Budget woes hit state economic development agency hard

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By Tom LoBianco

Gov. Martin O’Malley’s election-year mantra is “jobs, jobs, jobs,” but budget troubles have whittled away at the agency tasked with drawing business to Maryland, and other priorities – education in particular – have trumped business development initiatives.

O’Malley’s latest spending plan, introduced Wednesday, strips about $6 million from the Department of Business and Economic Development’s current year budget – a pittance when compared to the entire $13.2 billion operating budget but sizable for an agency with a budget that has hovered around $100 million over the last few years.

The cuts come as Maryland is attempting to lure Northrop Grumman’s corporate headquarters, and thousands of military contracting jobs, away from Virginia or the District of Columbia.

Tie in with that Black and Decker’s announcement it will be closing its Towson headquarters and a gubernatorial election in less than 10 months, and the pressure to create work in a stagnant economy seems omnipresent.

The department saw strong funding through the start of the decade, spending upward of $130 million a year, but that support dropped when Gov. Robert L. Ehrlich Jr. took office, dipping to $99 million in the middle of the decade, according to state budget documents. O'Malley restored the funding and then some in his first budget, to the tune of $161 million, but that support has waned in tandem with the recession.

Economic Development Secretary Christian Johansson said Thursday that the recession has forced economic development officials to focus their efforts in sectors where Maryland has a competitive advantage.

Maryland officials have been meeting and talking with Northrop Grumman officials weekly, Johansson said, but no firm offers have been laid out yet. The company announced recently that it plans to move its corporate headquarters from California to the Washington region.

Most recently, economic development officials have touted their success in creating jobs in the cyber-security arena, an area President Barack Obama has focused on in the last few months.

Maryland grew its job base in the computer systems design sector by 4,400 jobs and in the management and technical consulting services by 3,700 jobs between November 2008 and last November.

“Some of that has nothing to do with incentives, and some of that does,” Johansson said Thursday.

The hard budget decisions have forced economic officials to narrow their focus and rely less on cash incentives and more on streamlined loan processes and other less expensive alternatives, but Maryland is better positioned to rebound than other states, Johansson said.

As much as streamlining loan programs and application processes helps, sometimes cold hard cash is what it takes to draw in businesses, and the state has not been able to pony up, said Aris Melissaratos, economic development secretary from 2003 to 2007 under Ehrlich.

“It takes away any incentives you might offer to companies to create new jobs. It doesn’t give you a lot of power to do your job,” said Melissaratos, now a senior adviser at Johns Hopkins University.

As lawmakers have continued their budget slide, Maryland’s smaller agencies have taken larger hits than areas such as education and Medicaid which have even seen modest increases year to year, said Senate Budget and Taxation Chairman Ulysses Currie.

“All of the small agencies have taken a hit,” Currie, a Prince George’s Democrat, said Thursday.

The pain is palpable, he said, but any talk of restorations to the department and all other agencies will have to wait until the state starts crawling out of its deep budget hole – a process which has yet to start.

Since taking office, O’Malley has closed three of the department’s foreign offices as part of efforts to close an ever-widening budget gap. They have been replaced largely with “contingency” offices, which essentially work on a commission and collect payment only when they bring business to the state.

The department was originally budgeted for $125.6 in the fiscal 2009 budget, but was actually funded at about 80 percent of that level. It also shed 31 jobs between July 2009 and July 2010 and is set to lose another 17 positions in the most recent budget proposal -- equal to a 16 percent workforce reduction since 2009.

“We are concerned that the total budget and number of personnel at DBED are dropping at a time when we need to expand our economic development efforts,” said Ron Wineholt, Maryland Chamber of Commerce vice president for government affairs.

O’Malley is planning to introduce legislation which would credit companies $3,000 for every unemployed worker they hire, capping the payouts at $20 million statewide. Melissaratos said any tax incentive for hiring will help bolster employment, but that that money could be more effectively spent on existing economic development programs which lure private sector jobs to the state.

Read more articles and political observations from Tom LoBianco here.
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