Sunny-day pol­i­tics

Our view: Leg­isla­tive Democrats should at least hold a hear­ing on in­cen­tives Gov­er­nor Ho­gan wants to help keep Northrop Grum­man in Mary­land.

Baltimore Sun - - WORLD -

Gov. Larry Ho­gan claims the leg­is­la­ture is man­u­fac­tur­ing a nonex­is­tent link be­tween its choice of whether to ap­prove $20 mil­lion in eco­nomic devel­op­ment loans to aerospace gi­ant Northrop Grum­manand the gov­er­nor’s de­ci­sion not to spend about $100 mil­lion leg­is­la­tors had set aside for K-12 ed­u­ca­tion and other pri­or­i­ties. But while there surely is some po­lit­i­cal tit-for-tat go­ing be­tween Demo­cratic law­mak­ers and the Repub­li­can gov­er­nor, there are some sub­stan­tive ques­tions, too. Mr. Ho­gan said he made his choice out of fis­cal pru­dence at a time when state tax rev­enues are com­ing in lower than ex­pected. Why should it be ir­re­spon­si­ble for the leg­is­la­ture to make the same cal­cu­la­tion? More to the point, as Sen. Richard Madaleno of Mont­gomery County put it, if the state can’t af­ford a $25 mil­lion ap­pro­pri­a­tions for its schools, how can it af­ford to $20 mil­lion for a huge and prof­itable cor­po­ra­tion?

In the big pic­ture of a $42 bil­lion state bud­get, choices aren’t re­ally that stark. Leg­is­la­tors and the gov­er­nor an­nu­ally bal­ance com­pet­ing pri­or­i­ties to fund ev­ery­thing from pris­ons to state parks; it is merely a quirk of how this year’s spend­ing plan played out that these are two of the only re­main­ing choices left to make. But the ques­tion is more com­pli­cated than whether we value cor­po­ra­tions or school­child­ren more highly.

Mr. Ho­gan’s bud­get placed $20 mil­lion in the state’s so-called Sunny-Day Fund, which is de­signed to pro­vide grants, loans or in­vest­ments to in­duce em­ploy­ers to make cap­i­tal in­vest­ments in the state and at­tract or re­tain work­ers. Mr. Ho­gan and Northrop ne­go­ti­ated the deal — which also in­cludes a sep­a­rate, $37.5 mil­lion in­come tax credit the leg­is­la­ture ap­proved this year — to en­sure that the com­pany’s con­sol­i­dated Mis­sion Sys­tems Di­vi­sion re­mains in Linthicum. Northrop promised to re­tain an av­er­age of 10,000 jobs there and to in­vest $100 mil­lion to buy its cur­rently rented Linthicum fa­cil­i­ties and to up­grade them. The in­come tax credit was con­tro­ver­sial, but the loan prompted lit­tle dis­cus­sion. Northrop com­pleted the pur­chase of the build­ing in April af­ter the leg­is­la­ture ap­proved the bud­get, in­clud­ing the loan funds.

The Sunny-Day Fund has been ex­is­tence for decades but has seen rel­a­tively lit­tle use of late. It has been seeded over the years with mon­eyfromthes­tate’s gen­eral fund, but not since 2002, andin re­cent years, law­mak­ers di­verted funds paid back into it from loan re­pay­ments or claw­backs of in­cen­tives to sup­port other pri­or­i­ties, in­clud­ing film tax cred­its. Con­se­quently, Gov­er­nor Ho­gan had to take the $20 mil­lion out of gen­eral funds in or­der to pay for the Northrop Grum­man loan. Thus, the money comes out of the same pot that could other­wise be used on schools, so to that ex­tent, the Democrats’ link­age of the is­sues is valid.

But in the world of ap­ples-and-or­anges com­par­isons that state bud­get­ing re­quires, there’s a lot to con­sider. For one, the funds for schools Gov­er­nor Ho­gan has de­clined to spend — in­clud­ing $6.1 mil­lion to up­grade ag­ing fa­cil­i­ties and $19 mil­lion to help de­fray lo­cal gov­ern­ment con­tri­bu­tions to teacher pen­sions — were part of an $80 mil­lion col­lec­tion of line items leg­is­la­tors lumped to­gether in such a way that Mr. Ho­gan had to fund all of them or none. The gov­er­nor could not, at this point, shift the $20 mil­lion meant for Northrop over to the pub­lic schools — at least not with­out spend­ing an­other $60 mil­lion, mostly on other things. Gov. Larry Ho­gan and leg­isla­tive lead­ers are clash­ing over $20 mil­lion in loans promised to Northrop Grum­man.

And the value of keep­ing such a large pres­ence in Mary­land for Northrop — a cor­po­ra­tion that surely would be wooed by any num­berof states — is not some­thing to be taken lightly. De­part­ment of Leg­isla­tive Ser­vices an­a­lysts, who rec­om­mended ap­proval of the deal, es­ti­mated that the com­pany’s pres­ence in Mary­land pro­vides more than $49 mil­lion in di­rect an­nual tax rev­enues for the state and more than $20 mil­lion for Anne Arun­del County. The loan would be dis­bursed over four years, sub­ject to the com­pany’s abil­ity to meet cer­tain bench­marks for in­vest­ment and job re­ten­tion, and the money is sub­ject to claw­back pro­vi­sions if the com­pany fails to meet its prom­ises.

On the other hand, Northrop has been the ben­e­fi­ciary of a wide va­ri­ety of in­cen­tives from state and lo­cal gov­ern­ments in Mary­land dat­ing back two decades. Some­times it has lived up to the terms of its deals, some­times it hasn’t, and some­times it has per­suaded the state to change the re­quire­ments in its fa­vor. Leg­is­la­tors have ev­ery rea­son to ques­tion the Ho­gan ad­min­is­tra­tion and cor­po­rate of­fi­cials about that track record.

And then there are the in­tan­gi­bles. Is there a real risk that Northrop would move its op­er­a­tions else­where if the Leg­isla­tive Pol­icy Com­mit­tee re­jected the deal? ANorthrop spokesman said at the time the bud­get was­ap­proved that “we­don’t have plans to leave the state.” What would it say about the state’s at­trac­tive­ness to pri­vate-sec­tor in­vest­ment if it promised in­cen­tives only to back out af­ter a com­pany fol­lowed through onits pur­chase of prop­erty here? Would ap­prov­ing the deal open the door for the state’s other big cor­po­ra­tions — Mar­riott, for ex­am­ple — to de­mand the same treat­ment Northrop is get­ting? What about the sub­tler ben­e­fits of Northrop’s pres­ence — for ex­am­ple, its ex­ten­sive part­ner­ships with the Univer­sity of Mary­land, Bal­ti­more County on schol­ar­ships, in­tern­ships, busi­ness in­cu­ba­tors and more?

Those are the sorts of ques­tions that would best be an­swered in a hear­ing of the Leg­isla­tive Pol­icy Com­mit­tee. Leg­is­la­tors can re­ject the deal or de­lay a vote if they want to, but they ought to at least hear all sides and get the facts. If it’s im­por­tant to the gov­er­nor, he can come to tes­tify.


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