ANNAPOLIS, MD—In a letter to General Assembly leaders (below) on Wednesday, Governor Larry Hogan called for bipartisan systemic reforms to the governance structure, oversight, and management of the Maryland Environmental Service (MES). Recent developments have brought to light serious issues with regards to the lack of financial oversight and controls in place at the corporation, including concerns with how MES handles expense reimbursements, salaries, and bonuses, and their longstanding practice of paying generous severance packages to departing executive directors.

The governor also announced that retired Federal Judge Frederic N. Smalkin has been named to the MES board as board secretary. Judge Smalkin served as Chief Judge of the United States District Court for the District of Maryland.

Judge Smalkin’s appointment is the latest in a series of immediate actions that have been taken to address problems at MES, including a top-to-bottom review of MES operations and the removal of board members and executive staff.

“Our bipartisan focus must be on addressing the systemic problems at the Maryland Environmental Service that require substantial legislative changes to its governance structure, oversight, and management,” said Governor Hogan. “To begin providing immediate accountability, retired Federal Judge Frederic Smalkin has been named to the corporation’s Board of Directors. Judge Smalkin is a highly respected jurist with a long record of integrity, and I want to thank him for agreeing to serve on the board at this critical time.”

Governor Hogan proposed the following potential reforms to legislative leaders today:

1. Substantial changes to governing structure and oversight capability. The structure established by the General Assembly makes the executive director the chair of the board, and gives the chair the ability to appoint the vice chair, treasurer, and secretary. The executive director, the deputy director, and other staff should not serve on the oversight board, and the executive director should not be able to handpick board members. The board should also operate under strict ethics rules and requirements similar to agencies in state government. Personnel policies and protocols for senior staff, including for compensation and bonuses, should be brought into line with those in place at state agencies. State budget officials should be empowered to conduct regular audits. The state treasurer and budget secretary could potentially be added to the board to provide an additional layer of state oversight.
2. Restore MES as a state agency. MES began as a part of the Maryland Department of Natural Resources. When the General Assembly recreated MES as a quasi-public corporation in 1993, it gave MES broad flexibility, including exemptions from key provisions of state personnel, ethics and procurement laws. If MES cannot be reformed under its existing structure to ensure it will use these privileges responsibly, it could be pulled back into state government as a principal department of the Executive Branch, or returned to be a division within DNR.
3. Move to sell MES to the private sector. One of the principles that apparently drove the General Assembly’s decision to make MES a quasi-public entity was a belief that MES needed the flexibility of a private-sector entity to effectively perform its mission. It currently functions as a private entity, but it is a corporation that serves as an instrument of the state. Instead, MES could be spun off to the private sector. Such a transaction would allow the State to monetize the economic value that has been created in MES, and allow MES to fully function with the flexibility of a private sector entity.

Click to access 9.23.20-Letter-to-Senate-President-and-Speaker-of-the-House.pdf