$7 million buys Pa. jobs for Md.

One firm's deal: How Rite Aid got tax breaks and put its plant where it probably would have gone anyway.

October 11, 1999|By Jay Hancock | Jay Hancock,Sun Staff

When managers from Rite Aid Corp. flew into Harford County on a helicopter and pored over maps on the hood of a Ford Crown Victoria, they weren't seeking just flat land and wide roads for their distribution warehouse.

They were looking for money. The drugstore executives wanted Maryland taxpayers to write a big check to help pay for the warehouse.

And they had a game plan to get it.

What happened next shows why many economists and policy experts want the federal government to call a truce in what some call the economic civil war -- the competition in grants, exclusive tax cuts and other business subsidies that has gripped state governments.

By pitting Maryland against Virginia in a politically charged giveaway contest, Rite Aid obtained millions of dollars in grants and tax breaks last year that weren't available to other businesses.

Maryland won the warehouse and its 850 jobs -- but Rite Aid's secret, two-stage auction prompted the state to pay almost double what Virginia was offering, documents, interviews and e-mail records show.

Most of the jobs are coming from Pennsylvania and West Virginia, where Rite Aid is closing warehouses and laying off longtime workers.

Rite Aid's Maryland facility, which recently opened, is getting $7.1 million in Maryland incentives, including a low-tax "Enterprise Zone," created for the company in the Harford County farm field where the plant was built.

For what? For eliminating hundreds of Pennsylvania and West Virginia jobs. And, many interviews show, for putting the new distribution center where it probably would have gone anyway.

Because Maryland is much closer to most of Rite Aid's stores than the Virginia site, "I really felt Rite Aid's interest was in the [Interstate] 95 corridor" in Maryland, said June Wilmot, economic development director for Winchester and Frederick County, Va., and a key participant in the negotiations. "I know one thing about distribution facilities: If you're out of the transportation radius, you're really at a cost disadvantage."

Rite Aid declined several requests for comment. But documents and interviews reveal the inside story of its deal.

It is a deal that is absolutely routine -- repeated hundreds of times a year as states have piled on giveaways and companies have exploited them. But it shows much of what critics find alarming in the economic war: soaring bids, taxpayer-subsidized layoffs and, for the companies, huge subsidies for conducting business as usual.

"Sometimes the incentive is enough to sway a decision; usually it's not," said Don Carrington, a fiscal analyst with the John Locke Foundation in North Carolina and a former economic development official. "I think they're often like gift certificates given to people at the checkout line once they've already made their decision to buy something."

Maryland suffers fiscal needs common to many states: subpar schools, crowded roads in need of repair, police shortages, the homeless. Why would its leaders donate $7 million to a drugstore company that made a $144 million profit last year and needed to be in the state anyway?

'Pillage and plunder'

On Oct. 18, 1996, a nine-page letter from Rite Aid's real estate broker scrolled from Virginia and Maryland fax machines. It got quickly to the point.

"The company is looking for help from state and local government to reduce the substantial site acquisition, construction and work force recruitment and training costs attendant to this project," the letter said. "Please identify the financial incentives available" from taxpayers.

By now, government officials were getting used to these queries.

Like many states, Virginia and Maryland had grown more aggressive in the economic civil war. They had suffered painful losses to states with bigger incentives checkbooks, and now they were building their own reputations for corporate subsidies.

Each had a governor who advertised himself as "pro-business" and who delighted in corporate groundbreaking and ribbon-cutting ceremonies.

Virginia Gov. George F. Allen had bragged the previous May about "transforming the economy." Virginia legislators had tripled the state's industrial giveaway pot a few weeks earlier after an Allen Cabinet member warned that "North Carolina and Maryland will be watching" the vote, hoping "to pillage and plunder Virginia's jobs."

Maryland Gov. Parris N. Glendening wasn't just pro-business; he called himself "unabashedly pro-business."

He had quadrupled Maryland's "Sunny Day" corporate inducement fund after incentives pulled a Starbucks coffee warehouse across the border to Pennsylvania.

In recent months Glendening had provided more than $10 million to Staples Inc., Saks Holdings Inc. and McCormick & Co. All were building distribution centers in Maryland, drawn by wide highways, the port and proximity to big cities.

Both states knew they were in a horse race. Rite Aid, based in Camp Hill, Pa., made sure to tell them there were two "prequalified" finalists.

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