Center Maryland: Hogan’s speech: mixed reviews but strong business cred

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Editor’s note: The following commentary appeared on CenterMaryland.org on February 6.

By Donald C. Fry

Maryland Governor Larry Hogan’s first State of the State speech on February 4 is drawing mixed reviews from state lawmakers in Annapolis, but should be well received by business advocates.

While legislative leaders gave the speech low marks for style and tone, the substance of what Hogan said reflects a strong commitment by the governor to achieving many fundamental prerequisites for a competitive business climate in Maryland.

For example, the overwhelming majority of action items articulated by Governor Hogan relate directly to core pillars for a competitive business climate compiled by the Greater Baltimore Committee from focus groups that included business and economic development leaders from across the state.

For example, Hogan’s pledge to make Maryland’s competitiveness for business growth the primary focus of his administration and to bring a new culture of customer service to state government is heartily welcomed by the business community.

This relates directly to the Greater Baltimore Committee’s number one core pillar as outlined in the Gaining the Competitive Edge report: “Government leadership that unites with business as a partner.”

Business owners and managers in the state have long complained not only about the substance of state regulations, but about the adversarial and gratuitous zeal and indifference to business urgency that state agencies too often exhibit in dealing with the private sector.

Business Tax Relief

A significant action item action on the governor’s priority list is tax relief. This is a huge issue in the private sector. Baltimore-region business leaders have identified reforming Maryland’s tax structure as the top strategic action item for strengthening Maryland’s business climate.

In his State of the State speech, Governor Hogan’s proposed to reduce personal property taxes on small business this year. The recipient of these business taxes are county and municipal governments rather than state government, but regardless it signals a beginning of what business advocates hope will ultimately be a broader reform of Maryland’s tax structure.

Major overnight reform of Maryland’s tax structure is probably not in the cards.  But opportunities for incremental adjustments to the state’s tax structure will likely emerge as our state’s economy grows.

At the Greater Baltimore Committee, a commission has been working on tax reform options for more than a year and will share with the Hogan administration a wealth of information relating to Maryland’s tax structure compiled by private-sector tax and fiscal experts.

Redistricting

The governor’s vow to create, by executive order, an independent bipartisan commission to reform Maryland’s redistricting process also reflects a key priority for competitiveness shared by business advocates.

National publications have ranked Maryland as among the nation’s most gerrymandered states for Congressional districts.

Business leaders at the Greater Baltimore Committee listed election district gerrymandering in the GBC’s 2013 report, “Compact for Competitiveness,” among issues that negatively impact Maryland’s competitiveness.

Maryland voters appear to overwhelmingly agree. Statewide, 73 percent of voters think having independent commissions draw up election districts is better than the current system where elected officials redraw the districts, according to their response to a question placed by the GBC on a Gonzales public opinion poll in October 2013.

Transportation

Transportation funding was the most notable issue where Governor Hogan’s agenda potentially diverts from the prerequisites for business competitiveness.

Superior transportation infrastructure with a well-funded and reliable funding mechanism is a major priority for Maryland’s business community. The governor’s proposal to eliminate state provisions to index the per-gallon gas tax to inflation raises an important question.  What revenue adjustments does the Hogan administration have in mind to ensure that Maryland’s roads, transit, port and airport resources are reliable and well-funded?

Doing away with Maryland’s inflation indexing for the gas tax rate would reduce revenue to the state’s transportation fund by $15 million in FY 2016 and close to $90 million in FY 2020, according to state fiscal analysts. Additionally, this reduction would further limit transportation dollars as the state would lose the “leverage” bonding component of that revenue source. Combined the sum could be as great as $500 million in lost revenue to the Transportation Trust Fund over a five year period. Having a gas tax that is not sensitive to inflation as infrastructure construction costs increase is essentially how Maryland got into a serious transportation funding crisis in the first place.

Also of interest to transportation advocates is the mechanism through which the governor intends to restore Highway User Revenues to local jurisdictions, which were dramatically reduced in 2010 in order to ensure funding to local jurisdictions, including education.

There is little doubt that Highway User funding restoration to local governments would further negatively affect statewide transportation funding for capital projects.

In the next week or so, the full fiscal impact of these two proposals will be clear and the health of the Transportation Trust Fund will be evident.

Is bipartisanship over?

Finally, do the less-than-positive reactions by Democrats to Governor Hogan’s State of the State speech diminish pledges of bipartisanship this year in Annapolis?

As Republicans applauded vigorously, many Democrats were offended by the tone of the speech and emphatically said so.

Granted, Governor Hogan seemed to throw down the gauntlet to lawmakers – most of whom have been in the General Assembly for the last eight years – about Maryland’s shortcomings relating to competitiveness for business growth and job creation.

Clearly, Hogan’s two-minute recitation of his campaign message points – what he calls “the dismal facts” about Maryland’s business climate – made many in the audience wince.  And it was likely intended to.

It was the governor’s way of articulating the problem. The rest of the speech outlined the beginning of what he is proposing as the solution.

As Hogan correctly points out, these are the issues he campaigned on and a major reason he was elected.

The General Assembly is a cauldron of philosophical differences and conflicting agendas. But Maryland’s legislative leaders, as a body, tend to be pragmatic when it comes to policy making.

They all say they got the message from voters in 2014. And during their campaigns, virtually all pledged to make strengthening Maryland’s business climate their top priority.

One hopes that over the 90-day session the “left over” campaign rhetoric will subside and the governor and lawmakers will adopt positive economic growth initiatives for the state. It’s worth noting that Maryland’s fiscal challenges did not just develop in the last eight years. They have been building over decades of tactical policy making amid changing economic variables that culminated in the Great Recession.

In any case, the interests of Marylanders will be best served if lawmakers look for common ground as they process Governor Hogan’s agenda. Putting aside any criticism of the tone of the speech, the governor clearly stated that he is open to alternative spending suggestions from the legislature, provided that there are no new taxes and the proposals do not cause the state to spend more than it takes in. How those precious taxpayer dollars are spent is the battleground for debate and compromise between the governor and the legislature.

What’s important is that all of our elected leaders in Annapolis take strategic, decisive steps to strengthen our state’s competitive position as a place where businesses and our state’s citizens can thrive.

That’s what will ultimately frame a successful future for our state.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.  

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