Donald Fry: Site selection process highlights delicate complexities of a business climate

Posted by on in Blog
  • Font size: Larger Smaller
  • Hits: 9347
  • Subscribe to this entry
  • Print
  • Report this post

By: Donald C. Fry 

There is no magic-bullet policy that would automatically make Maryland more competitive as a business location. But tax structure is among key factors that come into play during the location decision-making process for businesses, according to site-selection expert Andrew Shapiro.

The site-selection process, in which Maryland and other states compete as locations for expanding or relocating businesses, “has changed remarkably even in the last five or ten years,” Shapiro told members of the Greater Baltimore Committee’s Tax Restructuring and Spending Accountability Commission this week.

The commission is working to develop recommendations for strengthening Maryland’s tax structure to make the state more competitive as a location for business growth and job creation.

In choosing business locations, “we’re making faster decisions than we ever did before,” said Shapiro, managing director of New Jersey-based business location consultants Biggins Lacy Shapiro & Co. The firm advises primarily large companies making decisions involving hundreds of millions of dollars in investment and sometimes thousands of jobs, he said.

What used to be at least a year-long, deliberative site-selection process has evolved into an exercise that now commonly takes less than six months, said Shapiro. Because of the shortened timelines, site selection is now an abbreviated “process of elimination,” he said.

A state must survive two elimination stages of the process – the initial screening and a second “staying in the game” stage – to make it to the “short list” of finalists. The purpose of the first two stages is “to get to the short list as quickly as we possibly can,” said Shapiro.

Tax structure usually ranks among the top ten variables companies say they consider in these stages. In the most recent survey by Area Development Magazine, for example, companies rank corporate taxes 4th, said Shapiro.  But from a practical standpoint, taxes are considered among a mix of factors, at least half of which relate to workforce and skill availability, as well as other forms of operating costs.

“The impact of taxes tends to loom larger at the margins” in the later stages of the decision-making process, Shapiro said.

Nevertheless, taxes are increasingly becoming a factor in the initial elimination screenings, he said.

In the second stage of evaluation, more time is spent looking at the “big three” taxes – corporate income taxes, property taxes, and sales taxes that typically impact the cost of a company’s initial investment, according to Shapiro. Personal income taxes may also be evaluated at this stage as a quality-of-life factor.

Once a state makes the short list, “the impact of taxes becomes much more material at the end of the decision-making process,” said Shapiro, who added, however, that tax structure by itself “rarely is the ultimate deciding factor.”

Given that tax structure is one of many factors that figure into a company’s site location decision, Shapiro points out an important nuance: the competitive strength of a state’s tax structure relates not just to the rate, but the way a tax is calculated.

As competitors for business investment, which states in the mid-Atlantic and the northeast have a home-field advantage these days?

Shapiro’s answer may surprise you. New Jersey and New York, he said.  New Jersey “has used incentives very competitively” to attract businesses to Newark, and New York has aggressively used tax-free zones very effectively to attract business investment.

He also noted that Maryland does not have a large amount of discretionary funds for incentives to close the gap in attracting large employers when the state makes it to the short list in a site-location competition.

Shapiro’s observations drive home the delicate complexities of achieving and maintaining a competitive advantage in attracting business investment, nurturing the growth of businesses already here and ultimately creating jobs.

Maryland has many advantages as a place to do business, including location, superior education resources, high quality of life, skilled workforce and major strengths as a center for science and technology industry growth.

It’s important for business and government leaders in Maryland together to craft a smart tool kit of resources and policies, including tax policies, that complement compelling branding and aggressive, outcome-driven marketing to build on our strengths and to cultivate strong business growth both from without and from within.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.

Rate this blog entry:

Donald C. Fry has been the president and CEO of the Greater Baltimore Committee (GBC), the central Maryland region's most prominent organization of business and civic leaders, since November 2002.

Under Don’s leadership, the GBC is recognized as a knowledgeable and highly credible business voice in the Baltimore region, Annapolis and Washington, D.C. on policy issues and competitive challenges facing Maryland. Its mission is to apply private-sector leadership to strengthening the business climate and quality of life in the region and state.

Fry served as GBC executive vice president from 1999 to 2002. From 1980 to 1999 Fry was engaged in a private law practice in Harford County. During this time he also served in the Maryland General Assembly. He is one of only a handful of legislators to have served on each of the major budget committees of the General Assembly.

Serving in the Senate of Maryland from 1997 to 1998, Fry was a member of the Budget and Taxation Committee. As a member of the House of Delegates from 1991 to 1997 Fry served on the Ways and Means Committee and on the Appropriations Committee.

Fry is a 1979 graduate of the University of Baltimore School of Law. He earned a B.S. in political science from Frostburg State College.