Category Archives: Business Development

Hogan dodges Trump bullet, fracking, ‘road-kill’ & more

By Barry Rascovar

March 27, 2017Maryland Gov. Larry Hogan can thank his lucky stars the bitter and intractable Republican disputes in Washington sabotaged plans to do away with the nation’s current healthcare plan, the Affordable Care Act.

Passage of the Trumpcare alternative – imposing horrific added costs on older Americans, endangering Medicare funding and removing healthcare coverage for 14 million citizens next year – would have had cataclysmic effects in Maryland and placed Hogan on an untenable political hot seat.

Hogan dodges Trump bullet

President Trump

Instead, Hogan gets a slight reprieve, which helps his chances of getting reelected next year.

Then again, if the president and GOP hardliners insist on pressing a second time to wipe out the ACA and succeed, Hogan will be in the bull’s eye when furious Maryland Democrats seek revenge at the polls.

Equally ominous for the first-term Republican governor is Trump’s obsession with making exceedingly deep cuts in the federal budget. Even if Congress ignores the president’s budget submission from last week, the administration has its marching orders – cut personnel wherever possible, cut back severely on spending wherever possible and hold back on doling out money for programs run by the states.

Take, for instance, Trump’s budget that eliminates all federal funds for Chesapeake Bay restoration. Any sizable elimination of funds will infuriate many moderates and independents who voted for Hogan in 2014. Anger toward Trump could be taken out on Hogan on Election Day next year.

Hogan Dodges Trump Bullet

Maryland Gov. Larry Hogan, Jr.

The Maryland governor’s silence about Trump’s assault on federal spending isn’t helping him, either. Of course he’s in an unwinnable bind – criticize Trump and Hogan’s conservative followers will feel betrayed; support the president and Democrats will unload on Hogan.

It’s a tough time to be a Republican governor in a heavily Democratic state. Hogan has his work cut out trying to separate himself from a wildly unpopular president without alienating died-in-the-wool Republican voters.

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From the “sound and fury signifying nothing” department, here are two items of wasted energy by elected leaders in Annapolis who should know better:

Pointless fracking debate

Environmental activists are in a tizzy over their insistence that hydraulic fracturing of Marcellus shale rock formations deep beneath Garrett County and a portion of Allegany County be forever banned in Maryland.

They’ve made such a stink that Hogan has flip-flopped on the issue – abandoning his efforts to help Republican Western Maryland landowners who might some day benefit from extraction of oil and gas using this “fracking” technique that has been in use for over 60 years.

Yet here’s the reality:

·         There is no fracking taking place anywhere in Maryland.

·         There is no likelihood of fracking taking place in Maryland any time in the years to come.

·         Fracking in Maryland is uneconomical today and will be for a long time to come.

·         Regulations proposed by Hogan are so tough that no exploration companies in their right mind will venture into Maryland unless oil prices soar far beyond $100 a barrel – an unlikely scenario thanks to the glut of fracked oil wells in more hospitable, resource-rich regions of the country.

So environmentalists will win this empty victory and Hogan will win over some environmentalists come Election Day – but he might also lose votes from the Western Maryland landowners he betrayed.

Ludicrous “Road Kill Bill” dispute

Both Hogan and lawmakers are in the wrong here.

The governor has completely politicized a law that is so insipid and toothless it’s not worth arguing about.

The law in question has no enforcement provisions and leaves the governor in full control of road-building decisions. All it does is provide a bit of transparency on the relative value of each project being funded.

Hogan’s empty threat of not funding projects because of this law is strictly for next year’s campaign sloganeering. He’s made a mountain out of a teeny molehill just to win political points with rural and suburban voters.

Democratic lawmakers said they were going to amend the law this year to make it even clearer the law is strictly advisory. They also said they would simplify the evaluation process.

Instead, Democrats in the Senate are pushing for a two-year delay in implementing a toothless law while wasting time studying how to make the law even more meaningless.

The whole thing is pointless and a turnoff to voters of all stripes.

Surely the governor and lawmakers can spend the remaining days of this General Assembly session on something that really is constructive and helps Maryland citizens.

Moxie from the mayor

Here’s a shout-out to new Baltimore Mayor Catherin Pugh, who took an unpopular stand because it was the right thing to do.

She vetoed a bill mandating a $15 an hour minimum wage for most workers in the city – a move that would have been an economic calamity for Baltimore.

Hogan dodges Trump bullet

Baltimore Mayor Catherine Pugh at her inauguration in December.

We all want every worker to take home a decent paycheck. But not if it means businesses will fire personnel, reduce hours for their remaining staff and consider moving across the city-county line.

Those weren’t idle threats when this well-meaning but idealistic bill passed the naively liberal City Council.

Such an ordinance would leave the city deep in debt, according to its own financial analysts, with businesses fleeing to Baltimore and Anne Arundel counties to take advantage of a lower minimum wage, far lower property taxes and lower insurance rates.

Baltimore City must be competitive. The state’s minimum wage already is scheduled to rise this July and in succeeding years, too.

Besides, minimum-wage jobs are not intended to be permanent positions but rather a starting point for people eager to work their way up the economic ladder to more responsible and good-paying jobs with long-term career potential.

Pugh’s veto protects Baltimore’s economic well-being, even if liberal critics unfairly condemn her.

She’s been quiet and withdrawn during her initial months in office. Yet when it truly mattered, Pugh didn’t hesitate to analyze the facts and make a tough, courageous decision.   ###

Pimlico’s Improving Future

By Barry Rascovar

March 20, 2017 – Thanks to revenue from Maryland’s successful slots casinos, the state’s thoroughbred racing industry has seen a re-birth that hints at prosperity for the Free State’s billion-dollar horse industry in future decades.

Breeders are returning to Maryland to take advantage of the huge jump in purse money fueled by slots proceeds. Off-track gambling revenue is rising. And the state’s most important day of sports entertainment, the Preakness, is breaking attendance and wagering records.

To keep those good times a-rollin’, though, will require a major investment by Annapolis political leaders and by their counterparts in Baltimore City.

