By Donald C. Fry
As the Maryland General Assembly grinds through the final 10 days of its 2011 session, it’s fair for business advocates to ask one key question: “How does this year’s work of our state’s lawmakers stack up against their election-year pledges last fall to focus on ‘jobs, jobs, jobs’ and strengthening economic growth in Maryland?”
For me, it’s appropriate to measure this year’s legislative actions by comparing them to eight “core pillars” for a competitive business climate that were developed by more than 50 Maryland business leaders and economic development experts who participated in 10 months of focus groups and discussions conducted by the Greater Baltimore Committee. The core pillars are detailed in the December 2010 report, “Gaining a Competitive Edge: Keys to Economic Growth and Job Creation in Maryland.”
A major purpose of compiling a short list of eight prerequisites for a competitive business environment and job creation was to help close a chronic disconnect between state government leaders and the business and economic development communities over the nature of Maryland’s business climate.
Many in government have traditionally contended that significant strengths in technology, education, workforce, and lifestyle make Maryland attractive enough, as is, for existing businesses to expand here and for business operations elsewhere to locate here. Business leaders and economic developers, however, say that there is room for Maryland to be more competitive as a business location.
From the standpoint of job creation and business growth, many good things are happening in Annapolis this session. But the news is not all positive from the halls of the State House.
Following are a few examples of actions that, among other things, positively reflect core pillars of a competitive business environment by making strategic investments in business growth, avoiding imposing major new taxes and additional costs on business, and taking steps to lessen future tax pressures.
• Invest Maryland legislation. Key legislation proposed by the O’Malley administration would establish a tax credit to generate $100 million from the private sector for early-stage investment in Maryland bioscience and technology companies. Although neither of the administration’s companion bills, SB 180 or HB 173, had emerged from committee as of March 31, committees in the House and Senate are expected to send amended versions of the bills to their respective floors. While the bills will likely be pared down in committee, they would put into place effective, creative state investment in business growth that will convert into job creation and economic growth.
• Passage of combined reporting tax policy not likely. Lawmakers appear to be heeding the Maryland Business Tax Reform Commission’s recommendation not to impose a combined reporting tax policy on Maryland’s corporations in 2012. After studying Maryland’s business tax structure for two years, the commission found that a combined reporting policy would be complex and would likely result in increasing the volatility of revenues from corporate income tax. The commission also found that corporate tax avoidance tactics have already been addressed in Maryland through other legislation.
• No major tax increases for operating budget. Although lawmakers are poised to enact a phased-in alcohol sales tax increase that has been widely publicized, but will raise a limited amount of additional revenue, no significant broad-based taxes to boost the state’s general operating revenue are proposed.
• The acknowledged need for pension reform. This session lawmakers are taking steps to begin strengthening long-term funding of government employee retirement benefits. Measures include increasing employee contributions to state retirement plans. Lawmakers’ actions should improve the long-term funding status of the state’s pension system and begin to reverse the serious erosion of funding ratios for state retirement plans. Since 2005, the funding ratios for teachers and for state employee pension plans have slipped from more than 80 percent to 65 percent for the teachers’ plan and 60 percent for the state employees’ plans.
• Budgeting within spending affordability calculations. The House and Senate versions of the budget being reviewed in conference committee would reduce the future projected structural deficit by about 45 percent, which more than meets the recommendations of the legislature’s joint Spending Affordability Committee.
The not-so-good news
Examples of legislative actions that detract from core principles of treating business as a valued partner and job generator rather than an adversary, maintaining stable and predictable tax and regulatory policies, and making strategic investments in business growth.
• Fluctuating tax credit policies. HB 620, which would automatically impose a sunset on most major state tax credits that serve a variety of business incentives purposes, has passed the House and is being considered by the Senate Budget and Taxation Committee. The bill calls for virtually all tax credits to be evaluated and re-established every five years, according to a schedule set out in the bill. Among other things, it would change the rules relating to a key tax credit for research and development, which lawmakers just last session extended to 2020. Now, only one year later, this bill would sunset the tax credit in 2015. It would also serve to put all Maryland tax credits in a constant state of flux.
There are few policies that serve to detract more from a state’s business environment than measures that inject perpetual uncertainty into the availability of key business incentives.
• Attempts to resurrect the millionaire’s tax. Two bills were filed this year that would bring back the 6.25 percent state income tax rate that was previously temporarily imposed on taxpayers with net taxable incomes in excess of $1 million. Neither measure is expected to pass this year. But habitually seeking to enact measures that target entrepreneurs and major investors in business growth does not reflect a policy of maintaining stable, fair and competitive tax structures to promote job creation and economic growth.
• Failure to strengthen transportation funding. Lawmakers are not going to pass proposed legislation that would significantly increase revenue to the state’s depleted Transportation Trust Fund (TTF). Responding to calls for a “firewall” to protect the fund from decades of legislative transfers to the state’s general fund for non-transportation uses, lawmakers added language to the budget that any future transfers from the TTF must be paid back within five years. Then both houses approved the governor’s request for a $100 million transfer from the TTF to the general fund.
Superior transportation infrastructure with reliable funding mechanisms constitutes a core pillar for a competitive business environment that remains unaddressed in Maryland.
These are just a few examples of the good and the not-so-good that has surfaced this year.
There’s evidence in Annapolis that Maryland is beginning to make progress toward building a more competitive business environment. Many lawmakers have embraced the core pillars for job creation developed by CEOs and economic development professionals who are on the front lines of Maryland’s economy.
The challenge, however, is for business leaders and Maryland’s policy makers to work more closely together to accelerate that progress.