Donald Fry: Business incentives are worth the price

By Donald C. Fry

As a group, state lawmakers are generally lukewarm to the idea of aggressive tax-credit programs and other incentives to nurture business growth in Maryland and to lure new business here.

Instead, they point to Maryland’s many existing strengths as a place to do business, including quality public schools, top-ranked universities, a highly educated work force, its concentration of research assets and funding, top-five rankings for technology development potential, and a superior quality of life.

They believe that businesses should, and will, locate or expand here based on the merits of these assets, or our location and superb transportation network, and not because the state is dangling financial or tax incentives.

In an ideal world, that kind of thinking might appear logical. But to those in the rough and tumble world of economic development it’s called something else: “Fantasyland.”

That was a basic message from local economic developers and a national site locator who delivered a reality check to members of the Maryland Business and Tax Reform Commission who met Dec. 3 to discuss the state’s current menu of tax credits and business incentives.

“I wish they would focus on the strengths that Maryland has, but that’s simply not the case,” David Ianucci, executive director of Baltimore County Economic Development, said of business prospects he has dealt with.

“Economic development is a full-contact sport,” said Vernon Thompson, director of the Cecil County Office of Economic Development. “Maryland’s traditional strengths only get you to the table.”

Once a state is on a company’s list of potential locations for an expanding or new operation, “at the end of the process it all boils down to cost. That’s where the incentives matter,” said Jay Biggins, executive managing director of Biggins Lacy Shapiro & Company, one of North America’s largest site selection and incentives advisory firms.

“Incentives are pricing tools,” he said. “We understand the public perceptions of incentives,” he said. “But I can tell you that they make a difference.”

Overcoming perceptions
Maryland needs tax credits and other incentives to overcome perceptions in the national business community that Maryland has higher taxes, higher costs of operation, based on labor, energy and other factors; and a heavy regulatory climate, according to economic developers.

When it comes to competing for business locations, getting on the list and staying on the list are two different things.

“It’s primarily the market that dictates decisions,” Biggins said.

Maryland’s incentives include tax credits for renovating historic buildings, locating in enterprise zone and brownfields, creating jobs, and investing in bioscience or research and development.

They are useful, as far as they go, but they “are not unique,” said Biggins. “Maryland has fallen off some long lists for that reason.”

How can the state improve its business incentives? Maryland needs tools that are large enough.

“Maryland’s incentives are already lower than most. Many states are willing to invest significantly more to retain and lure businesses,” Biggins said. He suggested raising the caps on some of the state’s most effective business tax credits. Local economic developers also suggested developing “more flexible and surgical” incentives.

One basic question
For many Maryland lawmakers, the issue of tax credits and other business incentives boils down to one basic question: Are they investments or not? I understand that lawmakers, faced with the daunting task of balancing a budget in a short period of time, are tempted to view tax credits and business incentives as simply a cost to be either grudgingly tolerated or eliminated from the state’s budget.

But we must fully grasp the notion that, especially in tough economic times, business incentives are not a luxury. They are critical tools to better position Maryland for growth on the other side of the recession.

As economic development experts tell us, tax credits actually work. They deliver business growth, jobs, and government revenue that exceeds the cost to the state.

There’s no question that Maryland comes to the economic development arena with significant assets, particularly in education and work force. But we must recognize that, rather than simply relying on these strengths to nurture business growth, we must build on them.

When it comes to business retention and attraction, Maryland’s economic developers operate in a highly competitive and contentious arena. We must consider giving them stronger tools to leverage our state’s strengths into economic growth.

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