Pimlico's Improving Future

The Preakness Stakes at Pimlico Race Course as horses near the first turn.

It won’t be easy but it is achievable.

The centerpiece of Maryland horse racing is the Preakness, run at historic Pimlico Race Course since 1873 (108 consecutive years since 1909). Last May’s second jewel of thoroughbred racing’s Triple Crown drew 135,256 fans to Old Hilltop – a record turnout for any sports event in Maryland.

But Pimlico is badly in need of a facelift.

Stronach’s One-Track Plan

The Stronach Group that owns Maryland’s two major race tracks at Pimlico and Laurel, would love to shutter the Baltimore facility and run exclusively in the Washington suburbs to multiply its profits. Laurel is where Stronach is putting all its improvement money.

That would be a wise business decision if not for the history, tradition and psychic ties between the Preakness and Baltimore. Move the race to a more southern location and the race loses all its history and records. Close Charm City’s race track and the community, already in bad straits, suffers mightily.

A new Preakness site can never duplicate the warmth and friendliness that exists between Baltimoreans and the nation’s racing community during Preakness week. Ask any trainer of a Preakness entrant and you’ll hear nothing but kudos. Pimlico, despite its physical limitations, is far and away their favorite stop on the Triple Crown circuit.

Preakness guests are received like old friends and acquaintances and get VIP treatment in a relaxing, comforting environment.

If the Preakness moved to Laurel, where would Stronach take racing’s VIPs that week for fabulous, down-home evening functions? Beautiful downtown Laurel? The nearby Holiday Inn?

Move the Preakness and a century-old bond would be broken. The gloss and mystique of the Preakness would disappear. Stronach would be devaluing one of its most valuable commodities.

Legal Barriers

Beside, Stronach can’t move the Preakness or shutter Pimlico without approval of the state racing commission and the Maryland General Assembly. Neither is in a mood to oblige. Not now and in all likelihood not ever.

But Stronach certainly is trying to present a case for such a move.

This year it has put Pimlico on a starvation diet of just nine days of racing. That’s an insult to Baltimore area racing fans and to Baltimore officials. Mayor Catherine Pugh should take note.

There is a glimmer of hope, though.

Thanks in large measure to Baltimore Del. Sandy Rosenberg, the Maryland Stadium Authority has come forth with a plan for modernizing and saving Pimlico.

It’s a “situational analysis” that paints an exciting future for a rejuvenated race track – if Pimlico’s owners are willing to take a realistic look at the state’s political landscape and accept a two-track solution.

Achievable Solution

This is a much-needed first step. It outlines a $285 million renovation program that is eminently achievable. There are amply ways to pay for this, thanks to the fact that it will have to be done on a multi-year basis.

By way of comparison, Churchill Down, home of the Kentucky Derby, underwent a $121 million renovation starting in 2001; it took nearly four years to complete. More renovations took place at Churchill in 2015 and 2016 (ultra-luxury suites, a fully renovated clubhouse and plans for a $37 million suite tower).

There’s no reason Pimlico’s re-make can’t be done in a similar phased-in way that divides the re-make into chunks with workable price tags over a decade.

Pimlico's Improving Future-2

Any they’re off on Preakness Day at Old Hilltop in Baltimore.

Stronach will have to chip in big-time if it wants Maryland and Baltimore to contribute handsomely, too. A public-private partnership only succeeds if all sides are fully committed financially.

Millions toward a Pimlico renovation could come from the 1 percent of slots revenue that already flows into a race track improvement fund. The $2 million in tax revenue generated each year by the Preakness also could be dedicated toward paying the interest on bonds for the renovations.

And remember how the Ravens’ football stadium was built: With special instant scratch-off lotteries. A similar money-raiser through the lottery agency could be devised for Pimlico’s facelift.

With bond interest rates near historic lows, this is an ideal time to start getting serious about what a beautified Pimlico will look like, the timing of improvements and the financing arrangements.

Racing Revival?

Moving the Preakness is out of the question. From a sports perspective, such a move would be a PR and financial disaster. It would be devastating to Baltimore and a black eye if the state of Maryland allowed such a travesty to take place.

Thoroughbred racing once was the Sport of Kings with huge crowds flocking to the tracks daily. The sport has been in decline in recent decades but there are signs of a rebound.

That rebound is clearly evident in Maryland. Additionally, cutting-edge technology advances such as virtual reality, augmented reality and electronic sports gaming hold immense potential to boost racing’s popularity and profitability.

For all those reasons, it’s time to get serious about making Pimlico a first-rate race course with all the creature comforts fan expect. It would be a big win for the surrounding communities, the city and the state.

Pimlico is an economic resource that holds considerable potential, but only if we take advantage of the opportunity.

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What Hogan, Pugh & Mikulski Have in Common

By Barry Rascovar

Dec. 12, 2016 – Reality is beginning to set in: The political world has been dramatically altered by Donald Trump’s surprise victory on Nov. 8.

Some politicians are adjusting while others are wailing like it’s the end of democracy, organizing pointless protests a full five weeks before Trump even takes office.

In Maryland both kinds of politicos – the realists and the hopeless idealists – have been on display recently.

What Hogan, Pugh & Mikulski Have in Common

Mayor Catherine Pugh and Gov. Larry Hogan, Jr. at her inauguration in Baltimore’s War Memorial .

Count Gov. Larry Hogan, Jr. and new Baltimore Mayor Catherine Pugh among the pragmatists. They want to deal with reality on the ground.

The governor continues to steer an independent course largely free of ideological rigidity and party obeisance. His words and actions in Baltimore over the past week indicate that Hogan now understands the importance of carving out alliances with like-minded pragmatists such as the new mayor.

His gracious words of support at Pugh’s inauguration were followed by a celebratory event in West Baltimore marking a big step forward in attacking the city’s vast vacant-housing problem. Republican Hogan knows he has a quiet supporter in Democrat Pugh and it will be up to him to show her he’s determined to do what he can to uplift Baltimore’s economic development.

