Helping business entails risk Taxpayer funds: State aid to companies can create jobs, but sometimes doesn't.


DON'T EXPECT a perfect record on loans and grants made by the state economic development department. Officials there know that a few failures are inevitable, that the state could lose loan and grant money sometimes. That's the price of doing business with start-up firms and companies that need help to keep jobs in Maryland.

State auditors have discovered that economic development officials in the Schaefer administration often made loans or grants without critical information and documents. Some of those poor loans are now turning sour, costing taxpayers millions of dollars.

Don't blame state business chief James Brady. The loans in question were granted before he took over. Mr. Brady has been diligent in tightening loan criteria and demanding tougher analysis of applications. The state is also using computers to more closely track the progress of companies receiving state money. Firms that don't produce the promised jobs are being forced to repay the state.

Accountability is crucial. Mr. Brady knows he must do a better job than his predecessors in convincing legislators that his department is closely scrutinizing deals and keeping on top of them over the years. Otherwise, General Assembly support for these loan and grant programs could be seriously undercut.

Risk-taking, though, is unavoidable. One reason the state makes these business loans is that the companies involved aren't able to secure their own financing through the private sector. The state steps in to preserve jobs, and sometimes to bring in new jobs.

The risk is worth it. Of 41 Sunny Day Fund grants, only one is a problem; the small-business fund had just one big loss in four years, and the bond insurance fund paid $5 million in claims versus $104 million in commitments.

It is easy to rail about the businesses backed by the state that failed. What is rarely pointed out are the successes, which are far more numerous, and which have created or preserved thousands of jobs. That's what Maryland's economic development effort is all about.

Lawmakers should demand a full accounting for loans and grants still outstanding. But they should not try to restrict Mr. Brady's department. That could harm the state's drive to create jobs. In economic development, you've got to have the flexibility -- and the courage -- to take some carefully calculated chances.

Pub Date: 9/22/96

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