Terms of Bechtel’s subsidy are rare

The $9.5 million subsidy for Bechtel Corp. approved by Maryland last month is the largest such economic development incentive the state has dealt in more than 15 years.

The deal was also a rarity in that it will simply pay Bechtel to keep two-thirds of its employees in place. Most other subsidies from the state’s Sunny Day Fund require recipients to invest in hiring more workers or building a bigger headquarters or manufacturing plant.

“There’s a lot of retention activity right now because there’s not a lot of expansion activity,” said Jim Henry, director of the Office of Finance Programs at the Department of Business and Economic Development. “You’re constantly facing the specter of people looking to take their jobs across state lines.”

Bechtel announced Monday it will move the balance of its Frederick County workforce, some 625 employees, to Fairfax, Va. The company will invest $18 million in the move and receive $6.5 million in grants from Virginia, according to Gov. Bob McDonnell.

Henry said the waiver of capital investment requirements for Bechtel is “not unusual” in the history of the fund. Indeed, the fund used to subsidize worker training for companies and, in the last eight years, granted $6.7 million to four public institutions to buy equipment for high-tech labs.

But, of the 30 other most-recent deals, at least 27 have involved expanded operations or construction of new buildings, according to DBED records.

Morgan Stanley & Co. has received two subsidies worth a total of $7.5 million to move to and expand in Baltimore and MedImmune Inc. got the same amount to expand its manufacturing facility in Frederick County.

Former DBED Secretary David S. Iannucci called the fund the department’s “show horse”

“There was a real sense of Virginia being aggressive to retain companies, attract companies,” he said. “The Sunny Day Fund allowed Maryland to be competitive.”

State officials used it in 1996 to give Northrop Grumman Corp. $11.5 million in grants and forgivable loans to keep its Electronic Sensors and Systems Division in Maryland.

Gov. Martin O’Malley’s administration proposed another subsidy package in 2010, including $13 million, to land Northrop’s headquarters. But, the defense giant picked Virginia instead.

The Sunny Day Fund kept Marriott International Inc. in Bethesda. The $14.2 million package, which was agreed to in 1999, would have been the fund’s largest ever, but it was reduced to $9 million after the terrorist attacks on Sept. 11 cut into Marriott’s business.

“We all know that Maryland has an outstanding workforce, and we have a lot going for us being located next to the nation’s capital, with the federal facilities and educational facilities we have here,” Iannucci said. “But the fact is that incentive funds are tie breakers and tie makers. These businessmen and businesswomen are making decisions based on a bottom line.”

Iannucci is now an economic development official in Prince George’s County. The County Council last week approved $50 million over five years to seed the county’s version of an economic development fund.

The state’s Sunny Day Fund has been less active in the last decade.

Maryland has inked just 16 deals using $51.2 million in Sunny Day money since 2001, according to state records. In the decade prior, the fund pumped $178.5 million to 115 deals.

The fund hasn’t received a budgetary appropriation in eight years.

Not all of the deals have been successful. At least 33 subsidies were withdrawn when recipients decided not to take them. Other deals were modified to lessen subsidy amounts as businesses struggled to create enough jobs to meet the state’s requirements.

Maryland will pay $9.5 million over seven years to keep 1,250 Bechtel workers in Frederick County. The deal has clawback provisions in place should the workforce dip below that level.

Asked how big of a role the subsidy played in the decision, Bechtel spokeswoman Michelle Michael said “there were a number of factors that were considered.

“I don’t know that one outweighed another,” she said.

Retention efforts have burned some states, said Thomas Cafcas, a researcher with Good Jobs First, a Washington, D.C., organization that promotes accountable economic development practices.

Large companies such as Sears, Caterpillar CME Group Inc. and CBOE Holdings Inc. have chafed recently under tax increases in Illinois and have threatened to leave that state.

It’s at least the second time for Sears, which received a $178 million retention subsidy 22 years ago. And now Illinois is considering a $100 million tax break for CME and CBOE, which run the city’s mercantile exchanges.

“There are states that do that. A lot of states have seen some mixed results, some even outright bad results,” Cafcas said. “It sets a precedent that could be bad. It’s a dangerous road to go down. You can’t do a deal like this for every company in the state.”

That sentiment was shared by top lawmakers who voted on the Bechtel subsidy last month.

“The concern is that we’ll have corporate thieves lining up to raid the Sunny Day Fund,” said Sen. Thomas M. “Mac” Middleton, D-Charles.

House Minority Leader Anthony J. O’Donnell, R-Calvert and St. Mary’s, lamented that the state was essentially paying for Bechtel to move some of its jobs out of state.

“We’re losing 625 jobs in this deal and we’re giving this company $9.5 million,” he said.