Putting Results Ahead of Ideology

For her part, Pugh made it clear she’ll be a non-ideological mayor who is interested first and foremost in results. Going to war with the Republican governor isn’t on her agenda – a marked change from the last City Hall occupant. She’s a lifelong networker who now intends to ask for favors and assistance from those in her wide-ranging list of business, political and foundation contacts.

Rather than snub the president-elect at Saturday’s Army-Navy game in Baltimore, she warmly met him and handed Trump a letter detailing how the “make America great” president-in-waiting can jump-start the city’s lagging economy with some big-ticket infrastructure projects.

She also has expressed the hope that she and Hogan can team up to win over the next president for development programs in Baltimore that create jobs and reduce government dependence.

Pugh isn’t being helped, though, by other Baltimore officials. The new City Council, as its first act, voted unanimously to condemn Trump and his intemperate Tweets and verbal assaults.

That counter-productive move achieved nothing positive and created a hostile atmosphere for Trump two days before he visited Baltimore.

Council Incompetence

It was a sign that the new City Council will pander to liberal political emotions and do little to help Pugh bridge differences with Republicans soon to be running the country.

What the new Baltimore Council members need to keep in mind is that war whoops and fiery denunciations bring nothing in the way of results. The city’s legislature already has a well-earned reputation for incompetence and irrelevancy. Sadly, it may get worse.

When faced with a staggering crime and drug crisis, intensely imbedded poverty and lack of economic opportunity, what action does the Council take on Day One? It alienates the president-elect. Now that’s really going to help address the city’s most pressing needs.

The new members of the City Council should step back and reconsider such rash behavior. They should take a cue from outgoing U.S. Sen. Barbara Mikulski, who made a strong call for civility and understanding among politicians of differing stripes in her farewell speech on the floor of the Senate in Washington.

Sen. Barbara A. Mikulski

Retiring U.S. Sen. Barbara A. Mikulski

Mikulski was a down-the-line liberal Democrat yet she never stopped trying to find common ground with Republicans and conservatives. Getting things accomplished was paramount in her mind.

That’s the lesson the eight freshman Baltimore City Council members need to learn. They’re off to a terrible start – and that soon may be compounded by votes to approve a $15 an hour minimum wage that could prove so onerous businesses will quickly flee across the city-county line.

Politics, veteran practitioners tell us, is the art of the possible. Hogan, Mikulski and Pugh understand the truism of that expression. Getting bogged down in emotional ideology and name-calling is a sure sign of a weak political hand – and a formula for continuing failure to produce constructive results and progress.

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Barry Rascovar’s blog is www.politicalmaryland.com. He can be contacted at brascovar@hotmail.com

 

Trump & Hogan Agree: Corporate Welfare Works

By Barry Rascovar

Dec. 5, 2016 – Maryland Gov. Larry Hogan, Jr. may not have supported or voted for President-elect Donald Trump but they agree on one thing: Corporate welfare works.

Throwing money and tax breaks at Northrop Grumman, Marriott International and United Technologies did the trick this past week – along with a good deal of loud, Trumpian threats in the case of UT’s subsidiary, Carrier Corp., in Indiana.

Trump, Hogan Agree

President-elect Trump celebrating deal to keep Carrier manufacturing plant open in Indiana.

To prevent Carrier from moving 1,400 jobs to Mexico, Trump used heavy-handed insinuation of future punishment to deliver a largely symbolic message that he’ll stop at nothing to save American manufacturing jobs.

Hogan’s task was somewhat different and involved persuasion rather than threats – backed by wads of cash.

A $57.5 million five-year package of “loans” and tax credits eventually persuaded Northrop Grumman to keep its 10,280 employees in Maryland – including the 6,800 who work at the massive former Westinghouse electronics complex near BWI Airport in Linthicum.

Meanwhile, a state-county incentive package of some $60 million was needed to keep Marriott’s headquarters in Montgomery County instead of shifting to Northern Virginia.

The bonus here is that Marriott intends to erect a $600 million complex in downtown Bethesda for its 3,500 HQ employees. That number should expand due to Marriott’s recent $13 billion acquisition of Starwood International.

Democratic Roadblock

The two Maryland deals have been in limbo for months due to high-risk brinkmanship by legislative leaders. The idea was to squeeze money out of Republican Hogan for other purposes dear to the hearts of Democrats in exchange for approval of the Northrop Grumman package.Trump, Hogan Agree

That gambit, which was poorly conceived from the get-go, fell apart when the state’s tax collections underperformed, leaving a gaping hole in Hogan’s budget.

Hogan had always balked at legislators’ extortion effort to hold the Northrop Grumman package hostage until local school funds and other goodies were released.

Lawmakers didn’t seemed to care that reneging on the business deal would have sent a terrible message about Maryland’s business climate to corporations thinking about relocating operations.

But the weak revenue figures this fall put an end to this embarrassing folly. There was no money to make the lawmakers’ strong-arm deal work.

Miller-Hogan Find Middle Ground

Hogan, though, still needed to gain the support of legislative leaders not only on the Northrop Grumman economic-development package but also the Marriott headquarters proposal.Trump,Hogan Agree

He and Senate President Thomas V. Mike Miller finally came up with a workable compromise involving $20 million in school pension funds for localities in next year’s budget.

Now it is up to Miller and House Speaker Mike Busch to complete their end of the bargain by winning approval for the two business-assistance packages from a legislative panel they control.

There’s plenty of irony here.

Had a Democrat been in the governor’s office, there’s no question Busch and Miller would have rushed to support these economic-development packages, just as they did under former Gov. Martin O’Malley.

But with a Republican in the governor’s mansion, Busch and Miller suddenly found problems with these deals.

Demands to Stay In-State

Liberal Democrats, in particular, blanch at the thought of giving away millions in business-retention packages, labeling it “corporate welfare.”

It’s become customary for large companies to demand payments from local and state governments if those governments want to prevent these businesses from moving elsewhere. Democrats fear that more companies will use the same tactic to pry millions from the state, money Democrats want spent on social programs.

Rigidly ideological Republican conservatives also rail against giveaways to corporations, complaining about government interference with the free-market system. (Over the weekend, former Alaska Gov. Sarah Palin called the Carrier deal “crony capitalism.”)

