Maryland to Business: Stay Out if you Know What’s Good for You

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Hola, amigos. Been a while since I’ve blogged at ya, but things have been pretty crazy here in Bobville over the last three months. To make a long story short, Baby Bob turning one and all of the side effects as he transforms into Little Bob have kept Sister Babe and me on our toes. It looks like I can finally come up for air, and figured I’d slip in a short post while I get my blogger legs back.

Up in the place I called home for a few years and neighboring state of Maryland there was a problem with the producers of the Netflix online series “House of Cards” threatening to leave the state over the amount of tax credits they receive for filming there. As the Washington Post reported:

Members of the Maryland House of Delegates are still stewing over a threat from the “House of Cards” producers to leave the state if they don’t get millions more dollars in tax credits.


So delegates have issued a threat of their own: Sure, go ahead, leave this beautiful place that’s brimming with dedicated workers. But if you do that, state officials might use eminent domain to purchase, condemn or somehow seize your sets, equipment and other property.

Stories like this always leave me shaking my head. I have no idea if the producers of HOC are being unreasonable in what they are asking from Maryland or if MD politicians have been making it more trouble than it’s worth to film there. Given the action that’s been proposed I’m guessing more of the latter. Most people outside of the beltway, state houses, and academia understand that tax revenue from the private sector is needed to fund their efforts. That said, nobody wants to see a company cost a community more in the resources it needs than what it contributes in tax revenue and the multiplier effect of creating jobs. I don’t know where that line gets drawn, but an example of a smart way to attract business with tax incentives that are fair to both sides comes from none other than… the Washington, DC city government. Stop laughing – I’m not kidding! Here is the arrangement they had with the online coupon retailer Living Social:

Douglas Development announced plans in early 2012 to build a big mixed-use development at the corner of New York Avenue and 7th Street NW with 380,000 feet of trophy office space. The company didn’t have a tenant lined up, but the logos in the renderings looked an awful lot like LivingSocial’s, and just about everyone assumed the company would be expanding into the space in a big way. Eight months and many layoffs later, Douglas said LivingSocial was “off the table.”

It would be tempting to look at the company’s disappointments and say that the city’s tax breaks were an obvious failure. In fact, LivingSocial’s mounting struggles prove the opposite: City officials crafted the tax incentives very shrewdly.

Here’s how the incentives package came about: LivingSocial was one of the city’s largest private employers, and it was planning to expand. Not only did it bring the city residents and tax revenue, but it also served as the anchor of a growing tech sector that Mayor Vince Gray made into a centerpiece of his economic development strategy. But as the company scaled up, D.C.’s high costs and business taxes caused it to look to other potential locations. It hired the real estate firm Jones Lang LaSalle to explore its options, and the search yielded at least one generous tax-break offer, from Nashville.
But a year and a half later, the grand total that D.C. has given to LivingSocial through tax breaks in this deal is…not a cent. And that’s what it’s likely to remain.

Under the terms of the package, no tax breaks kick in until October 2015. But even then, the company doesn’t get anything unless it has at least 1,000 employees in D.C. and opens a new headquarters of at least 200,000 square feet. Both of those targets now appear to be longshots. (If the company somehow does meet them, it still won’t receive the full $32.5 million unless it hits even more ambitious targets, since the incentives work on a sliding scale based on the number of people hired and whether they live in the District.)

Ignoring the expense and regulatory hurdles that go with doing business in the district, at least here they specifically tied any goodies for LS to it providing the jobs and tax revenue that were promised. Since LS did not, both sides can walk away – granted both are unsatisfied but neither should feel cheated, either.

