 2005

BY KATHERINE GREGG
Journal State House Bureau

PROVIDENCE -- The Democratic leaders of the General Assembly secretly put in a bid last Friday to buy a vacant downtown office building that is on the hook to the state pension fund and the state economic development agency for $21.5 million in defaulted loans.

House Speaker William J. Murphy and Senate President Joseph A. Montalbano confirmed last night having made the bid, on the General Assembly's behalf, to buy the former American Express building next to the train station for unspecified state use, which could include office space for the state's part-time legislators.

The two Assembly leaders went public after refusing initially to either confirm or deny having made a play for the building in the auction being conducted by the Rhode Island Public Employees Retirement System, under the supervision of a U.S. bankruptcy court judge.

In a statement issued last night in response to two days of questioning, Murphy and Montalbano cited the "significant rents" that several state agencies -- including the treasurer's office -- are paying to lease privately owned office space in Providence.

They said: "Moving these departments into a state-owned building would save the taxpayers money over the long term. Further, the bid helps to protect the state pension fund."

The third reason they cited for making a bid on the 135,110-square-foot, four-story building, with a two-level underground garage: with 150 parking spaces, "the property would help ease the parking situation faced by the public when visiting state departments or the State House."

Said Murphy in an interview: "We look at this building and this opportunity and say there are endless possibilities for the State of Rhode Island." Added Montalbano: "The focus is on the opportunity of acquiring the building. We didn't want to sit idly by and let the opportunity go by."

Even then, however, they refused to say how much they bid for the building in the auction -- which had a minimum $18-million bid requirement -- how they planned to pay for it and whether they believed General Assembly approval was required.

When asked where the money would come from, Montalbano said: "That's intricately, substantively involved with the bid process and we definitely can't talk about that."

But Republican Governor Carcieri and former Democratic Gov. Bruce Sundlun -- who led a years-long effort to line up a site and financing for a potential legislative office building across the street from the State House -- had lots to say.

"The idea that we should be buying a Class A, premium office building in downtown Providence for some unknown use is absolutely ridiculous," said Carcieri, ticking off his objections one after another. Among them:

"That's got a lot more potential for economic development. Bring a real business into the city. That will bring jobs with it and income taxes and corporate taxes, hopefully, and all those things. That's what it should be used for.

"The state doesn't need it. My gosh, we've got plenty of buildings we are looking at converting, rehabbing and so forth" at the state-owned Pastore complex in Cranston, "so I have no idea what they are thinking."

"Last time I looked, it's the executive branch that purchases property."

Finally, he said: "Here we are scrambling for money to do much more needy projects . . . [and] we are going to spend that kind of money? I see no sense in this whatsoever."

Added a "disappointed" Sundlun: "All that does is tell me why all of the arrangements that had been made and worked on -- for what, three years at least -- to acquire that Francis Street land are apparently going down the drain.

"Everything was going swimmingly and then all of a sudden, it closed off and I couldn't get a word out of Murphy . . . Other people talked to him on my behalf and he said, 'tell Bruce I love him, but I can't talk to him now.' "

The General Assembly's bid is reportedly one of two submitted by last Friday's deadline.

Tomorrow, the legislative leaders will find out if their bid has been accepted. On Tuesday, William R. Baldiga, the lawyer handling the auction and sale for the state pension system, will make a recommendation to U.S. Bankruptcy Court Judge William C. Hillman in Boston.

The auction was the result of a failed investment by two arms of state government.

In 1989, the Rhode Island Industrial Facilities Corporation issued $23 million in bonds and gave the money to Gateway Eight LLP, a partnership led by Boston-based developer Dean F. Stratouly, to construct the building which once had American Express as a major tenant.

With then-state general treasurer Anthony Solomon at the helm, the state pension fund bought the bonds, subject to a requirement that Gateway pay back the money by 2000.

After one extension and a failed attempt last year to negotiate a partial pay-down with the proceeds from another loan, Gateway filed for Chapter 11 bankruptcy protection in U.S. bankruptcy court.

The pension fund still holds the mortgage, is Gateway's largest creditor, and under the terms of a court-approved plan, was expected to enter its own $17.9-million bid for the building. But Baldiga said the pension fund -- which pays retirement benefits to tens of thousands of retired state and municipal employees and teachers -- has no interest in owning the building.

Other bidders had to offer a minimum bid of $18 million, free of contingencies such as financing and approval, and be able to close by Nov. 30. Anyone who bought the building would also have to pay Capitol Properties, which owns the land under the building, $18,598.58 a month on the ground lease.

The first confirmation of the General Assembly's bid came late yesterday afternoon from House Republican leader Robert A. Watson, who had no role in the behind-the-scenes moves to acquire the building.

After meeting Murphy for coffee at a Dunkin' Donuts in Warwick earlier in the day, Watson said: "I can confirm that I met with the speaker this afternoon and he confirmed that the General Assembly has submitted a bid for the building.

"I understand it is in and around $20 million . . . [and] the speaker hopes and expects to save money by consolidating agencies, such as the auditor general and perhaps other agencies that are, perhaps, leasing properties."

Watson said he had many questions, among them: how much money will be removed from the City of Providence tax rolls if the state buys the building. According to Capitol Properties, which owns the separate groundlease on the building, current city taxes on the land and building are $616,393.

He said Murphy promised answers and also assured him "it would require approval of the General Assembly."

But Watson said his most significant question -- where would the money come from -- remains unanswered, and "I have yet to be convinced by anyone a part-time legislature requires additional office space."

As for the possibility of housing other non-legislative agencies in that building, Watson said: "we have a duly elected governor who can address those issues."

Murphy and Montalbano authorized the bid, technically submitted by the Joint Committee on Legislative Services, without consulting either of the two Republicans -- Watson and Senate Minority Leader Dennis Algiere -- who sit with them on this five-member leadership committee that controls legislative hiring and spending:

"I know nothing about it," said Algiere, R-Westerly, on Tuesday night. "Do we have the money?"