The thinking goes that if Carrier wants to move its furnace plant to Mexico or to another state to cut costs, the company should have the freedom to do so. That’s how the free market works, fiscal conservatives say.

Yet Trump intervened to make political hay and win cheers from Carrier workers in Indiana.

At the same time, he did nothing to stop United Technologies from closing another Indiana plant, costing 700 workers their jobs.

Nor did he lift a finger to halt Rexnord from shuttering a factory just a mile away from the Carrier building. The job loss there is 300. Rexnord is moving its manufacturing business to Mexico.

A third company, CTS, is also shutting down an electronics manufacturing facility in Indiana, creating unemployment for 200 more workers.

On top of that Carrier is continuing with plans to downsize its Indiana plant, laying off 600 union workers at the furnace factory. Also, despite Trump’s plea Carrier is moving its fan coil-making business to Monterrey, Mexico.

So while Trump can crow about the one plant he pressured to remain open, saving by his count 1,000 U.S. jobs (the actual jobs preserved: 730), he hasn’t done a thing about the other 1,800 manufacturing jobs being lost in Indiana.

Choosing Winners

The downside of corporate bailouts (Carrier is getting $7 million in tax breaks from Indiana to remain there) is that these small triumphs fail to address the larger problem:  U.S. manufacturing plants increasingly find they are unable to compete against low-cost overseas competitions.

Here’s a hint why moving production abroad is happening: The average salary for a unionized Carrier plant worker in Indiana is $30.90 an hour.

Choosing winners and losers, as Trump did in Indiana, solves little and provides job solace for just a fraction of the manufacturing workforce at risk of losing their source of income. A more comprehensive approach is needed.

Since the beginning of 2015, 1,600 American companies have shifted production overseas. In November alone, the U.S. lost 10,000 manufacturing jobs.

Clearly, Trump has a gargantuan task ahead of him in which a partial victory at Carrier’s Indiana plant doesn’t put a dent in the problem.

At the same time, Hogan is having more success keeping large corporations content with their Maryland digs. All it takes is persistent negotiations, expressions of good will and a basketful of state and county tax breaks, job-training grants and forgivable loans.

It’s worked most of the time for both Democratic and Republican governors in Maryland.

Hogan’s job is far easier because he’s only competing against other U.S. states, not Third World, low-wage countries.

Trump has a much more difficult field to plough.

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Will O’Malley’s Folly Become Hogan’s?

By Barry Rascovar

March 28, 2016—The State Center boondoggle is back on the table.

This controversial deal, involving state buildings on 28 acres in midtown Baltimore, was tailored for developer-allies of former Gov. Martin O’Malley. It ended up on the back burner in December 2014 when the extent of the giveaway persuaded Comptroller Peter Franchot and Treasurer Nancy Kopp to put a hold on the last approval necessary.

Since then, Gov. Larry Hogan, Jr. has kept the project on the shelf – where it belongs.

Will O'Malley's Folly Become Hogan's?State Center vision

Developers’ $1.5 billion State Center vision in midtown Baltimore

But in the last few weeks, Hogan’s economic development chief, Mike Gill, said the administration was reviewing the $1.5 billion project anew. A decision on what to do at the Baltimore workplace for thousands of state employees could come before January.

There’s no question government workers deserve better quarters. The 60-year-old State Center complex is badly out of date. New accommodations need to be pursued. The worst course of action, though, would be to proceed with O’Malley’s white elephant.

Outsized Rents

Under the deal worked out by the former governor, the state, which now pays no rent at State Center, would be charged sky-high monthly rates for occupying space in a new, privately owned structure. The lease payments of $18.5 million a year would escalate every five years over the next two decades.

Such high rental rates are comparable to Inner Harbor, water-view office space.

The state also would be responsible for maintenance and security expenses, bringing payments to $30 million annually just in the first five years.

Additionally, the state would lease the entire 28-acre State Center property to the developer for a ridiculously low ground rent. A prime parcel near downtown would be virtually gifted to the development team.

The developers also want the state to pay for a costly underground garage in the first new office building. This $28.5 million expense would deplete the Transportation Trust Fund just when demand for road and bridge improvements is in high demand.

In another twist, state workers who receive free surface parking at State Center, would have to pay to use those underground spaces.

Bond Rating in Peril?

The most troubling aspect for Hogan is that the State Center plan could cost Maryland its coveted triple-A bond rating.

Because the developers want to use the state’s locked-in rent payments – nearly $500 million over the next 20 years – to obtain private financing for the massive project, the payments qualify as a capital project.

As such, the State Center development would blow the lid off Maryland’s debt ceiling. It would mean cutting other projects from Hogan’s construction plans and could lead to higher interest rates when Maryland goes to the bond market.

It’s a bad deal for taxpayers, and for Hogan, who inherited this mess from O’Malley (and from Republican Gov. Bob Ehrlich, who announced the heavily subsidized state-private sector project prior to the Great Recession).

Joe Getty, Hogan’s chief legislative officer, was in the state Senate when his budget committee reviewed the State Center project in late 2014. He concluded that the excessive rent charged the state “sets us up to cut [other] projects that have strong commitments in other areas,” such as money for Baltimore City school construction and bond money for a new Prince George’s County hospital.

The Department of Legislative Services noted at the time that the State Center undertaking “will require a significant amount of annual general fund appropriations that could be avoided if the State instead constructed new or renovated space to replace the aging State Center infrastructure.”

Moving Downtown

Another promising avenue for Hogan: Move State Center workers into modern, renovated office space in Baltimore’s Central Business District.

Huge vacancies exist there – upwards of 30 percent and growing – which translates into deeply discounted rents. The state could lock in long-term leases at excellent prices and avoid paying future maintenance costs.

At the same time, DLS suggested the state could sell State Center’s buildings and 28 acres to the highest bidder. This would partly offset the cost of renting new office space downtown and avoid costly repairs at the current buildings.

That seems to make more sense than going forward with a sweetheart arrangement concocted by Hogan’s predecessor.

