Md. job-creation tax credit gets few takers so far

Relatively few employers have applied to claim a state tax credit for hiring Marylanders off the unemployment rolls, raising questions about its effectiveness as a job-creation tool.

Six months into the program, businesses have qualified to collect less than 10 percent of $20 million the state budgeted. Total hires: 350 previously unemployed people. The first-come, first-served program could support 4,000 tax credits of $5,000 each; businesses have until the end of the year to apply.

What kind of government intervention could goose the economy is the subject of fierce debate — one that is likely to become more heated as the November elections near. While states and the federal government have spent billions in stimulus dollars and given various tax breaks, unemployment remains near record highs set in the early 1980s. Maryland's rate rose to 7.3 percent last month.

The small queue for the state's job-creation tax credit doesn't mean that no one's hiring, however. Employers have added more than 17,000 jobs in Maryland since the tax credit took effect in the middle of March, even accounting for some downsizing this summer. Not every new hire meets the criteria for the credit, but many more than 350 probably do.

Some say that too few employers realize the incentive exists despite state efforts to spread the word.

Demand for these types of tax credits "is just remarkably low in view of what the government is willing to hand out to employers," said economist Gary Burtless, who is a senior fellow at the Brookings Institution, a Washington think tank. "It makes you question whether it is achieving any net gain in employment at all."

Linda Gasch, co-owner of Gasch Printing in Odenton, heard about the Maryland program only after she'd hired someone and discovered — by a happy coincidence — that her business qualified for a credit.

"My sense is that people don't know about it," said Gasch, whose Anne Arundel County business employs 14. "The word just isn't out there."

Federal tax credits for hiring the unemployed are also available this year, though it won't be clear until next year how many businesses will claim them. The Treasury Department is offering monthly updates on the number of hires that meet the criteria in hopes of bringing more attention to the program. The agency estimates there are tens of thousands of eligible hires in Maryland alone.

Maryland officials said participation in the state program could still rise significantly in the next few months.

"That's certainly our hope, that hires have already been made and employers are simply waiting to have critical mass so they can go through the application process all at one time," said Bernie Kohn, a spokesman for the state Department of Labor, Licensing and Regulation.

Gov. Martin O'Malley, a Democrat who faces a tough re-election challenge from predecessor Robert L. Ehrlich Jr., proposed the credit in December while the unemployment rate was at a 26-year high. He also called for an expansion of a tax break for rehabbing historical buildings and loan guarantees to help small businesses get credit.

"The tax credit was always meant to be one tool in a variety of initiatives that the governor has pushed to revitalize the economy and create jobs," said Shaun Adamec, a spokesman for O'Malley.

Andy Barth, a spokesman for Ehrlich, said the problem with the state and federal job-creation tax credits is "they don't attack our economy's underlying problem: lack of demand."

"Many small business owners have told Bob Ehrlich they don't take either tax credit seriously because they don't cover the cost of hiring the employee, because client demand for services is low, and because they are concerned about state government's hostility toward entrepreneurs," Barth said in an e-mailed statement.

More demand is critical for hiring, said Ron Wineholt, vice president of government affairs at the Maryland Chamber of Commerce. Still, the chamber supported the tax credit legislation and has promoted the program — called the Hiring Incentive Rebate for Employers, or H.I.R.E. Maryland — in newsletters to members.

"We're still hopeful it could make a difference in accelerating some employers' job hires," he said. "But the participation seems fairly modest to date."

Adamec said the state is trying a many-pronged approach to get the word out.

As O'Malley campaigns around the state, he is encouraging businesses to apply. The Maryland One-Stop Career Centers are helping employers find people who would qualify them for the incentive and counseling job seekers to use their unemployed status as a selling point.

In webinars for employers, the state labor and economic development agencies tout the ease of the program, pointing out that the online application system does the work of determining whether hires qualify.

Some businesses are enthusiastic about the credit. It gave Curtis Bay Energy, a Baltimore company that converts medical waste to energy, the push it needed to hire two people this summer as it contemplated whether to expand. Executives there are thinking of hiring two more.

"This credit really made us say, 'Hey, let's go ahead and do it,'" said Steve Groenke, a vice president with the company. "So I think it really accomplished what it was intending to accomplish in our case."

Douglas Heck, a partner at InfoPathways Inc., a Westminster information technology firm, said the credit paired with a training grant from the state allowed him to hire a candidate and give him the needed skills.

"That's definitely a decision-maker or -breaker in this economy," Heck said of the government help.

But the credit hasn't operated as an incentive for all of the businesses intending to claim it. Some found out about it after the fact. Others say it had no effect on their hiring decisions.

"The tax-credit opportunity did not motivate us to make those hires," said Jim Lynn, a spokesman with spice maker McCormick & Co., which has qualified for two credits. "We would have done them anyway."

Dixie Construction Co., a Harford County firm that qualified for 21 credits, said the same. As work picked up, it rehired workers it had earlier been forced to let go.

That's a key criticism of state and federal job-creation tax credits over the years — that some or even most of the money goes to businesses that would have hired anyway. But a variety of economists argue that these incentives represent a less costly way to get a hiring boost than many other stimulus efforts.

Alan Viard, an economist at the American Enterprise Institute, a Washington think tank, said it does appear that a well-designed credit encourages hiring by businesses sitting on the fence.

When President Barack Obama came to Baltimore in January to pitch the federal tax credit that's now in effect, he put a positive spin on credits going to firms who would have hired regardless.

"Then it simply becomes a tax cut for small businesses that will spur investment and expansion," he said. "And that's a good thing, too."

The state's credit is refundable, so employers will get cash back next year if their tax bill is lower than their credit amount. But not every out-of-work Marylander meets the criteria to qualify.

Wayne C. Welch, owner of Welch Mechanical Designs in Belcamp, said only one of his three hires since the program started met the criteria though all were unemployed. One hadn't collected unemployment insurance — workers must either be hired off those rolls or have exhausted their benefits in the past 12 months and not have full-time work. Another left soon after he was hired, so he won't remain on staff for a year as required.

Welch is doubtful the credit is working as intended.

"I think it has less than a 1 percent effect," said Welch, whose small business makes high-precision instruments such as telescopes. "It's political lip service — but it's there, so I'm going to use it."

State officials set the criteria in hopes of decreasing the number of Marylanders collecting jobless benefits — that when given the choice of several good candidates, businesses would hire people off the unemployment rolls. That does seem to be swaying some employers.

The family members who run Gasch Printing say they're thinking along those lines for their next hires, now that they know the credit exists.

"Certainly that's an incentive," said Doug Gasch, the company's president.

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