When the public learned that Gov. Lawrence J. Hogan Jr.’s (R) former chief of staff, Roy McGrath, received a six-figure payment from his previous job as the director of the Maryland Environmental Service, some people wondered what the limits and rules were for such quasi-governmental agencies.
More to the point, what is the Maryland Environmental Service?
MES is an independent state agency that provides environmental and infrastructure services to public and private entities, but mostly to state and local governments. It has no regulatory authority and functions as a non-profit business arm of the state, enjoying private sector flexibility but also designed to serve the public. It has worked on around 1,000 environmental projects and services across the Mid-Atlantic region.
The General Assembly created MES in 1970 to help local municipalities run services like waste disposal systems and dredging waterways. An executive order in 1971 gave MES the responsibility over the operation and maintenance of all state-owned water, wastewater and solid waste management facilities.
MES does not initiate its own projects, but rather, is hired to do specific projects and then is paid by its clients. It is not designed to compete with the private sector. The agency has 850 employees and operates on its own personnel system.
“It’s a bit of an odd duck, and we have a few of those in Maryland,” said Del. Marc Korman (D-Montgomery), who chairs the subcommittee that reviews MES budget.
Another example is the Maryland Economic Development Corporation (MEDCO), which may not be a direct state agency, but is still an instrument of the state, as its purpose is to promote economic development in Maryland through bonds and projects.
Although MES does not receive any direct funding from the state, 95% of the agency’s revenue comes from state and local governments that hire MES for environmental projects, Korman said.
Operating on a fee-for-service model, MES’s budget is reflected in other state agency budgets, when MES operates water plants and wastewater facilities for state entities or when an agency contracts MES to do a specific project like the Paul S. Sarbanes Ecosystem Restoration Project at Popular Island in the Chesapeake Bay.
The fees that MES receives for its services make up its operating funds. In 2019, MES earned $161 million in revenue.
MES is governed by a nine-member board of directors, with the governor appointing the board chair and five members with Senate advice and consent. The agency’s deputy director, secretary and treasurer also serve on the board and are chosen by the director with the governor’s approval. However, these three positions are currently vacant.
McGrath served as director of MES for 3 ½ years and left the agency to become Hogan’s chief of staff in May. Charles Glass then joined MES as its new acting director in June. Glass was previously a deputy secretary at the Maryland Department of Natural Resources and has also worked at the Maryland Department of Transportation and the U.S. Environmental Protection Agency.
Lawmakers have periodically expressed concern about the quasi-governmental nature of MES and the lack of accountability that may come with its unique status.
Having an agency that can circumvent procurement standards without the oversight that standard state agencies withstand is “problematic,” Del. Lorig Charkoudian (D-Montgomery) said. “We have procurement rules for good reasons.”
She noted that MES contracted with Chesapeake Utilities Corporation last year to build a pipeline on the Eastern Shore, which would provide natural gas to the University of Maryland Eastern Shore and the Eastern Correctional Institution.
MES is an instrument of the state, yet this project is inconsistent with the state’s energy policy of moving away from fossil fuels, Charkoudian said.
Ultimately, the board of directors has the most direct oversight over MES, Korman said. The legislature also has general oversight through MES’s budgeting process.
Even if the six-figure severance paid to McGrath was “standard business practice” as McGrath says, “MES is a state agency,” Del. Erek L. Barron (D- Prince George’s), the co-chair of the Joint Committee on Fair Practices and State Personnel Oversight, said during an afternoon virtual hearing Tuesday. “It’s nearly unrebutted that it’s a state agency and you are a state official.”