Here’s another oddity: The Ehrlich administration never bothered to seek competitive bids for the State Center project. After the initial development group dissolved during the Great Recession, O’Malley renegotiated the same deal with a slightly different group of developers.

Now may be the time to see what State Center’s 28 acres bring on the open market and what imaginative uses other developers suggest for the site – using their money, not the state’s.

No Termination Clause

That likely would require a payment to the current developers to terminate their contract with the state.

Here’s why: O’Malley’s State Center deal lacked a “termination for convenience clause.” This is routinely inserted into every state contract – but curiously not this one. Thus, the state is locked into 20 years’ worth of lease payments – pure gold for the builders – unless the developers are bought out.

For Hogan to endorse the current project makes little logic. It would saddle the state with unnecessary additional debt and exorbitant annual lease payments for two decades, endanger Maryland’s bond rating and squeeze other state construction priorities.

It also would amount to an endorsement of a questionable state subsidy pushed through by his Democratic predecessor.

Proceeding in a new direction might be Hogan’s best option.

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Hold Off on Internet Hotel Tax

By Barry Rascovar

Jan. 12, 2016 – Vetoed bills are on the minds of all 188 members of the Maryland General Assembly as they begin their annual 90-day session in Annapolis. Indeed, it’s the first order of business on Wednesday.

Among the most controversial is a vetoed bill concerning a dispute between large hotel operators, like Bethesda-based Marriott and Rockville-based Choice Hotels, and internet travel companies. The fight is over tax payments to the state by those internet companies when they book in-state hotel rooms.

The vote to override Hogan’s veto puts three “swing” Democrats with centrist records on the hot seat — Sen. Jim Mathias of the Eastern Shore and Sens. Kathy Klausmeier and Jim Brochin of Baltimore County.

All three Democrats come from districts where anger over high taxes led to large Hogan victories in 2014 with margins topping 60 percent for the Republican governor.

Now Democratic leaders want the three senators to go against Hogan on the internet hotel tax bill. For them, that may not be the wisest political move, especially on a piece of legislation viewed by many constituents as a tax increase.

Travelocity

The big hotel operators want travel companies to pay taxes on the fees they charge customers when travelers book Maryland hotel rooms through an intermediary. (The internet sites already add the state sales tax to the negotiated rate going to the hotels.)

Gov. Larry Hogan, Jr. vetoed this bill.

He did so for the most sensible of reasons: Maryland Comptroller Peter Franchot already is suing an internet company, Travelocity, over what he claims is $6 million in unpaid taxes on those service fees between 2003 and 2011.

Hogan’s Message

“The General Assembly should respect the long-standing practice of not passing legislation that would directly affect matters being litigated in a pending court case,” Hogan wrote in explaining his veto last May.

Why in the world would state lawmakers interfere in a court case brought by the state’s comptroller?

Why not do what nearly all prior General Assemblys have done and let legal proceedings play out before taking action?

The answer is partisan politics. Democratic leaders want to show Hogan who’s in charge by overturning the governor’s vetoes.

On this one, pragmatism and practicality should prompt lawmakers to let well enough alone until there is a definitive ruling from the Maryland Tax Court.

Hurting Ma and Pa

It’s a complicated issue. Legislative controversies usually are.

For instance, the hotel booking tax could hurt local Ma & Pa travel agents, who are having a hard time as a result of shrinking commissions from hotels and other destination sites.

The fees they charge customers are their profit margin. If those fees get taxed, it could mean staff reductions to make up the difference.

Besides, they already pay local and state income taxes on revenue derived from those fees.

The new sales tax also could have the unintended consequence of harming small businesses such as tour operators, event planners and service providers, who might be forced to pay a new tax.

Fewer Bookings?

Industry data indicates that for every percentage increase in hotel rates, there is a negative two percent drop in bookings. That could be huge in Maryland if the legislature overrides Hogan’s veto. It could easily wipe out the revenue gain, estimated at $3 million to $4 million, from taxing service fees on third-party hotel bookings at a rate of six percent.

Large hoteliers say this tax “levels the playing field.” Yet it also forces third-party booking agencies to hike their prices to consumers and thus become less competitive with the hotels’ in-house booking operations.

The biggest booster of the new tax is Marriott, which has enormous clout among legislators from Montgomery County.

Ironically, Marriott was a big beneficiary in 1999 of state tax breaks topping $58 million in exchange for keeping its headquarters in Maryland. Part of the deal called for Marriott to expand its HQ staff by 700. Instead, there’s been a major workforce reduction.

Think how much the state’s tax coffers would have benefitted if Marriott had followed through on its 1999 commitment.

Consumers Pay More

Those opposing this bill say this amounts to a new tax, which it definitely is for third-party hotel booking services. You can rest assured most of this tax increase would be passed along to customers booking lodging in Maryland through them.

As noted, this is not a cut and dried issue.

Should all services fees be subject to the state sales tax, or just fees charged by internet hotel booking companies? Should local travel agents and travel-related companies be exempt from the tax?

The legislature is acting prematurely. It should await a Tax Court decision. Then it should form a work group to study the full, wide-ranging implications, including the mixed responses to this problem in other states.

All that points to a go-slow approach.

When SB 190 comes before the Senate and House of Delegates on Wednesday, lawmakers should avoid a hasty decision. There’s no need to rush to judgment – unless bitter partisan politics overrules common sense.

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Hogan’s Spending Tightrope

By Barry Rascovar

Dec. 21, 2015 – Larry Hogan, Jr. is the ideal governor to take on the difficult task of balancing the need for stronger economic growth in Maryland while at the same time slowing government spending.

Republican Hogan is a committed conservative who gained election by pledging to cut the fat out of state government and lower taxes (eventually).

But Hogan also was elected because he is a pro-business executive intent on slashing business regulation and making Maryland more business-friendly.

The problem is that Maryland isn’t bouncing back strongly from the Great Recession. Tax receipts in Annapolis from consumer-related spending (the sales tax) are still sinking. Taxes from personal income are barely nudging forward.

