Donald Fry: Economic development is a contact sport

By Donald C. Fry

While there are unique circumstances relating to the recent contest between Maryland and Virginia for the Northrop Grumman headquarters, our state’s second-place finish in a high-profile two-horse race serves as a useful reminder of the basic reality of economic development.

Competing as a location for business growth is a full-contact sport.

Maryland has many strengths as a place to do business, including quality public schools, top-ranked universities, a highly-educated work force, a major concentration of research assets, top-five rankings for technology development potential, and a superior quality of life.

There are many in our state’s government who believe that businesses should, and will, locate or expand here based primarily on the merits of these significant assets, as well as our location and our transportation network. That’s why having a highly-competitive package of business incentives has not traditionally been high on the priority list of Maryland elected leaders.

Admittedly, when major opportunities come along, our governor and economic development officials scramble to put together an attractive package of incentives, as they did for Northrop Grumman.

But if Maryland wants to be consistently in the running for corporate expansions and relocations in what is surely to be a highly-competitive post-recession business world, our state needs a stronger and more strategic set of institutional business incentives.

That’s not just my opinion. It’s what economic developers and business location experts tell us. Here’s why.
In the rough and tumble world of economic development, Maryland’s education, workforce and quality of life strengths are offset by perceived policy and cost liabilities that figure into a company’s calculation of a state’s potential as a business location.

To be sure, there are a variety of opinions among business and elected officials in Maryland as to how much our state’s tax and regulatory policies add or detract from our substantial strengths. The debate over this issue is fueled by a plethora of national business climate rankings that offer contrasting assessments of Maryland as a business location.

For instance, Forbes’ September 2009 “Best States for Business” list ranks Maryland 12th, largely on our state’s strengths in workforce and quality of life.

However, a recent national CEO survey on “Best and Worst States for Business,” published in May 2010 by Chief Executive Magazine, ranks Maryland 27th overall.

While these rankings contrast each other, one key thing about both lists is worth noting – both rank Virginia ahead of Maryland overall, as well as for business costs and regulatory environment.

Virginia ranks first overall on the Forbes “Best States” list. Maryland’s overall 12th ranking is tempered by our state’s regulatory environment and business cost rankings of 29th and 42nd respectively. Virginia ranked 2nd and 20th for these categories.

Meanwhile, in ranking Maryland 33rd overall, the Chief Executive Magazine list gave Maryland “B” grades for workforce quality and living environment, but a “C” grade for taxation and regulation. CEOs ranked Virginia 4th overall and gave Virginia “A-minus” grades for workforce quality and living environment, and a “B-plus” for taxation and regulation.

To put it in terms that pro baseball and football fans can relate to, when it comes to competing in the real world of economic development, Maryland operates in a very tough division.

A key issue for Maryland is that our primary competitor for business – Virginia – is located next door, and is a very aggressive competitor.

An encouraging indicator for Maryland can be found amid the Forbes rankings. Forbes’ “Best States” list ranks Maryland higher than Virginia for “growth prospects.” That clearly reinforces the perception that Maryland’s potential for economic growth is substantial, but we must aggressively seize our opportunities.

This brings me back to business incentives. Maryland can certainly get on the short list for many location searches. “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.

Business incentives are not handouts to corporate America. They are “pricing tools” that allow Maryland’s assets to overcome liabilities and keep our state in competitions.

But Maryland’s incentives are already lower than most, experts tell us. “Many states are willing to invest significantly more to retain and lure businesses,” Biggins says. He suggests increasing the availability of some of the state’s most effective business tax credits.

Local economic developers also suggest developing “more flexible” financial incentives that they could tactically deploy.

In any case, whatever business development policies emerge in 2011 and beyond, state policy makers need to rethink their prevailing lukewarm attitude toward business incentives. They need to give economic developers seeking to entice business prospects to expand or to locate here more effective tools to enable Maryland to capture its share of post-recession growth.

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