Business advocates looking to polish Maryland’s image

Posted: 6:49 pm Wed, October 27, 2010
By Nicholas Sohr
Daily Record Business Writer

Maryland business leaders don’t expect the next governor to cure the economy overnight, but they do expect him to chip away at the perception of many that the state overburdens the private sector with taxes and regulations.

“The Legislature and the governor have to recognize that we don’t live in a vacuum, that economic development is almost like hand-to-hand combat, and we have to send messages outside the state that Maryland is a welcoming place to do business,” said Donald C. Fry, president and CEO of the Greater Baltimore Committee.

Business advocates point to a string of legislative actions and proposals that have tarnished the state’s image in the eyes of would-be corporate citizens, with “the Wal-Mart bill” chief among them.

The General Assembly passed a law in 2005 that would have required the mega-retailer to pay more for employee health care. Then-Gov. Robert L. Ehrlich Jr. vetoed the measure, but Democratic lawmakers returned the next year to pass it over his objections, only to see the law overturned in court.

“You suddenly find yourself the subject of Wall Street Journal op-ed pieces and editorials decrying your state legislature for this sort of anti-business action,” said Fry, a former Democratic legislator.

Lawmakers have since required companies with state contracts to pay a living wage to their workers, extended the sales tax to computer services, and replaced that measure with a special tax bracket on the state’s highest earners, which is set to expire at the end of the year.

The “tech tax” of 2007, which was repealed before it took effect, prompted Delaware economic development officials to court Maryland’s tech companies with promises of a “predictable and responsive business-friendly government.” Pennsylvania officials talked up their “business-friendly and low-tax” state.

In 2009, the Legislature cracked down on construction and landscaping firms that duck their payroll taxes, and in 2010, it dictated when large retailers and franchises have to give their employees breaks during the work day.

“Certainty related to public policy is an issue here in Maryland, unfortunately,” said Kathleen T. Snyder, president and CEO of the Maryland Chamber of Commerce. “If you take large corporations looking at expanding in the mid-Atlantic area, somebody is going to be looking at the variety of proposals that have been made, like the tech tax of three years ago, and the millionaire’s tax.”

In 2009, the year after the tax was passed, the number of Marylanders filing tax returns of more than $1 million decreased by one-third.

Snyder said the state remains an attractive location for businesses because of its proximity to decision-makers in Washington and growing government and military campuses within its borders.

But, she said, highly mobile businesses will jump ship if they are not assured consistency in the regulations and taxes they are forced to navigate.

“Maryland’s challenge is to remain competitive enough with our surrounding states so that those individuals filling those jobs become Maryland residents, and so that those companies bringing those jobs to Maryland are actually located in private-sector space that will pay taxes here,” Snyder said.

No panacea

But there is no panacea for what ails the economy in Maryland, especially among the small business owners Gov. Martin O’Malley and former Gov. Ehrlich have courted throughout the campaign.

Kimberly Kepnes said the state should beef up its small business programs, and increase its backing of low-interest loans for entrepreneurs. A real estate agent, Kepnes opened a ladies boutique three years ago and a café 18 months later among the eclectic mix of shops and restaurants in old Ellicott City.

Kepnes said sales at La Boutique Mon Amie usually hit the daily targets charted on a note card next to the cash register, but like many of her neighbors, said she looks forward to seeing customers with more confidence to spend.

“We’re sustaining ourselves in this economy, which I think is the new measure of success. Zero balance is where we’re happy to be right now,” she said.

Nearby, Dave Carney, owner of The Wine Bin, and Kelli Myers, of A Journey from Junk, a vintage furniture and gift shop, both said small business owners need a health insurance cooperative. Carney said he is covered through his wife’s employer, and Myers said she and her husband go without, paying only to insure their 10-year-old son.

Both, however, said Maryland’s taxes are reasonable.

“I loved it when we had 5 percent sales tax, but only because it’s so much easier to do 5 percent in your head,” Myers said.

Carney lamented the state’s liquor laws, which require alcohol to flow through wholesalers and distributors to retailers, but said in the end, whoever wins the election, there are larger factors at play for his business.

“The governor only has so much control,” he said. “There are so many other spokes to the wheel.”

Frequent topic

Just how hot or cool the state’s business climate is has been a frequent topic of debate in the gubernatorial race.

Ehrlich frequently cites the need for the state to become more business friendly in his pitch to the private sector, calling regulators “hostile” and criticizing the Democratic administration and its legislative allies for raising taxes.

O’Malley, however, rarely misses a chance to tout the 36,400 net new jobs added to payrolls in Maryland in 2010 — the most in a decade — as evidence of the state’s ability to attract business and grow jobs under his watch.

And depending on whom you ask and what you measure, both men are right.

In 2008, the Kaufmann Foundation ranked Maryland as the No. 3 state in leading the country into a global, entrepreneurial and knowledge-based economy. But this year, the Tax Foundation found Maryland had a tax climate that was worse than all but five states.

Ehrlich made a campaign stop in Southwest Baltimore on Oct. 13 at Maryland Thermoform Corp., which manufactures components for military drones overseas, packaging and other plastic products.

CEO Scott Macdonald lamented more stringent environmental and work force regulations and taxes levied on corporations by both the city and state.

“We’ve lost some jobs to China like everyone else, but we’re also losing jobs to other states,” he said. “Manufacturing used to create the middle class. It doesn’t anymore.”

More responsive

Business advocates said state regulators also need to be more responsive to businesses in everything from issuing permits promptly to returning phone calls consistently.

“There are many bureaucrats in those departments who don’t give timely responses to businesses, and time is money in business,” Snyder said.

Ehrlich, citing information gleaned from roundtables he has held with business owners across the state, has repeatedly criticized the state for favoring employees when unemployment claims are contested.

“Certain interest groups have a lot of influence on those agencies, and that has upset the balance of power, if you will,” Ehrlich said in a recent interview with The Daily Record.

Labor officials dispute the bias claim. In the fiscal year that ended June 30, employers won 5,685, or 42 percent, of the 13,479 unemployment challenges they filed. So far this year, employers have won about 46 percent of the time. Appeals filed by employees and employers had a similar success rate during Ehrlich’s term, but the number filed has increased more than three-fold in the last four years as unemployment claims climbed during the recession.

Troubleshooting

Ehrlich has vowed to roll back O’Malley’s 1-cent sales tax increase and overhaul regulatory agencies if voted into a second term. He says he will use his economic development team to troubleshoot regulatory hurdles to keep projects moving.

O’Malley’s administration has admitted there is room for improvement there. The governor has asked the Department of Business and Economic Development to find ways to streamline permitting processes across state government. The first step will allow companies to monitor the status of their highway access permit applications online.

“The tone about government — seeing business as a partner rather than an adversary — has to start at the top,” Fry said. “And it has to be a message that’s sent up and down the executive branch and extending into the legislative branches of government.”