Maryland, the new Michigan? – Part 2
In my last post The Economy and U.S.: Insight from Anirban Basu -- Part 1, MacRo’s Kathy Krach asked Mr. Basu to shine a light through the murk of conflicting economic data that makes it difficult to determine whether or not the U.S. is, in fact, experiencing a sustained economic recovery.
One of the greatest unknowns currently exerting downward pressure on our nation’s economy stands to hit Maryland very hard, whether or not Congress will take action to prevent automatic massive spending cuts that begin in January. MacRo Report has already covered Maryland’s heavy dependence on federal jobs. Maryland ranks third in the nation for federal employment, and 24% of all new jobs created in Maryland in 2010 were federal jobs.
In part two of Ms. Krach’s interview, Mr. Basu outlines the actions Maryland leadership should be taking in the face of looming federal spending cuts, and shares how Frederick County has positioned itself to succeed.
Ms. Krach: How vulnerable is Maryland’s job market to the upcoming cuts in the federal budget?
Mr. Basu: When the federal government begins in earnest their austerity program, Maryland, D.C., and Virginia stand to be massively impacted and not in a good way. Maryland could stand to lose 150,000 jobs.
That’s why when you hear that Exxon Mobil is moving 2,100 jobs from Virginia to Houston, it’s so problematic. We need MORE private sector jobs in this area, not less.
My very strong feeling is that Maryland, in particular, has not done what it needs to do to attract private sector jobs. Maryland has serially added additional taxes and raised tax rates. The business climate here has become significantly less attractive than in recent years. This is a point in time when Maryland needs to be doing the opposite. [Note: According recent research by Basu's firm Sage Policy Group, Inc., Maryland ranks 44th in the nation in terms of business tax climate friendliness. Virginia ranks 12th.]
This is very scary because Maryland should be, needs to be, the economic vanguard of America. It is home to so many federally-funded technology, research and medical laboratories [that] it could be a highly innovative business incubator, a force to move the U.S. economy forward. But Maryland has not positioned itself to carry its own weight. States like California, Texas, and Washington cannot continue to be asked to carry everyone else’s weight economically.
Maryland’s largest budget expenses are K-12 education, higher education, transportation, and Medicaid. We don’t WANT to cut investment in any of these things, but that doesn’t mean we SHOULDN’T cut them – and they should be cut with the precision of a surgeon’s scalpel, not bluntly. But because it’s hard to do that, Annapolis hasn’t done it. They continually turn to the taxpayer to solve the problem, but we are now past that point in my opinion. For example, the latest round of tax increases targets taxpayers earning more than$100,000. But $100,000 in Maryland equates to $75,000 in other regions of the U.S., which means Maryland is now effectively taxing the middle class as though they are affluent.
To really solve the nation’s budget issues, Congress will need to use budgeting cuts and revenue enhancements. If that happens, when it happens, Maryland could be the hardest hit state. Maryland’s dominant industry is the federal government. Maryland could be the new Michigan.
Ms. Krach: How will Frederick fare in all of this, especially given that our county leadership has already taken an austerity approach with the budget?
Mr. Basu: In terms of austerity, at the local level, the county commissioner level, we are seeing that the pendulum has swung too radically in the other direction in some cases. What the taxpayer wants is some semblance of fiscal stability. Baltimore County has provided incredible amounts of fiscal stability year over year. It makes doing business more attractive there.
Frederick losing BP Solar was tragic; those were high wage, private sector jobs.
However, Frederick County is still in an enviable position. The county is solidly middle class, with one of the deepest labor markets in the region. And Frederick’s location near I-270 doesn’t hurt.
And Frederick has done an excellent job of creating a livable community with a beautiful focal point. Other Maryland municipalities look to the work Frederick has done in the past 20 years to revitalize and advance the downtown area.
Downtown Frederick gives the county its ambiance and reputation. When you visit Frederick’s downtown, you see that it’s vibrant and amazing, that there are young people and boutiques and excellent restaurants. You don’t see that in Hagerstown, Cumberland, or Salisbury. It is a huge asset, and should be cherished and nurtured!
Mr. Basu’s concerns are not at all unfounded. The Bureau of Labor Statistics has since reported that Maryland posted one of the worst job losses in the country this spring – 13,500 total jobs lost from March through May. The downward slide has already started in advance of the expiration of the Bush tax cuts and the automatic spending cuts, in large part because federal policy makers have yet to make decisions regarding these issues.
In light of the vulnerability of our global and domestic economies, there is no time to waste in creating a business-friendly climate in Maryland. If the idea of sharing the same fate as Detroit doesn’t scare the likely 2016 presidential hopeful Gov. Martin O’Malley into taking meaningful action now – nothing will.
Rocky Mackintosh is the owner of a land and commercial real estate firm based in Frederick. He is also the editor of the MacRo Report Blog.