Northrop Grumman Re-opens Old Wounds Inflicted
by Our Poor Business Climate

Maryland's government wants people to believe that the Washington region will somehow share the benefit from Northrop Grumman's decision to move to northern Virginia and to blame a lack of commercial office space in Montgomery County for the defense giant opting for the Commonwealth.

This may explain the Governor's initial public relations move following Northrop's decision which was to call his counterpart in Virginia and congratulate him as if Maryland lost a sports contest. The next move was to deploy the head of the Department of Business and Economic Development for media interviews to explain that nothing could be done due to Virginia's plethora of office space.

If the lack of office space was the real issue, then there was no reason to offer Northrop a $22.5 million incentive package. Maryland and Montgomery County offered cash, tax abatements and building acquisition and improvement funding. Virginia offered a smaller package of up to $14 million. Yet Maryland's package was rejected.

Maryland's political leaders and business community should review all the factors that led to this decision, starting with a well-documented bad business climate. Northrop Grumman CEO Wes Bush said "overall economics" was a consideration in moving to Virginia, which is not a surprise since he runs a business.

A thorough and honest assessment would include reviewing serial anti-business legislation chronicled over decades in MBRG's Roll Call and poor business climate ratings as measured by third parties. Also, Maryland political leaders have made public statements on economic development issues, in stark contrast to those in Virginia, that at best show complete apathy towards the private sector, or worse, make Maryland look ridiculous to Fortune 500 CEOs.

Former Virginia Governor Tim Kaine makes clear the importance of business climate considerations, and specifically taxes.

"With our low corporate tax rate, highly-skilled workforce, and great quality of life, it's no wonder Virginia consistently attracts some of the world's most innovative and corporate leaders to our borders," Kaine told the Washington Business Journal last year when Forbes magazine chose the Commonwealth as the number one state for business.

Forbes magazine ranks Maryland 42^nd in business costs while Virginia is ranked number one overall. Forbes analyzes state data to assign rankings in six main areas, which include costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Maryland's bright spots are quality of life and an educated workforce, and its Achilles heels are the taxes and regulatory environment.

Maryland's corporate income tax is 8.25% compared to Virginia's 6%. The maximum personal income tax is 9% in Maryland compared to 5.75% in Virginia. Maryland's sales tax is 6% and Virginia's sales tax is 5%. Such criteria, along with states' unemployment insurance obligations, are used to determine the non-partisan Tax Foundation's business climate tax index where Maryland ranks 45^th, and Virginia is 15^th.

Virginia Free is a non-partisan business organization that tracks Commonwealth legislators' business votes, similar to MBRG's Roll Call. The organization's cumulative business ranking assigns a score of up to 100 during the span of a legislator's career. Nearly every lawmaker in the Commonwealth - 99%- scored higher than 50. In Maryland the story is much different, only 40% of legislators have cumulative rankings greater than 50. Although the two assemblies are considering different legislation, the methodologies MBRG and Virginia Free employ are the same- identifying legislative measures that are of importance to the business community and tracking the votes.

In a perfect world, the results of state policies could be measured and quantified in terms of its impact on jobs. For example, how much revenue are Maryland retailers losing to Delaware, where there is no sales tax? No one can say. And exactly how many companies chose another state due to Maryland's business climate, and will say so publicly? No definitive answer.

High-profile companies including Computer Sciences Corporation, Hilton Worldwide, SAIC and Volkswagen North America all opted for northern Virginia over the last two years. Maryland, on the other hand, is losing Towson-based Black and Decker to Connecticut following its merger with Stanley. Proctor and Gamble drastically shrunk its Hunt Valley operation where it now maintains a nominal presence.

A Maryland delegate in the House leadership was asked if there was anything the state could have done to stop Black and Decker from leaving, and said, "No, not really, it was a corporate decision." At the very moment the General Assembly passes regulations requiring consumers to use more solar electricity, the BP Solar Plant announces closing its Frederick operation and 320 jobs are gone.

It's hard to say with precision exactly when Maryland developed an anti-business reputation thanks to numerous high-profile examples of politicians' disdain for the private sector. In 1984, Fairchild Industries, a major aircraft manufacturer, left Hagerstown as the then-Attorney General launched a public crusade against the company over an obscure environmental regulation. Nearly a decade later, a former Montgomery county executive publicly discouraged General Dynamics from locating in Maryland. The state legislature burnished this reputation in this decade with a string of blatant anti-business bills ranging from mandatory shift-breaks to the so-called "Wal-Mart" bill and the Tech Tax. In the Northrop decision, social and cultural issues were said to be "a critical issue" in whether the company located here or in Virginia.

The critical issue, according to a Maryland state senator, is that companies can take a stand for their gay and lesbian employees by locating in Maryland. The senator's letter to Wes Bush was released to the press, resulting in the Washington Post headline: "Northrop Grumman pressured by Maryland legislator, gay rights groups over move."

If the state's business climate weren't bad enough and social agendas defined as critical issues in corporate relocation decisions, consider that the Montgomery County Council is poised to pass a 100% energy tax increase that would cause power bills to go up by hundreds of thousands of dollars for large companies. That was likely among the "overall economics" the Northrop CEO had in mind.

Maryland officials need to get rational about economic development and the important role of business in government.