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On business issues, Hogan and Brown see two very different states

The Baltimore Sun

When Republican Larry Hogan and Democrat Anthony G. Brown discuss the business climate in Maryland, it seems as if the gubernatorial rivals are talking about two different states.

Hogan's Maryland is a terrible place to do business, a state where companies and residents are streaming for the borders to escape oppressive taxation and capricious regulations. His remedy: tax and spending cuts coupled with business-friendly appointments to regulatory agencies.

Brown's Maryland is the state with the highest household median income and a blue-chip AAA bond rating, where top-quality educational resources and strategic investments fuel the nation's No. 1 entrepreneurial culture. The state has some problems with cumbersome licensing and regulation, Brown says, but he adds that he has a plan to ease that burden.

Driving their plans is a fundamental disagreement over the course Maryland has charted the last eight years under Gov. Martin O'Malley.

"The state of the business climate in Maryland is horrible over the past eight years. It's deteriorated in a frightening way," Hogan said.

Brown argues that the last eight years have been marked by steady progress in the face of the worst economic downturn since the Depression. He notes that Maryland has weathered the recession without the sharp spending cuts many other states made.

"We can't abandon the work that we've done, the investments we've made, the success we've had in such areas as education, college affordability, safe neighborhoods and the progress we're making on the environment," Brown said.

Neutral observers aren't buying into either Hogan's apocalyptic vision or Brown's relatively sunny assessment.

"It's something in the middle," said Dairius Irani, chief economist at the Regional Economic Studies Institute at Towson University.

Hogan's economy-centered campaign is built around a core narrative of a state in such decline that four more years of O'Malley-Brown policies will cause irreversible damage. On the campaign trail and in his ads, he delivers a rapid-fire critique of Maryland's economy: 8,000 small businesses gone or closed in the O'Malley years, unemployment almost doubled.

But at least one of Hogan's claims doesn't hold up under scrutiny. His central premise — that he could pare back spending without cutting essential services — rests on his assertion that the state's auditors uncovered $1.75 billion in waste, fraud and abuse under the O'Malley administration. Hogan's numbers do not add up.

A Baltimore Sun review of three cases in the audits Hogan cites found that his $1.75 billion figure is inflated by at least $843 million, or roughly half.

•In one case, the campaign put a decimal point in the wrong place. Questionable spending on business tax credits that a February 2012 audit put at $11.95 million was counted by Hogan as $119.5 million, a $107.5 million error.

•In another, the campaign noted tax assessors undervalued some land by $285 million, according to a 2013 audit. Were the land properly valued, the state would have received about $319,200 more in property tax revenue. The Hogan campaign erroneously said the state missed out on $285 million — money it would never have received unless the state set tax rates at 100 percent.

•The campaign cites an April 2013 audit that found the agency distributing school construction money did not have an adequate system to track 126 projects worth $450 million. The same audit said the agency resolved its tracking problems before the report was released. Though there was no suggestion that $450 million was misspent, the Hogan campaign counted the sum as waste, fraud and abuse.

Hogan's campaign did not dispute The Baltimore Sun's findings but argued that its review of 52 of 300 audits during the O'Malley administration still suggests lax monetary controls and government waste. "The fact remains that ... potentially billions of our tax dollars have been wasted by the O'Malley-Brown administration," campaign spokesman Adam Dubitsky said.

While some of his assertions may be in question, there's no doubt that Hogan's narrative of a stagnating economy and a "mass exodus" from high taxes resonates with voters such as Jerry Kirby of Cambridge, whom Hogan met while campaigning in that town recently.

"If this election goes the wrong way, I'm out of here," Kirby told Hogan. "I can't stand these taxes."

Hogan says that his long-term goal is to roll back what he calls O'Malley's "40 consecutive tax increases" — a list that includes not only tax hikes, but fees, tolls and increases in bus and other transit fares required by state law. By Hogan's calculation, the various increases have brought in about $9.5 billion in state revenue — much more than he has identified in potential budget cuts.

In the short term, Hogan has called for tax cuts in general terms, but he has not offered specifics. He has spoken favorably of proposals for a reduction of the state corporate income tax from 8.25 percent to 6 percent. He's also said he favors cutting the personal income tax and ending taxation of retirement income.

He has not released a position paper costing out the impact of his proposals. Hogan has waved off questions about specific cuts to areas such as education and health care, vowing to find savings to pay for tax cuts by eliminating waste.

Hogan says he will back up his tax and spending policies with appointments of experienced business people to high positions in the agencies that write and enforce regulations. He said his election would bring an immediate improvement in a business climate ranked 41st out of the 50 states in one study.

"That would change on Day One because you'd have a governor who was unabashedly pro-business," Hogan said. "Our attitude on how to deal with business would be changed 180 degrees."

Todd Eberly, a political scientist at St. Mary's College, said Hogan's narrative may be well suited to a time when the middle-class economic standing has fallen to early-1990s levels

"For a Republican in Maryland, it's probably the message that has to work," he said, referring to Democrats' 2-to-1 advantage in voter registration.

Brown, meanwhile, is trying to sell voters on a nuanced program to improve Maryland's business climate. He's portraying Maryland as a place with significant strengths as well as weaknesses.

According to Brown, Maryland does well in some measures of quality of life that business cares about — the quality of the workforce, its schools, its transportation network. He proudly points to the state's No. 1 ranking by the U.S. Chamber of Commerce for entrepreneurship.

But, Brown says, "there are other areas where Maryland doesn't fare so well." In particular, he said the state's regulatory environment is overly burdensome for business. Brown said one of his priorities will be to streamline and speed up the regulatory and licensing functions of government.

"Business people don't want [you] to promise them that their request is going to be approved, but what they do want is a timely response to their request," he said.

Brown said that while the state's business climate was not one of the original 15 "strategic goals" set by the O'Malley-Brown administration, it would be in his own administration.

"The No. 1 and first-announced strategic goal will be to position Maryland to be the most competitive business climate in the nation," he said.

Brown contends that sweeping tax cuts are neither necessary nor desirable to improve the state's business climate. He said he has been consulting with business leaders extensively, even before launching his campaign, and has put together a business advisory council involving more than 100 companies.

In place of a broad corporate tax cut, which Brown contends would benefit mostly big businesses, he is proposing help for smaller, home-grown firms.

"We're going to start with our small entrepreneurial business community with targeted tax cuts," he said. Some of those cuts, he said, would likely be directed at potential growth areas such as cyber security, life sciences and research and development.

Brown also points to his support for infrastructure spending, including road and transit projects financed by the 2013 bill that raised Maryland's gas tax for the first time in more than 20 years. He noted that his support for construction of the Red Line in Baltimore — at a cost of about $2.6 billion — is much more in line with the position of the Greater Baltimore Committee than Hogan's outright opposition to the light rail projects.

"One of their top priorities is the Red Line. They view that as essential to ensuring the Baltimore business community is competitive," he said.

Eberly said Brown faces a distinct disadvantage in rolling out his plans for a change of direction in Maryland's business climate — the question of where his plan has been for the last eight years.

"You don't get to be the No. 2 man and just sort of sit on your hands for eight years," Eberly said.

michael.dresser@baltsun.com

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About this article

This is the third in a series of occasional articles on the candidates' positions on issues in the governor's race.

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