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Martin O’Malley: Parrying GOP’s ‘old saw’

In the waning days of a campaign dominated by economic issues, Gov. Martin O’Malley said he would reduce regulatory red tape and remain focused on the high-tech sectors he believes are primed for strong growth as Maryland emerges from the recession.

He called criticism that his administration over-taxes and unfairly regulates businesses “an old saw,” parrying a common refrain from his opponent, former governor Robert L. Ehrlich Jr.

And as he has throughout the campaign, O’Malley said the best argument to the contrary is the 36,400 jobs added to payrolls in the state in 2010.

“Over the last year we’ve held on to our private job base better than all but four other states in the country, and this year we’re having a better year of net new job creation so far,” O’Malley said, pausing to rap his knuckles on the wooden tabletop during an interview with The Daily Record this week at Miss Shirley’s Café in Roland Park, “more than we’ve had in any year since 2000.”

Watch the video from The Daily Record’s interview with O’Malley

If re-elected, O’Malley would return to Annapolis to face a task that has dogged him throughout his first term in office — pruning the state’s $32 billion budget to match slumping revenues.

The state faces projected annual deficits of more than $1 billion in the coming years, and O’Malley, a Democrat, said his administration would take a tack similar to that of the past fours years.

“It’s going to be a constant diet of cuts until our economy’s growth brings our revenues up to the new normal of sustainability,” said O’Malley, 47.

The state has topped its previous two revenue estimates — numbers set low as the recession ate away at the state’s tax base — and O’Malley said those positive signs, which he attributed to the recent job growth, give him hope the economy is emerging from the downturn.

“It’ll be a chore and it’ll be a challenge,” he said. “But our gap has been about $1 billion for the past three years.”

Ehrlich, a Republican, has vowed to not increase taxes and fees in the coming year and to reduce the sales tax by a penny. While O’Malley has not taken such a firm stance, he has said he will try to avoid increasing the burden on Maryland citizens.

The governor said the state could reprise an accounting staple of the first O’Malley term, dipping into dedicated funds for varied needs, including public universities to transportation, “where that’s possible.”

O’Malley’s cost-cutting in his first term led to the elimination of 4,200 state positions, most of them vacant, including many at agencies most frequently criticized by his opponent — the Department of the Environment and the Department of Labor, Licensing and Regulation.

But, he said, the perception that these agencies are ineffective or unfair in policing their regulatory spheres is just that — perception.

‘An echo chamber’

“I do believe it is an echo chamber,” O’Malley said. “I believe that expectations become behavior. I think, sadly, [Ehrlich has] chosen to invest a lot of time in running down Maryland’s business climate.”

Ehrlich and other O’Malley opponents frequently cite a host of studies critical of the state’s business climate.

An Ernst & Young report released this month showed Maryland levies a heavier tax burden on professional and financial services companies, firms that business advocates say are highly mobile and can easily pack their bags for cheaper states. The Tax Foundation ranks the state in the bottom 10 percent of the country in terms of its tax structure for business.

O’Malley countered those with yet another set of studies, including a Kaufmann Foundation report that found Maryland the third-best state for entrepreneurs, and another Ernst & Young study that showed businesses get a better return on their taxes in Maryland than in all but one other state.

“The mix of factors that create a favorable business environment, especially for the new economy, is a little more complicated than what is your tax rate on your highest earners,” O’Malley said. “We must have a competitive tax rate … but it’s also about your quality of life, the quality of your schools, which contributes directly to the quality of your work force.”

To polish the state’s business reputation, O’Malley said, “the first thing we do is defeat the leading mouthpiece that’s always running Maryland down as a bad place to do business.”

O’Malley did, however acknowledge there is some truth in the criticism.

“I think that developers have an easier time in Virginia than they do in Maryland because we put a higher premium on environmental protection than our neighbors in Virginia do,” he said.

Room for improvement

O’Malley said there is room for improvement in the “openness, transparency and predictability” of regulations that business owners navigate to open, expand and build in the state.

“I’ve been disappointed at times with the lack of timeliness,” he said. “I know every agency has absorbed staff reductions, but the lack of timeliness and lack of clarity on some of these environmental calls … I think people would rather know upfront why they won’t be allowed to do something than after they’ve spent $100,000 hiring lawyers and architects and engineers.”

His administration is in the early stages of updating and streamlining permitting processes across the state.

The Department of Business and Economic Development and the Department of Transportation are working on a project to allow developers to track the progress of their highway access permits online with the hopes that the increased transparency will speed the process. Eventually, developers may be able to submit documents and data digitally, eliminating the stacks of paper associated with each application.

