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Md.’s rankings for business climate all over the place

Maryland is No. 1 — or is it No. 7? On third thought, it might be 41st.

Critics and champions of the Free State’s business climate and tax policy have plenty to argue about most days, and all-over-the-place business climate rankings do little to quell the conflict.

The U.S. Chamber of Commerce earlier this month rated Maryland No. 1 for entrepreneurship and innovation, piling on to an Entrepreneur Magazine ranking calling Maryland the best state in which to start a business.

Another study last week by the Anderson Economic Group said Maryland had the seventh-lowest tax burden for businesses, ahead of No. 11 Virginia but behind another neighbor, No. 1 Delaware.

Those rankings are countered by other closely watched lists, including one by the Tax Foundation that listed Maryland 41st among the states for its business climate, a position earned through the sixth-highest individual income tax rate, the fifth-highest unemployment insurance tax rate and 11th-highest property tax rate.

Chief Executive magazine this month concurred with the Tax Foundation’s findings, naming Maryland the 41st-best state for business.

So what do these rankings — touted by some and glossed over by others, depending on policy perspective and political affiliation — actually mean?

“The reason that these rankings are so widely disparate is they use vastly different criteria to determine what is business friendly and what is not,” said Anirban Basu, chairman and CEO of Sage Policy Group Inc. “I think these rankings overall have become less useful.

“The appeal of rankings is they are supposed to convey a lot of information in a very short amount of time. If Maryland ranks highly in terms of business climate, it’s a good place to do business and I can move on with the rest of my life. There are so many rankings now, they are so different … society cannot necessarily agree on what is good.”

The rankings — released several times throughout the year by partisan and nonpartisan organizations — are doing little to cut through the cacophony of politicians’ news releases and social media sharing.

Rather than shaping public opinion, the rankings’ diverse findings cast doubt on each result.

“These rankings don’t seem to reflect the reality of perception,” Basu said. “People are more likely to respond to their perceptions than any individual ranking. Since the rankings are so all over the place, the impact of these is quite limited in terms of changing perception.”

Harford County Executive David R. Craig, a Republican who is expected to announce his candidacy for governor in the first week of June, said the diversity in rankings shows determining Maryland’s business climate includes too many variables to produce meaningful rankings or to identify narrow policy changes that could improve those rankings.

“It has to be a broad-based approach,” Craig said. Some say that decreasing Maryland’s income tax would have a universal lifting effect among businesses, but Craig cautioned against identifying one policy issue as the solution to increasing competitiveness.

Targeting certain industries, however, is what has allowed Maryland to rise in some rankings. Tax incentives for investments in cybersecurity and biotechnology and a credit for research and development helped the state rise to No. 6 in STEM (science, technology, engineering and math) job growth, according to the U.S. Chamber. Maryland was also ranked No. 1 in academic research and development intensity.

Those factors, combined with others, determined the state’s top ranking for innovation and entrepreneurship, a placement touted by Gov. Martin O’Malley last week as the state’s unemployment rate fell to its lowest level in four years — 6.5 percent — despite the state’s having 6,200 fewer jobs in April than in March.

“We are fueling innovation and investing in the things that create jobs, strengthen our workforce, expand opportunities for middle-class families and give people the tools they need to compete and win in the 21st century economy,” O’Malley said in a statement.

But some caution against such targeting, likening it to diversifying an investment portfolio in case of a crash.

“If you depend on one type of industry and it goes away, you’re dead,” Craig said.

But while the U.S. Chamber of Commerce called Maryland the best state for entrepreneurship and innovation, some objective measurements that were part of that calculation stood out for the wrong reasons. Maryland ranked 18th in business birthrate and grew self-employment at the 21st-fastest rate.

Even within individual rankings, the message is mixed.

“By some measures, Maryland is an entrepreneurial basket case, very weak in commercialization,” Basu said. “Yet by other measures, we are among the leaders in terms of entrepreneurship and innovation. … I think we just have to fall back on objective measures as opposed to relying on these rankings.”