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The Tentacle


January 14, 2010

Northrup Grumman Takes a Hike

Chris Cavey

Tuesday, while listing through the drone of testimony and fighting to stay awake at a Joint Republican Caucus Briefing, I was suddenly aware of a collision between the world of business and the bureaucratic world of government.

 

My epiphany did not come from the lobbyists or economic experts during their testimony concerning Maryland’s poor economic climate. Nor was this fact pontificated by any of the legislators who asked seemingly intelligent questions. It was a tidbit brought up in conversation by someone seated next to me.

 

Northrup Grumman is relocating east from Los Angeles to the Washington area to be closer to its largest customer – the U.S. government. Maryland and Virginia are in play for possible locations for the new corporate headquarters.

 

I thought about the ramifications of such a move. New jobs, a boost to economic development, increased tax base, real estate sales, income, and more jobs. This could be a better, more solid long term economic solution for Maryland than placing bets on yet-to-be-seen slots revenue.

 

Too bad we aren’t competitive with Virginia.

 

Oh yeah, the press might report Maryland and Virginia will be in competition for the relocation and, theoretically, the executives and press relations at Northrup Grumman might even say the same. But realistically Virginia cleans Maryland’s clock in economic development.

 

Virginia is less burdensome from a regulatory environment; it is a right to work state and it is just plain more business friendly. Maryland, in the past three years, dropped from 25th to 45th in business rankings under Gov. Martin O’Malley and his Democrat dominated legislature. You can bet the board of directors at Northrup is aware of this fact, too.

 

They are also aware of the marginal tax rates on executives. Reality is that these well-paid people will decide where their corporation plunks down its cash for the new headquarters based on some personal factors, too. Maryland’s “Millionaires Tax” takes us out of the game.

 

You see, in Maryland we went from a flat rate tax prior to 2007 to over a five percent increase with the 2007 Special Session called by Governor O’Malley to fill in the revenue hole he created. Less than a year later the “Millionaire Tax” increase shot to well over six percent.

 

Even if all other factors were equal, which they are not, no self-respecting board member will choose relocation to a state with a higher personal tax rate. They have no incentive thanks to short sightedness of Maryland’s current governor and his economically clueless Democrat controlled legislature.

 

Such a lack of business understanding will cause Maryland to lag behind in economic recovery from our current recession. The states that have figured out that a business friendly environment is one of the keys to economic recovery will be ahead of us and way ahead of the curve.

 

States, which are open for business and understand private sector jobs are the key, will be the states that end up with greater government services and lower overall tax burdens.

 

In our state too often small businesses are arm-twisted to donate and vote for those who are anti-business with the hope of a seat at the table or – at least – able to gather the fallen crumbs from the tabletop. They fear repercussion. They can’t relocate, in most cases, to a more favorable business climate.

 

The board of Northrup Grumman plays in a different game. They will react to stupid business decisions made by politicians who are economy-challenged. Theoretically Maryland might compete, but my bet is this: the new Republican governor in the “Old Dominion State” will soon close the deal.

 



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