Donald Fry: Disconnect remains between business advocates, lawmakers over incentives

By Donald C. Fry

The disconnect between state lawmakers and Maryland’s business and economic development community over the issue of business competitiveness is no better defined than by their contrasting views on business incentives.

While many lawmakers in Annapolis view incentives and tax credits as simply “handouts” to businesses, such incentives are “pricing tools” that allow Maryland’s assets to overcome its liabilities – usually related to taxes and business costs – to keep our state competitive, according to site location experts.

In a competition for locating a new, expanding, or relocating business operation, “at the end of the process it all boils down to cost. That’s where the incentives matter,” says national business location expert Jay Biggins, executive managing director of BLS & Company.

Maryland’s incentives are already lower than most, Biggins says. “Many states are willing to invest significantly more to retain and lure businesses,” he told members of the Maryland Business Tax Reform Commission. Biggins, business advocates, and county economic development directors who appeared before the commission suggested increasing the availability of some of the state’s most effective business tax credits and incentives.

But, in its December 2010 report to the governor and lawmakers, the commission recommended that “no substantive changes” be made to Maryland’s economic development incentives for the time being.

Legislators need to understand and appreciate the impact of government investment in business growth and job creation. That’s the consensus of more than 50 Maryland CEOs, entrepreneurs, and experts in business development and retention who participated last year in the Greater Baltimore Committee’s series of focus groups on business competitiveness.

When government invests in business growth, it needs to understand that it is making an investment “to get a greater tax revenue down the road,” agreed participants in the GBC study.

This is the basis for one of the eight consensus core pillars for economic growth and job creation developed from the GBC focus groups:

Core pillar: Strategic and effective state investments in business growth. The state must commit to substantive strategic investments, leveraged with capital assets, to nurture business and job growth. Investments should include competitive and effective tax credits, business development incentives, and tactical initiatives to nurture private investment in industry growth.

Maryland’s incentives – including tax-credits for renovating historic buildings, locating in enterprise zones and brownfields, creating jobs, and investing in bioscience and research and development – are useful, as far as they go, but they “are not unique,” according to economic developers.

How can the state improve its business incentives? Maryland needs financial incentives that are more significant in size, since our state’s incentives are already lower than most. Many states invest more to nurture private-sector growth, say economic developers, who suggest raising the caps on some of the state’s most effective business tax credits.

Companies considering expanding or locating from elsewhere feel the need to maximize the incentives they receive and should view the state as working with them, not against them, said GBC study participants.

The state needs to make a good business environment for our emerging industries by providing relevant and timely tax credits, promoting our assets and offering the support and investment that the industries need.

Combined budgeted tax credits and incentives to directly nurture business growth – including the new Invest Maryland tax credits to generate investment in bioscience and technology industry growth – remain a fiscally insignificant portion of the state’s overall budget.

Governor Martin O’Malley has demonstrated that he is listening to business concerns. His support and the General Assembly’s passage of the Invest Maryland legislation are encouraging. And the governor’s overall long-term plan to ramp up state investment in bioscience industry growth remains ambitious.

But state leaders continue to display reluctance to implement such initiatives, expanding tax credit programs that are proven generators of private investment and business growth, and acting to aggressively fund other direct incentives to activate the private sector’s job generation capabilities.

There is a connection between a good economy and good business. Maryland needs a strong economic growth strategy that is driven by the governor. “It is important to nurture the growth component,” says one former DBED secretary. “We need genuine and vocal support of business growth now.”

The disappointing reality that’s apparent to business advocates is that, despite the sincere campaign promises of most of Maryland’s elected leaders to focus on job creation, the sustained heavy lifting that requires leadership and game-changing investment in economic growth and job creation remains on the back burner and a second tier priority.

It’s as if our elected leaders lack sufficient faith in the ability of the private sector to generate the business growth that will drive Maryland’s future economy and our government’s fiscal health. The challenge for business advocates in Maryland is to help them to cultivate that faith and to act on it.

Editor’s Note: This commentary is the fourth in a series discussing essential prerequisites for a competitive business environment.

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