Sunday, November 6, 2011

New Study: Maryland Business Climate 11th in Nation // Senator Brian Frosh Questions MD Corporate Welfare Policy

“Maryland is the number one goddamn state in the union. 
We’re not just a good state – we’re a great state." 

Senate President Mike Miller (source: MD Reporter)

Early on Maryland Juice embarked on a perhaps quixotic campaign to try and help counter some of the anti-tax propaganda coming from the GOP, conservatives, think tanks and business leaders in Maryland. I don't really blame any of them for making the case for lower taxes, because that's what they always do (recession or not), and it is in their direct interest. After all, the current economic turmoil has given anti-tax proponents their best shot at actually getting what they want, especially since politicians are terrified of hypothetical job flight right now. But study after study indicates that the claims from business people are full of holes.

So when we have no money to give away to businesses and the data shows things are actually improving, isn't all of this anti-tax and pro-corporate welfare propaganda just that? Propaganda. What happened to technocratic policymaking? It seems too much governing is driven by fear instead of reason right now. Indeed, three key studies have recently taken the wind out of the anti-tax policy arguments:

  • Millionaires Are Not Leaving for Virginia: Contrary to the Montgomery County Executive's assertions, millionaires have not been leaving Maryland for Virginia. Recent research indicates that this is a false claim and Maryland may have fewer millionaires today, simply because some millionaires lost money in the recession (as is true in practically every state). They didn't actually go anywhere.
  • Maryland #1 in Nation for Millionaires: Even more proof lies in a new study indicating that compared to other states, Maryland millionaires make up the largest share of the population. Maryland has a higher % of millionaires than fabled pro-millionaire places like Virginia and Hawaii.
  • Maryland #11 in Nation for Business-friendliness (and climbing): When factoring in things beyond simply tax rates, Maryland is currently moving up the rankings in terms of being a pro-business state. Interestingly if you rate Maryland on business taxes, the Tax Foundation claims Maryland is 44th in the nation for business-friendliness. But if you factor in health care availability, unemployment, business growth and other considerations, Maryland suddenly leaps to 11th in the nation.

It is important for policymakers to keep everything in perspective.....

Virginia has a rabidly anti-tax political base, and so it is almost guaranteed that the State will always lower their taxes to stay below Maryland's rates. We will never win that game, hence policymakers call caving to such a strategy a "race to the bottom." Moreover, as I've pointed out in the past, former GOP gubernatorial nominee Ellen Sauerbrey used to claim Pennsylvania was a threat to Maryland jobs and therefore we needed to lower our taxes. Think about that for a second -- we always have neighbors with varying tax rates, and anti-tax politicians and business leaders will always claim we should lower taxes to "stay competitive." Moreover, Virginia for years has been unable to raise critical transportation infrastructure funds due to this anti-tax perspective.

Some politicians seem wise to these games from the Chamber and their agents. Maryland recently loaned Bechtel several million dollars to stay in Frederick, Maryland, after the company claimed it was thinking of leaving the State. The Gazette reported on this hesitation from Maryland Senator Brian Frosh:
“You can’t afford to pay off every business that is located in the state and says it’s thinking of moving,” Frosh said. Bechtel has a history of obtaining incentives in other states and even received a $2 million conditional loan from Maryland after it moved to Frederick in 1999, said Thomas Cafcas, a research analyst with Good Jobs First. The Washington, D.C., watchdog group examines corporate and government accountability in economic development. 
Loans and tax incentives don’t “move the needle” for many companies, as they also factor in real estate and labor costs, infrastructure and more, he said.....
Frosh, for one, agreed, saying that “$9.5 million is a relatively small amount for a company that has annual revenues in the billions....”
In 1999, Marriott International inked a conditional deal to receive $14 million in Sunny Day funds, along with millions more from the state and Montgomery County, as the Bethesda hotel giant threatened to move to Virginia.....
Frosh doubted that Marriott officials were really thinking of moving to Virginia back then. In Bechtel’s case, he said, it was hard to tell. 
“My instinct was that it was a bluff,” Frosh said. “But I have no way of really knowing.” 
Barve agreed that officials were largely in the dark as far as knowing if Bechtel was bluffing. 
“We are flying blind,” he said.

This is classic game theory. What politicians are responding to is Virginia, North Carolina and other states dangling money to lure our businesses away. As a result, we spend millions to keep jobs we already have. But it doesn't appear that Maryland and its counties are dangling money to lure businesses away from other states in quite the same way. That kind of corporate welfare would at least yield new jobs in Maryland (even though we'd be further depressing economic conditions in rival states -- I leave the ethics of that to others to debate). Instead, we seem to solely be spending on existing companies -- which is a highly unleveraged use of limited Sunny Day/Economic Development dollars.

But that also means that businesses who feign an interest in moving to Virginia (or Pennsylvania) have a bargaining advantage in trying to extort free tax dollars out of Maryland and its counties. I am not completely against the use of tax policy to trigger economic activity, but my god, when we are facing massive revenue shortfalls and resorting to furloughs, pension cuts and service cuts -- shouldn't we demand a little proof of causation before we give money away? Specifically, shouldn't our corporate welfare (whether in the form of tax abatements, loans, credits, giveaways, etc) be targeted toward projects that actually generate jobs or economic activity?

Obama tried to instill a shovel-ready test for use of stimulus dollars, but it seems our test in Maryland is simply whether a company makes a threat. Hmm.

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