It’s a sluggish state economy with slow employment growth, little wage growth and new jobs being created at a disappointing pace.

Weak Recovery

November’s unemployment report confirmed Maryland’s agonizingly slow recovery.

Since early summer, the jobless rate has come down but remains above the national average. The number of people out of work is largely unchanged over the past six months. New jobs rose just 16,000 in that period.

The situation is far better than the 7.7 percent unemployment of 2010, yet Maryland continues to lag in job-creation.

All this points to the need for a cautious approach in the next state budget. Revenue growth remains modest. Hogan’s cabinet will have to deliver on the governor’s mandate to trim the size of agencies without harming services that aid Maryland’s underclass.

Restraining government expenditures isn’t all good news, though.

Cutting out state jobs and lowering spending can boomerang and end up harming Maryland’s economic recovery.

It gets tricky for the governor.

Large Surplus Helps

He’s lucky there’s a projected $561 million surplus for next year’s budget. He isn’t likely to dip into that fund to enlarge existing programs as Democrats want him to do.

Indeed, Democratic lawmakers are calling for an expansion of state spending by nearly 5 percent, even though that could be risky.

Hogan’s budget chief assures us the governor will be well under the Democrats’ affordability limit.

But how do you hold down government spending while simultaneously pumping more dollars into jobs and economic growth?

It can be done.

Hogan needs to take one important step: Turn that $561 million surplus into capital spending to build worthwhile projects.

Jobs and Growth

By using surplus cash in this way, Hogan can create good-paying jobs in the construction trades and stimulate growth through the purchase of construction-related goods and services.

Using cash instead of state bonds serves another important purpose. It relieves pressure on Maryland’s costly capital bond program and lowers the state’s expenses not just in 2016 but for the next 15 years.

Paying cash for $500 million worth of new state buildings, rather than issuing bonds, is just what the state needs right now.

A large and continuing pay-as-you-go state construction program would eliminate a huge amount of future debt. It would trim Maryland’s long-term structural operating deficit by a substantial margin.

There’s an added bonus in a large “pay-go” construction program if it is focused on buildings that can lead to long-term economic growth.

Hogan can fortify the Baltimore area’s importance as a generator of health and technology advances (and jobs) by supporting a third health-sciences research tower at the University of Maryland, Baltimore; a life sciences building at UMBC, and a behavioral and social sciences building at Morgan State University.

Constructing a $100 million bioengineering building at the University of Maryland, College Park would do the same thing in the Washington suburbs.

Spurring Economic Growth

A cash investment of roughly $300 million in these science-related structures would be a wise use of the surplus – no interest payments or principal payments in future years.

The economic-development potential tied to such research and education-related buildings could spur job growth in key industries for years to come.

Hogan is walking a tightrope in trying to trim state government’s size and expenses while simultaneously enhancing Maryland’s economic-growth prospects.

If he uses the state’s projected surplus strategically, he can achieve equilibrium that might achieve both goals.

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There is No ‘Plan B’

By Barry Rascovar

Aug. 12, 2015 –Instead of tamping down the furor surrounding Gov. Larry Hogan Jr.’s cancellation of the Baltimore region’s $2.9 billion rapid-rail Red Line, his administration is adding fuel to the fire.

Instead of presenting alternative rapid transit proposals to Baltimore regional officials at a Monday meeting, Hogan’s transportation chief, Pete Rahn, offered nothing concrete.

Transportation Secretary Pete Rahn

Transportation Secretary Pete Rahn

Meanwhile, Hogan’s press spokesman continues to spew invective on anyone or any organization that dares dispute that decision.

In sixty days Rahn says he’ll having something to announce on faster bus service.

Wow.

What Happened to Plan B?

The sad truth is that there never was a Plan B.

Hogan fulfilled a campaign pledge by killing the Red Line and shifting all that anticipated state spending over the next six years to road and bridge projects elsewhere in Maryland.

That’s why there are zero plans coming from the governor’s office to bolster the Baltimore area’s sad excuse for rapid transit.

Better travel by bus is a great concept but it is one that Rahn’s department has worked to achieve for decades — with little success. The failure of Baltimore’s bus routes lies entirely at the feet of state officials.

The state owns the buses. The state set up the bus routes. The state pays the drivers. The state manages the bus agency. The state has conducted countless public hearings on improving service. We’re still waiting for dramatic improvements.

Officials know what’s not going right. Can they fix it? So far, the answer is “no.”

Congestion and Buses

Giving riders real-time information on bus arrivals doesn’t get the buses to their destination any faster. How is Rahn going to move buses through congested downtown quickly?

Buses, like cars, sit in backed-up traffic. Too many vehicles clog busy intersections and arterial roads, especially at rush hour. What is Rahn going to do about that?

Subterranean rapid rail bypasses time-consuming street congestion with ease. New York and Washington are great examples of this.

But Hogan won’t pay for digging the tunnels. He wants mass transit projects only if they are cheap and bare-bones. That means no tunnels.

Both Rahn and his boss are highway-centric suburbanites. That’s where the state is putting its money over the next six years, not rapid rail or other urban transportation programs.

On-Time Buses

Regional officials can complain about Hogan’s disrespect toward Baltimore’s rail deficiencies but that won’t move the ball forward.

Once and for all they need to face reality. There won’t be a Plan B coming from the Hogan administration. It was never on Hogan’s game board. He’s already redistributed the Red Line money to non-Baltimore projects.

At best, Rahn might offer Baltimore crumbs in the form of getting buses to run on-time and new bus routes connecting suburban job centers to the city.

Those would be welcome, long overdue steps. Yet they are small, incremental improvements on the cheap.

Between now and next January, the governor can do pretty much anything he wants. He’s running state government without meddling from the Democratic legislature.

He’s setting up a fractious clash next year, though.

Uncaring Governor?

The impression is growing that Larry Hogan doesn’t care about Baltimore City. It’s a hostile political environment for a Republican governor. The city’s chronic problems are difficult and expensive to address. He’d rather spend state dollars in communities that vote Republican. He also doesn’t seem to grasp the deep societal woes that are dragging down a once-great American community.

