Luring Mills from Va. not as big a deal as trumpeted

March 10, 2004|By JAY HANCOCK

IT LOOKED like a famous victory. Maryland hoisted itself from the floor, shook off the stupor and swiped a big corporate headquarters from Virginia for the first time in years, possibly decades.

Mills Corp., which operates the Arundel Mills and Potomac Mills malls and billions of dollars' worth of other retail properties, said late last month that it would switch its address and 325 employees from Arlington, Va., to a super-upscale spot in Chevy Chase.

Nobody at Maryland's Department of Business and Economic Development could remember the last time something like this happened.

Gov. Robert L. Ehrlich Jr. called it "a tremendous win for Maryland and Montgomery County." Montgomery County Executive Douglas M. Duncan said it was "a great day" for both those jurisdictions.

If only it were so.

Snagging Mills Corp. is a win, all right, but go easy on the adjectives. Although it might look tremendous from certain angles, this deal is not the tipping point in the cross-Potomac job war, and it doesn't say much about Maryland's desirability as a landing spot for footloose companies.

Virginia, Mills Corp.'s present home, apparently didn't even compete for the project.

"We were not in the negotiations at all," said Jill Vaughan, spokeswoman for the Virginia Economic Development Partnership, that state's business promotion wing. "We simply did not receive a request from the company that they were needing assistance to remain in Virginia. It sounds like a strategic decision on their part."

In contrast to Maryland's $1.6 million incentive package, Virginia offered Mills no financial inducements at the state or local levels, said Mark F. Minich, a senior director in the Washington office of Cushman & Wakefield, Mills' site-selection consultant.

North of the Potomac, "the state and county bent over backward to be hospitable and to provide some real economic incentive for Mills Corp. to relocate to Montgomery County and the state of Maryland," Minich said. "Virginia was unable to respond in any meaningful fashion."

But the $1.6 million alone, you're thinking, couldn't have been enough to sway Mills to cross the border. Surely, you say, Maryland must have displayed other desirable attributes to have attracted so prestigious a corporation.

You are correct. Maryland boasts several key features that appealed to Mills.

One is a very nice house in Potomac that belongs to Laurence C. Siegel, Mills' chairman and chief executive. Another is another very nice Potomac house that belongs to James F. Dausch, president of Mills' development division. Another is a Potomac house owned by James A. Napoli, president of Mills' operating division.

Several senior Mills executives live in Virginia, says Michael Rodis, the company's senior vice president of human resources, and he adds that CEO Siegel wasn't involved in the search for a new site "until the very last decision stages." Montgomery County also got points for its Metrorail stations, he says.

Even so, moving Mills from Arlington to Chevy Chase will cut Siegel's commuting distance in half, to eight miles, and his commuting time by much more as he avoids gridlock on the American Legion Bridge and the George Washington Parkway. Landing companies whose CEOs already live here is not going to anchor Maryland's economic development strategy.

What about taxes, you say? Mills wouldn't enter the reputed "tax hell" beyond the river if Maryland hadn't reformed and offered important tax advantages over Virginia, right?

Nice try, but Maryland taxes are essentially irrelevant to Mills' headquarters. Maryland's corporate income tax rate of 7 percent is higher than Virginia's 6 percent, but as a real estate investment trust Mills pays no income tax as long as it distributes most profits to shareholders. And Mills is leasing, not buying, its new headquarters, leaving property taxes to be paid by the landlord.

Virginia and Maryland have a long, spotted history of fighting over employers, and Maryland has often lost. Perhaps the most famous battle was over hotelier Marriott International, which stayed in Montgomery County instead of moving to Virginia only because Maryland threw tens of millions in incentives at the company. And probably because boss J.W. Marriott Jr. lived in Maryland.

In terms of business climate, Maryland has been catching up to Virginia. It cut its personal income tax, improved some regulation and elected a Republican governor. Virginia, meanwhile, has become choked with traffic in its northern parts and is raising taxes.

So there are reasons to believe Maryland is a better match for Virginia these days in the competition for jobs. Bill Askinazi, assistant secretary of Maryland's economic development department, says he expects Mills to be the "first of many" employers to defect here from the Old Dominion. But it will take more than the Mills project to make a trend.

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