Incentives no answer

Originally published in the Frederick News Post

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MARCH 31, 2010 E-MAIL THIS PRINTER FRIENDLY

"The CEO of Hilton reached out to us and said nice things but that it was a business decision." That quote, from a state economic development official in The Washington Post, describes the situation when Maryland lost Hilton Hotels to Virginia last year. But it could just as well describe BP Solar's decision to shutter its Frederick manufacturing plant and move operations abroad.

Losing 320 local jobs as the state shed 13,800 in February is heart-wrenching news. But it should underline that Maryland cannot rely on big projects like the Northrop Grumman relocation from California, which it now competes for with Washington and Virginia, to fuel its economy.

Big projects go bad frequently. North Carolina offered computer maker Dell $280 million to open a desktop computer manufacturing plant in 2005. It shut its doors in January after letting 900 people go. Many former employees drove hours for $10-an-hour jobs billed as permanent replacements to the textile and furniture positions lost first to Mexico and then to China in the last 15 years. But then business changed and people stopped buying desktop computers.

All of that taxpayer money couldn't change the business climate in Dell's favor. As Bob Orr, a former North Carolina Supreme Court justice and head of the North Carolina Institute for Constitutional Law, said of Dell's decision, "No matter how big the incentive package, operational decisions by businesses headquartered out of state will be driven by corporate financial considerations and not by any sense of loyalty to the community being left behind."

In other words, it doesn't matter if the head of BP Solar won the 2008 Maryland World Trade Center Institute International Business Award or that the state subsidizes green energy. The company needed to change its business model to compete.

So does Maryland. Its incentive packages and much-praised quality of life are not bringing business to the state. When is the last time Maryland won a major national headquarters? Usually residents hear about businesses leaving or being bought -- toolmaker Black & Decker being one of the most recent. Could the paucity of relocations or business openings have anything to do with Maryland's high-tax atmosphere that deteriorated further in 2007 when legislators passed a millionaire's tax and raised corporate and sales taxes?

The same 2009 Washington Post article about Hilton notes that Fairfax County lured both Volkswagen and computer services giant CSC to open headquarters there in recent years. Virginia's taxes are lower across the board and Forbes ranks it as having the top business climate in the country. Maryland ranks 12th on the list and 45th on the Tax Foundation's list of business tax climates. Giving $3 million to Morgan Stanley for worker training and meeting hiring targets or millions down the black hole called the Baltimore Development Corp. will not change that statistic.

According to the January 2009 Maryland Public Policy Institute report "Improving Maryland's Economic Competitiveness," the state must lower the barriers to opening a business to succeed.

It says, "There is no finish line in the inter-state economic competition. This never-ending struggle requires states to consistently maintain an advantageous economic environment vis-?-vis other states." It recommends reducing the tax burden to 2006 levels. That would be a great first step toward retuning Maryland's economy from federal welfare state to open for business.

Marta Mossburg is a senior fellow at the Maryland Public Policy Institute. mmossburg@mdpolicy.org

Incentives no answer

Originally published in the Frederick News Post

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