Back to the WaPo article, I wanted to note an aside that they mentioned in the article regarding eminent domain. It’s a widely ignored piece of the story of how the Baltimore Colts moved to Indianapolis in the middle of the night in 1984:

Back in 1984, the Maryland Senate passed legislation that would have given state officials permission to use eminent domain as a way to try to keep the Baltimore Colts football team from relocating to Indianapolis. The Colts then packed up in the middle of the night and left. The Colts’ lawyer at the time, Michael Chernoff, told Sports Illustrated in 1986 that the legislation forced the team’s owner to quickly make a decision: “They not only threw down the gauntlet, but they put a gun to his head and cocked it and asked, ‘Want to see if it’s loaded?’ ”

Even as big a football fan as I am, I do have an issue with teams demanding gobs of money for stadiums that don’t pull in anywhere near the revenue that gets promised. While I don’t approve of what the Colts did in terms of moving, I wish more writers who covered the middle of the night element included the eminent domain threat part of the story.

Back on topic, I’d love to see HOC pull out of MD and let other companies take note that you conduct business in Maryland at your own risk. I’d love even more to see Maryland start paying a price for this kind of short sighted policy, but that won’t happen any time soon. Having a good chunk of your state within commuting distance of the place where most of this country’s one percenters live, you won’t starve for tax revenue. But it will hurt your state’s long term growth prospects when you send a message that you are openly hostile to business. As the people of Venezuela are painfully discovering, you only get to loot the store once.

As an end note, the state of Maryland finally approved the tax break for HOC. Their local economy has won the day, but a warning shot has been fired to anyone else who wants to do business in their state.

Cross posted from Brother Bobs Blog

Blogging by the credo of "Making the world a more offensive place, one blog post at a time", Brother Bob started writing posts around the beginning of the Obama presidency over at Brother Bob's Blog. A born-again Existentialist and self-professed libertarian with conservative tendencies, he has ironically chosen to live in the Washington, DC area - deep behind enemy lines. He has always loved history, and spent eight years volunteering as a tour guide on weekends, giving over 200 tours to roughly 2,500 mostly foreign guests. His tours were highlighted by stories generally not found in the history books or most other tours, such as the importance of the Battle if Antietam, the origins or Arlington Cemetery, and dispelling the myths of FDR's New Deal. Although his favorite subject to blog about is Economics, as seen in his Economics for Politicians series, his posts try to address angles that other conservative writers and the mainstream media (naturally!) miss. "There's no point in putting up a post on a subject that someone smarter than me has already written". He believes in the "Happy Warrior" approach, and tries to inject humor in his posts, sometimes successfully. Two such examples are his posts comparing the modern left to the horrible Star Wars prequels, and analyzing the laments of a DC woman in search of a feminist boyfriend. Brother Bob lives with his very patient wife known as Sister Babe, and their fantastic son. Little Bob. Little Bob is also the reason that being a tour guide came to an end, as spending Saturdays raising a son takes priority over giving lectures to foreign visitors on the folly of Keynesian economics. BB is also grateful for the opportunity to take his place among the outstanding writers at Flopping Aces, appreciates every person who takes the time to read his posts, and especially those who join him in the conversation in the comments.

4 Responses to “Maryland to Business: Stay Out if you Know What’s Good for You”

  1. 1

    Nanny G

    Sounds like Sebelius’ latest threat.
    On her way out the door at HHS she is threatening to cut off all funding from any state that doesn’t sign up huge numbers of new Medicaid dependents.
    Like that would work.
    Why do these people think thuggery is a good tactic?
    Even threatening thuggery only works if the ”victim” has never been threatened before (and beaten the creep up).
    That’s why Hollywood types knew Maryland was just faking.

  2. 2

    Mully

    There is an effort in the western part of Maryland to split off from the rest of the state. Western Marylanders feel they have no representation in Annapolis. One half blue and one half red state. I doubt much will come of it but the fight has just begun.

  3. 3

    James Raider

    @Nanny G: #1,

    Why do these people think thuggery is a good tactic?

    That attitude and mindset comes from the top — in this case, Jarrett, Holder and O. (though I doubt much of anything really comes from O.)

    It’s a trickle down methodology of instilling socialism, and crony capitalism, (thousands of corporate leaders fear these assholes) that now has permeated the whole bureaucracy of the federal government which was already soaked in self-righteousness. Now, as you say, the whole system is diseased with “thugs.”

    A new President cannot fix this.

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