“We are going through a process that will, I believe, greatly improve the permitting process,” O’Malley said.

For Maryland to grow and be properly positioned to take advantage of the economic recovery, O’Malley said, his economic development agenda in his second term will look a lot like his first term, with a focus on high-tech sectors with the greatest potential to expand in Maryland.

“We sit in the center of this innovation corridor of science, discovery, healing, learning, technology, increasingly aerospace,” he said. “Those are the strong horses of Maryland’s economy. Every job is important. Every small business is important, but in every business plan you take stock of your competitive advantages.”

In 2008, O’Malley kicked off his biotechnology plan to generate investment of $1.3 billion into that field by 2020 and nurture the biotech clusters in Montgomery County and Baltimore city.

Focus shift to cyber

Focus then shifted to cyber security. As the congressional delegation and O’Malley lobbied successfully for the U.S. Department of Defense to consolidate its cyber security resources at Fort George G. Meade in Anne Arundel County, DBED developed a plan to foster growth among the information technology companies in the state and lure others.

“Cyber is going to do for technology in Maryland what NIH and Hopkins have already done for life sciences and biotech,” O’Malley said, referring to the National Institutes of Health headquarters in Bethesda and Johns Hopkins University.

The next industry in his crosshairs is aerospace. O’Malley said Maryland’s strong tech sector — it led the nation in growth in 2009 — and proximity to NASA’s Wallops Flight Facility on Virginia’s Eastern Shore give the state a leg up in becoming a leader in aerospace.

“It’s much less of a one-size-fits-all. It’s much more of tailored plans for each of those strong sectors,” O’Malley said. “It’s to take what we already have in terms of our competitive advantages in this change to an innovation economy, and amp ’em up, and make us the undisputed leaders when it comes to technology, security, healing, learning and aerospace.”

O’Malley has already announced what would likely be a cornerstone of his economic development agenda in 2011. He plans to introduce legislation that would allow insurance companies to pay ahead on their premium taxes at a discount of up to 30 percent to raise $100 million for a venture capital fund focused on high-tech start-ups in the state.

The governor’s plan would split the money evenly between a state-controlled pool and private venture capitalists. Private firms would have to return 100 percent of the principal to the state before reaping any profits from their investments.

“Just as credit is tight on Main Street, so is venture capital. And in a state like ours, where we have such potential for start-ups, clean-tech, green-tech, biotech, that venture fund can be very helpful,” O’Malley said.

He said the state must also protect other priorities if it is to grow, including public education and transportation, which he called the “backbone of all commerce.”

Transit differences

One of the most substantive differences between O’Malley and Ehrlich during the campaign has been their plans for the Red Line and Purple Line transit systems planned for Baltimore and suburban Washington.

O’Malley prefers light rail options for both systems — with their combined $3.5 billion price — and Ehrlich supports bus lines, which could decrease initial costs by as much as two-thirds. But O’Malley and many in the business community argue that trains offer more capacity and better opportunities for development around stations.

“The rebuilding of our cities … the neighborhoods inside the beltway, is really the key to our ability to grow in smarter, cleaner, greener, more sustainable ways,” O’Malley said. “And that’s not going to be possible unless we have better mass transit options to go along with the higher density that we need to have in our cities.”

O’Malley included $90 million for the lines in his most recent long-term transportation plan, but the funding beyond that is far less certain.

“It’ll be done in part by the federal government, which is the biggest part yet undetermined,” O’Malley said.

“We’re competing for both,” he said. “We hope we’re fortunate to have the problem of getting the green light on both of them from the federal government, but there’s a lot of variables that still need to be determined.”

O’Malley said he expects tax increment financing districts, where increased property tax revenues would be diverted to the rail lines, to be implemented around the Red Line stops in Baltimore, and public-private partnerships to be used in both systems.

O’Malley entered into such a partnership at the Port of Baltimore in January, leasing the Seagirt Marine Terminal to Ports America Chesapeake for 50 years. Ports America has committed to building a new berth at the terminal to accommodate larger ships from Asia, and state officials value the deal at more than $1 billion.

The deal will keep Maryland’s port a competitive stop along global trade routes, O’Malley said, and create 5,700 construction and permanent jobs.

Said O’Malley: “I believe these next two decades can be Maryland’s decades of opportunity and prosperity, decades when we firmly establish our leadership in this change to a new economy, if we make the right decisions, protect the right priorities.”