Yet the decline is happening on his watch.

Like it or not, Hogan will be blamed if Baltimore’s slump accelerates while he is governor and he fails to take action.

Baltimore badly needed the economic boost the Red Line would have provided. Having killed that project, Hogan haven’t come forth with an alternative stimulus.

Where are the state jobs programs and reconstruction plans for riot-torn West Baltimore? Couldn’t the governor piece together a major housing demolition-and-rehabilitation initiative? There’s a crying need for more and better drug treatment programs. Recreation activities for youth are lacking. So are after-school programs.

Three-plus months since the destructive unrest in Baltimore, the governor has yet to produce a package of helpful initiatives to make life better for inner-city residents. He knows the city’s leaders are strapped for funds. Only the state has the resources to step in and help in a big way.

That is Hogan’s challenge, especially after he axed the city’s only major economic hope.

At this point, the governor should make a point of showing he has not forgotten Baltimore. The city requires large-scale, innovative assistance from Annapolis.

Baltimore’s future lies, to a large extent, in Hogan’s hands.

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MD: Not Quite ‘Open for Business’

By Barry Rascovar

June 22, 2015 — Larry Hogan, Jr. was elected governor partly because he promised to bring jobs and companies to Maryland and reverse the hostile, anti-business mindset of the outgoing governor (and current presidential candidate), Martin O’Malley.Open-for-business-sign-MD Reporter

Six months later, the results are mixed, at best.

Since Hogan took office in late January, 12 companies have notified the state they will close or impose mass layoffs, costing 1,439 Marylanders their jobs.

The latest is the production crew of “Veep,” an award-winning HBO political comedy that has filmed in East Columbia and Baltimore for four years. The economic impact for the first three years of production: $114 million.

A day earlier, U.S. Foods, Inc. announced closure of its distribution center in Severn in Anne Arundel County, a warehouse that employed 500 Marylanders.

Next week, Labinal Power Systems will shutter its manufacturing plant in Salisbury, where 650 people made wire harnesses for military aircraft, including the Chinook helicopter.

‘Climate Change’?

“Veep” is moving its film operation to California because of that state’s bigger tax credit. Safran, the French owner of Labinal, is consolidating operations in Texas; U.S. Foods is shifting its Severn jobs to Manassas, Va.

MD promotional poster -- out of date

MD promotional poster: Out of date

Hogan’s pledge to implement business “climate change” is not working as expected.

Sure, he proudly crowed about McCormick & Co.’s decision to build a large headquarters edifice in Hunt Valley rather than moving its 2,000-member HQ staff to Pennsylvania or Virginia.

But all is not well in the Free State.

Despite Hogan’s promotional claims, Maryland may not be “Open for Business” in the eyes of corporate leaders.

Job Losses Mount

Unilever is moving its production of vegetable oil and margarine spreads, like Country Crock and I Can’t Believe It’s Not Butter, from Baltimore to Kansas. Job loss: 137.

DynCorp International is shuttering its aviation support equipment facility at Solomons Island in Southern Maryland. Job loss: 121.

Clothier Jos. A. Bank is displacing 122 employees at its Hampstead plant in Carroll County.

T. Rowe Price is outsourcing 211 accounting and record-keeping jobs from its Owings Mills campus in Baltimore County.

In July, 69 workers at Riverbed Technology in Bethesda in Montgomery County will be jobless.

In August, 54 workers at Orion Safety Products’ Easton plant in Talbot County will be out of work.

Historic Distillery Closes

Meanwhile, the giant British firm, Diageo, is throwing 103 people at its bottling plant on Washington Boulevard in Baltimore County into the unemployment lines.

This ends 83 years of liquor operations there: The Relay plant was Maryland’s first legal distillery opened in 1933 after the end of Prohibition; Seagram’s used to bottle Calvert Whiskey in the building.

Not exactly the kind of job-creating start Hogan had in mind.

Results still lacking

Results still lacking

Of course, he did brag about the 16,400 jobs added overall in April — though he downplayed the 5,700 jobs lost in March.

That’s pretty much in line with O’Malley’s uneven job-creating performance.

In his last full month in office, the presidential candidate proudly announced the state had generated 11,000 new jobs in December.

Inconvenient Truth

What we’re seeing is the reality politicians don’t want to admit: They have, at best, marginal ability to influence the job-creation, job-loss decisions of private-sector companies. Larger macro-economic and macro-corporate factors are in play.

Thus, O’Malley could do little to stem job losses during and after the nation’s Great Recession. Hogan can do little to overcome corporate consolidations or international and industry developments that influence CEOs.

Yes, Maryland’s economic development team under Hogan is far friendlier and eager to make it simpler for businesses to re-locate to the state by easing their regulatory burden.

But Maryland remains a relatively high-cost state for corporations, especially compared to neighboring Virginia and Delaware. Government red tape is terrible in Baltimore City and many of the state’s most populous counties.

Hogan also is ideologically opposed to large financial giveaways to corporations — a form of economic bribery favored by many states.

‘Veep’ Fumble

Thus, he failed to offer “Veep” a larger tax credit than California to keep the film crew in Maryland, even though the legislature had given him that authority.

No wonder he earned the wrath of Howard County Del. Frank Turner, who said Hogan “dropped the ball,” and the county’s state senator, Ed Kasemeyer, complained Hogan sent the wrong signal “that Maryland isn’t committed.”

Loss of “Veep” and possibly “House of Cards” next year is a serious blow to a budding state industry. Just the economic impact of HBO film production in Maryland since 1997 is estimated at $300 million.

Job losses from a diminished film industry in Maryland could affect thousands of workers and businesses.

According to Towson University’s Regional Economic Studies Institute (RESI), the average film production in the state spends $16.8 million, hires 746 Marylanders, calls on 857 Maryland businesses and vendors for accessories and supplies, and spends 2,952 room nights in Maryland hotels. The average tax credit for a Maryland film production: just $3.3 million.

But don’t expect Hogan to get in a bidding war for films with California or other states. How he will make up for the job losses and lost spending isn’t clear.

