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Making Maryland business friendly

(Dec. 4, 2014) Everything from taxes and regulatory changes are potentially on the agenda as a new legislature and Republican Gov.-elect Larry Hogan take office in January shortly after the expected release in December of recommendations from a task force convened to study improving the state’s business climate.
Business leaders say they are excited at the prospect of a more business-friendly state under a governor who says he is focused on restoring Maryland as a competitive player when it comes to growing, attracting and retaining businesses.
Matthew Palmer, senior vice president of government relations for the Maryland Chamber of Commerce, said that Hogan and the legislature will have their hands full with the budget and that will likely slow the rate at which the new governor can push his agenda.
“It’s probably going to be more limited than he would like,” Palmer said. “One area he can affect without legislation is creating a more business-friendly attitude within state agencies overall. That can happen day one.”
A task force on state business climate convened by House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller has traveled the state since May. At nearly every hearing, business leaders have cited difficulty in dealing with state agencies, including what they said were onerous regulations and  a hostile attitude on the part of regulators.
Daraius Irani,  chief economist of the Regional Economic and Studies Institute at Towson University, said the state does have a reputation for being unfriendly to business, some of it real and some perceived.
“Maryland is often seen as an over-regulation, high-tax state,” Irani said. “That’s the image Maryland has.”
Irani said political leaders have no control over Maryland’s reputation as a high-cost state but that they can control issues related to taxes, regulations and “the way we treat businesses.”
“There are several layers one has to go through just to set up a business in Maryland and get it off the ground,” Irani said, adding that Hogan’s challenge will be to  figure out “how we make the bureaucracy work better. That’s a cultural sea change.”
Robert E. Buchanan, a Montgomery County resident and principal of Buchanan Partners, told the business climate task force in September that he’s found it easier to do business in Virginia. He said Maryland agencies have too much power to shut down construction based on interpretations of regulations on a work site.
“The attitude is so different,” Buchanan said. “The corporate culture is so different toward business in Maryland from Virginia. In Virginia, I was welcome.”
Palmer said department and agency leaders, who Hogan will appoint, can send the message that state employees in agencies such as the Department of the Environment and State Highways Administration — two agencies most often the source of business leaders’ complaints — are really in customer-service jobs.
“There has to be an attitude change even among midlevel people,” Palmer said. “I’m not saying that the state should go and do whatever a business owner wants. It’s just that they should at least sit down and talk to (business owners).”
Hogan has repeatedly declined to discuss specific policy initiatives until he becomes governor on Jan. 21.
Hogan, who says he is  “focused like a laser” on issues of state economy and the budget, offered few specifics on what he would do to improve the state economy except for advocating for cutting the 8.25 percent tax on corporations to 6 percent — the same rate as in Virginia
“Reducing the corporate income tax to 7 percent would put us in a better position to be competitive,” said Palmer.
The state increased the corporate tax rate during a 2007 special session that was focused on balancing the budget.
Legislators have be hesitant to make such cuts and some have sought to increase the tax burden on corporations through the combined reporting legislation. Under such a tax policy, which has been adopted by a number of states in recent years, a parent company and most subsidiaries are treated as one corporation for state income tax purposes. Their profits across the country are added together — hence the title “combined reporting”—and the state taxes a share of that combined income.
Palmer said a change in the tax rate for small businesses, many of which pay the same rate as paid by individuals, could be more meaningful.
“Over time, it could have a tremendous impact on small businesses,” Palmer said.
Sen. Edward J. Kasemeyer sponsored a bill last year that would have  exempted the first $50,000 of income for small businesses from state taxation.
The governor-elect’s transition team selections appear to re-enforce his own focus on the business climate issue.
Four of the 20 appointments named last week are heads of companies. There is also a clear indication that Hogan intends for Maryland to be more competitive with Virginia, which is often pointed to by state Republicans and some business leaders as a more business-friendly environment.
Among the most recent transition team appointees are Virginia Assistant Secretary of Commerce and Trade Jimmy Rhee, and Sam Malhotra, founder and chief executive officer of Subsystems, a Rosslyn, Virginia-based information and technology services company.
Hogan also appointed Baltimore economist Anirban Basu. The  chairman and chief executive officer of Sage Policy Group has traveled the state in the last few years giving presentations on Maryland’s various economic woes. During those appearances, Basu criticized business leaders who support Democrats, saying it is policies enacted by Democrats that are hurting their businesses.
Basu would also likely  focus on issues affecting rural economies, which have some of the highest rates of unemployment in the state. A year ago, Basu told a gathering of rural county leaders that state smart growth and infrastructure policies have choked off the ability of rural counties to compete for manufacturing jobs. Environmental policies have made it difficult for rural landowners to access natural resources from their lands, such as natural gas from hydraulic fracturing, and made farmers the enemy, the economist said.
“There’s something called self-determination — the ability for people to determine what their communities will look like,” Basu said. “It must be frustrating in rural counties across the state to be told by Montgomery County and Prince George’s County and elsewhere, ‘This is what your county should look like. We’ll make the decision for our counties, but we’ll also make the decision on how you use your land and how you use your natural resources.’”
Basu is a proponent of luring manufacturing jobs to rural areas and opening up western Maryland to hydraulic fracking, something Hogan also favors.
The solution, Basu said at the time, was to elect Republicans who could affect policy at the state level.