Hogan proposes giving Northrop Grumman $20 million to secure division headquarters and jobs

Hogan proposes $20 million funding to keep Northrop Grumman divisional headquarters and jobs in Maryland.

Gov. Larry Hogan has proposed giving $20 million to Northrop Grumman Corp. to secure the defense giant's newly formed Mission Systems divisional headquarters in Linthicum and 10,000 jobs in Maryland.

The money would be given to Northrop Grumman as a conditional loan from the state's Sunny Day Fund. The debt would be forgiven if the defense contractor invests $100 million in capital projects and retains at least 10,000 workers in the state over a decade.

If it fails to meet the benchmarks, Northrop Grumman would be required to repay some or all of the loan, as occurred with Bechtel Power Corp. in 2014 when it moved jobs from Frederick to Virginia, violating the terms of a 2011 loan package that required most of those jobs to remain in Maryland.

If approved by the General Assembly, the funding would be disbursed to Northrop Grumman, the state's largest manufacturing employer over four years. The budget for the state Department of Commerce, which includes the $20 million, will receive its first hearing Friday.

The 1,000-person headquarters of Mission Systems, created Jan. 1 through a merger of the company's electronic systems and information systems sectors, occupies 300,000 square feet in two high-security office buildings in Linthicum, just northwest of Baltimore-Washington International Thurgood Marshall Airport.

The campus had previously housed the Electronic Systems division, and the division has thousands of other employees in facilities around the region, making radar, navigational and other systems for the military.

However, the defense contractor has been unable to reach an agreement with its landlord on a lease renewal for the headquarters, said Greg Cole, director of finance programs for the state Department of Commerce.

"They were at the point of deciding, 'Do we stay here or do we build somewhere else or do we go somewhere else,'" Cole said. "There was a risk of their going elsewhere, and that's where the discussion began."

The state loan is intended to help the company purchase its existing facilities or build a new headquarters elsewhere in the state, he said.

"Northrop Grumman, as the state's largest manufacturing employer, could benefit from the appropriation," Jack Martin Jr., a spokesman for the Falls Church, Va.-based company, said in an email. "Overall, the funds would help stabilize our workforce in Maryland and improve business prospects for Maryland and companies within Maryland."

He did not respond to questions about the company's plans for the Missions Systems headquarters site or how it would invest $100 million.

In a Jan. 28 filing with the Securities and Exchange Commission associated with its fourth-quarter earnings, the company disclosed that its planned capital expenditures for 2016 include $300 million for the purchase of office buildings being leased by Mission Systems. The company did not specify the locations.

"Clearly, Northrop Grumman is an incredibly important company in the state of Maryland," said Douglass Mayer, a spokesman for the Republican governor. "A partnership with a great company that employs thousands of Marylanders and contributes substantially to the tax base and has an incredibly bright and promising future is always going to be something this administration and Governor Hogan supports."

Northrop Grumman's total economic impact on the state amounts to $5.3 billion annually, according to the state commerce department. The company's activities in the state support more than 25,000 Maryland jobs, and Northrop Grumman employees pay $49.2 million a year in state personal income and sales taxes, the agency said.

"They're very important for us to keep here and keep happy," Cole said.

Alexandra Hughes, a spokeswoman for House Speaker Michael E. Busch, an Anne Arundel Democrat, said the speaker was briefed by Maryland Commerce Secretary Mike Gill within the past 10 days on the plans for Northrop Grumman.

"There's generally a desire to give deference to the economic development professionals in this arena, but the devil's in the details," Hughes said.

The grant would have to be approved by the Legislative Policy Committee, a joint panel chaired by Busch and Senate President Thomas V. Mike Miller.

Miller, a Prince George's Democrat, was out of town Friday and could not be reached to comment.

In 2010, Maryland and the District of Columbia lost out to Virginia in a competition to lure the defense contractor's 300-person headquarters from California. At the time, Northrop officials said it was a real estate decision.

"Our final decision was driven largely by facility considerations, proximity to our customers, and overall economics," said Wes Bush, Northrop Grumman's president and CEO, in a statement at the time.

Last year, Northrop Grumman announced it would streamline its business, creating two new sectors in changes that took effect Jan. 1. The new Mission Systems sector is made up of Electronic Systems and those businesses within Information Systems that focus on new developments for military and intelligence customers.

"These changes align more closely with the evolving missions of our customers in the global security markets we serve," Bush said in the company's October announcement.

The state last used Sunny Day funds for a specific employer in 2011 when its moved to retain 1,250 high-paying jobs at Bechtel, which was considering a move to Virginia. The state's Legislative Policy Committee approved a $9.5 million loan package for Bechtel to keep the jobs in Frederick, but in 2014 the company announced that 1,000 of those jobs would move to Virginia.

The state responded by seeking repayment of about $3 million of the $4 million that had been lent to Bechtel because the company failed to meet the terms of the agreement.

State Sen. James E. DeGrange Sr., a Democrat whose Anne Arundel district includes the Northrop site, said the potential loss of a large employer is always a concern.

He said he understood the loan for Mission Systems is being proposed to go toward the purchase of the existing facility.

"That's what the governor wants to do, and I would certainly support that to keep jobs here, not only in the state but around my district," DeGrange said.

Baltimore Sun reporter Michael Dresser contributed to this article.

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