Immediate Challenges

He faces other, more immediate and daunting challenges that could involve distasteful state subsidies to draw jobs to Maryland or keep jobs in-state.

There’s the question of how to retain Marriott’s headquarters (2,000 workers) in Bethesda from moving to Virginia, which is eager to offer a bevy of attractive tax and financial enticements.

There’s the question of winning the battle for a new FBI headquarters. Again, Virginia is offering a battery of enticements to the federal government. How can Maryland effectively compete when the governor is ideologically skeptical of offering lavish incentives?

There’s also the matter of the rapacious owner of the Washington Redskins, Daniel Snyder, who wants to shake down either the Maryland, Virginia or District of Columbia government for a new stadium that will cost him nothing, or next to nothing.

These will be tough decisions for Hogan, especially with his distaste for corporate giveaways.

Yet proving Maryland is open for business may require more than easing restrictive business regulations and putting a smile on the faces of Maryland’s business-development leaders.

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Barry Rascovar’s blog is www.politicalmaryland.com. He can be reached at brascovar@hotmail.com.

Hogan: Hero or Goat?

By Barry Rascovar

June 15, 2015 — Decision time is nearing on the future of Baltimore’s planned Red Line rail route. Will Gov. Larry Hogan, Jr. be celebrated as a hero or lambasted as a goat?

Baltimore's Planned Red Line Route

Baltimore’s planned Red Line route

That question has hovered over the Republican governor ever since he won election last November.

Will he appease his conservative followers and live up to his campaign pledge to kill both the Red Line and the Purple Line in suburban Washington?

Such a move would be a stunning waste of half a billion dollars in state taxpayer dollars already spent. But think of the message it would send to the tea party crowd and Republican ideologues who coalesced around Hogan as a budget-cutter.

Yet it would end any chance of détente between Republican Hogan and the heavily Democratic General Assembly. Such a crushing blow to the three largest Democratic jurisdictions would guarantee all-out warfare — and gridlock — over the next three years in the State House.

Even worse, Hogan would look like a heartless ogre turning his back on impoverished Baltimore right after the dreadful damage of April’s civil unrest.

Rookie Mistake in Japan

The governor’s recent, all-out embrace in Japan of magnetic levitation high-speed trains between Baltimore and Washington was the sort of mistake a rookie politician makes.

Does this mean Hogan supports an unproven technology with a minimum price tag of $10 billion (under the fiction the state wouldn’t pay anything) but not the far more important — and cheaper — Red and Purple Lines?

Adding an inside-the-beltway, east to west light-rail route between Montgomery and Prince George’s counties makes enormous sense.

Purple Line

The planned Purple Line in suburban Washington

Commuting would prove far easier for tens of thousands of people living in suburban communities south of the Capital Beltway. It also would serve poor minority neighborhoods in those two counties. These are the Marylanders who need rapid transit the most.

However, the Washington region already has an extensive Metro system heavily financed by the federal government. If the Purple Line fades to black under Hogan, it’s not a crushing blow.

It would be a stupid move politically and from an economic development standpoint — and a waste of hundreds of millions already spent. But it would hardly be a calamity.

On the other hand, deep-sixing the Red Line would be another nail in Baltimore’s’ coffin.

The region lacks a legitimate rapid-rail system. It’s got a Toonerville Trolley of a light-rail route running north-south, from Hunt Valley to the outskirts of Glen Burnie. And it’s got a heavy-rail subway between Johns Hopkins Hospital and Owings Mills in northwest Baltimore County.

Sadly, the two lines don’t connect. There is no fixed rail route through East or Northeast Baltimore, no rapid rail available to residents of West Baltimore where the disturbances took place.

A True Rail Network

The Red Line would create an imperfect but viable rail system.

East and West Baltimore residents could quickly and easily commute across town as well as north-south. Thousands of workers employed at Social Security headquarters and the Centers for Medicare and Medicaid Services in Woodlawn would have fast, convenient train service to their campuses.

The woeful Security Square Mall in western Baltimore County would be given new life for residential, commercial and retail purposes.

The Red Line also would serve nearly every recreational and cultural event in downtown Baltimore.

For West Baltimore residents desperate for jobs, the Red Lines would be a crucial help line. Employment centers in diverse parts of the region suddenly would be within reach by rail connections.

Red Line logo

The 19 Red Line stations could become catalysts for small-scale economic growth and job-creation, too. That’s what has happened in other cities as new rail-transit lines open.

Let’s not forget, as well, the enormous economic boost that the Red Line and Purple Line would give Maryland’s still-lagging economy.

The Red Line alone means 10,000 direct construction and related jobs — all of them paying solid wages. These workers would earn $540 million, at a minimum, as the line is built. The economic impact is far larger if indirect jobs are counted.

For once, Baltimore would have a connected mass transit system, a key lacking ingredient in its attempt to attract the car-less, millennial generation to Charm City.

Forfeiting a Billion Dollars

Here’s another reason why Hogan’s rejection of the Red Line or Purple Line would be penny wise and pound foolish: There’s nearly a billion dollars of federal funds already budgeted for the two projects.

If Hogan tosses the planned routes in the waste can, all that federal money disappears. Maryland then goes to the back of a long line of cities seeking funds for mass transit projects of their own. New transit lines in Maryland would be set back a decade or more.

Yes, Hogan campaigned as a foe of the Red and Purple lines. If he’s smart, though, he will wiggle out of that bind by finding ways to trim construction costs and requiring a larger local match.

We tend to forget that while rapid rail is expensive to build initially — $3 billion for the Red and Purple lines — those tracks will serve the Central Maryland community, where most of the state’s citizens live, not for decades but for centuries.

The London Underground, with 270 stations, is over 150 years old and more popular than ever.

Governors must make hard, difficult choices. Giving the go-ahead on the two rapid rail lines might prove temporarily uncomfortable for Hogan but it is clearly the right thing to do — for future generations of Marylanders and for his own place in the history books.

Barry Rascovar’s blog is www.politicalmaryland.com. He can be reached at brascovar@hotmail.com.