Northrop loss raises questions of business environment in Maryland

Defense contractor relocating headquarters to Virginia

May 02, 2010|By Andrea K. Walker, The Baltimore Sun

In the end, the money wasn't enough.

Maryland and Montgomery County economic development officials offered Northrop Grumman $22.5 million in incentives to win the headquarters of the defense contractor — one of the most lucrative financial packages ever for a state not known for ponying up big dollars to win business.

But last week, Maryland still lost out to neighboring Virginia, where state officials offered $12 million to $14 million in addition to undisclosed local incentives.

Northrop Grumman Corp. said it made its choice based on the selection of buildings in Virginia, not the states' business climates.

But that was no consolation for politicians and business leaders in Maryland who wooed the company. The decision brought out old frustrations from the business community and renewed long-held criticism that the state isn't friendly to business. It led some to question whether Maryland has deep-seated policy and regulatory issues that even millions of dollars in incentives can't overcome.

Northrop's choice was another in a string of corporate headquarters losses Maryland has suffered over the years, most recently Black and Decker's sale to Connecticut-based Stanley Works, which removes a Fortune 500 corporate headquarters. Sweetheart Cup Co, U.S. Foodservice and Noxell Corp — the former owner of Cover Girl cosmetics — are other corporate HQs that have left the state or been swallowed up by mergers.

"There is no question that if states are going to attract [business] venues, they are going to be aggressive and create a friendly environment," said Norman R. Augustine, retired chairman and chief executive of Lockheed Martin Corp. "Maryland gets a big plus for its corporate governance laws. There are other areas where we don't have any advantage, and we will have to address those."

Augustine led a committee of high-profile business leaders, educators and politicians in going after Northrop. He said the state put together the most aggressive effort that he's ever seen it produce to lure a business. He believes Maryland's package was competitive with Virginia's, but the state simply didn't have as many buildings available.

Maryland has made strides. There was a time when the state wouldn't have aggressively sought businesses — the state's political climate didn't allow it. And the state has amenities that businesses find attractive, corporate location experts said. There is a major airport, good schools, a highly educated population and the nearby federal government and its tens of billions of dollars in annual spending in Maryland.

Business leaders also give Maryland credit for its incorporation laws, which give companies flexibility in appointing directors and allow strong defenses against hostile takeovers.

Yet fundamental issues, such as tax rates, labor costs, cost of living and construction costs still cause some businesses to think twice about calling the state home. After all the incentives, companies want to know what it's going to cost to do business in the long term.

"Companies want it all, they want everything," said John Boyd, a principal with the Boyd Co., a site-selection firm based in New Jersey. "But the reality is, we counsel our clients to focus on the fundamentals — the fundamental cost structure they have to live with for the next 50 years."

Political controversy can also color a state's business climate. Maryland attracted national attention in 2006 when the General Assembly approved a measure that required Wal-Mart Stores Inc. to pay more for its employee health care. Gov. Martin O'Malley's criticism of the pay package of Constellation Energy Group CEO Mayo Shattuck was a deterrent to executives thinking of moving to Maryland, business leaders say.

"Many business people that I have talked to have indicated that even discussions of public policy here in Maryland — even if these bills aren't passed and aren't signed into law — does give the impression that Maryland is not as business-friendly as Virginia or other states," said Kathleen Snyder, CEO of the Maryland Chamber of Commerce. "We have a great location, one of the most highly educated work forces in the country, a great transportation network. But we also have some tax issues and regulatory proposals that stand in our way of being 1, 2 and 3."

Virginia passed a $50 million economic development package this year that included programs to lure businesses to the state and provided incentives to encourage energy research and economic development at universities.

Maryland's budget, meanwhile, included $1.1 million in cuts at the Department of Business and Economic Development.

The state constantly ranks well below Virginia in independent rankings that look at the cost of doing business by state.

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