Marriott International Inc. executives decided as early as Feb. 10 that they would not carry out their threat to move the company to Virginia, but they asked Virginia officials to keep the decision secret so Marriott could extract the maximum amount of subsidies from Maryland taxpayers, documents obtained by The Sun show.
It wasn't until a month later -- March 11 -- that Maryland officials announced their deal to give Marriott up to $44 million in grants, tax credits and other subsidies to keep its headquarters from leaving the state.
Meanwhile, Maryland negotiators had put in weeks of hard bargaining without knowing that the large, hotel-management company had already decided to stay.
On Thursday the House of Delegates approved a measure that would allow Montgomery County to grant Marriott major tax breaks -- a key part of incentive package that state officials said was the largest ever given to a Maryland company threatening to move.
The measure passed the Senate Budget and Taxation Committee yesterday and will be considered by the full Senate next week.
Revelation of Marriott's early decision to drop Virginia sheds new light on the bidding war that dominated Maryland's economic agenda for months.
Virginia officials learned they were out of the Marriott race from Raymond Murphy, Marriott's treasurer and senior vice president of finance.
On Feb. 10, Murphy called Bob Gibson, a Virginia economic development executive, and told him the news, according to notes Gibson made of the conversation.
"If you really think about it, Maryland could not let us leave the state," Murphy told Gibson, according to the notes.
The Virginia official added that Murphy "asked that I keep this confidential until after March 31, when they announce their decision, as he is afraid that Maryland may back off if they find out we are no longer a serious competitor."
March 31 had been the target date for the announcement that Marriott would stay in Maryland. The date was moved up to March 11 to allow for legislative action.
The Sun obtained Gibson's notes and other documents held by the Virginia Economic Development Partnership, a quasi-public agency, through the state's Freedom of Information Act.
Virginia officials wondered from the very beginning whetherMarriott's threat to move was just a bluff to gain lucrative incentives in Maryland, the documents show.
In late 1997, Susan Liberty, a Fairfax County development executive, "had contact" with Marriott and concluded, "It seems they are shopping but won't leave [Maryland]," according to notes made by Ann Broadwater, a senior Virginia economic development official.
Liberty declined to comment, and Broadwater has moved to South Carolina and couldn't be reached.
Last May, Virginia officials grilled Marriott executives about their intentions in a meeting at Marriott's headquarters in Bethesda.
"The company spent a considerable amount of time addressing the rumors regarding whether or not Marriott would seriously consider leaving Maryland," according to a memo written by Broadwater. "They assured us that the project was real."
100 contacts with Va.
Marriott spent a significant amount of time looking at its Virginia options.
Virginia records show about 100 contacts between Marriott officials or their agents and people from the Virginia Economic Development Partnership over a 16-month period beginning in November 1997.
But in the end, Virginia officials concluded that Marriott was not very interested in switching states.
After Murphy called Gibson in February and told him the bad news, Gibson wrote: "To me, this confirms that they were merely using us for leverage [against Maryland]."
Marriott's case raises questions about good-faith negotiating at a time when hundreds of corporations are playing off one state against another to obtain lucrative handouts of public funds.
Maryland legislators expressed dismay yesterday about the Virginia documents and said they wondered about Marriott's ethics.
"If it's true it's pretty sad," said House Speaker Casper R. Taylor Jr., a Cumberland Democrat. "If this is the truth, we were very poor economic development game players."
'It's outrageous'
Though the information will not sit well with the General Assembly, the state has little choice but to go forward, said Taylor.
"Oh, my God! I think it's outrageous," said Del. Sheila E. Hixson, the Montgomery County Democrat who chairs the House Ways and Means Committee, after reading a copy of the internal Virginia records.
The notes demonstrate how corporations use competition among states to increase financial incentives at the public expense, she said.
Marriott, Maryland and Virginia officials denied any impropriety.
"It wasn't a question from Feb. 10 forward of bluffing or anything like that," Murphy said yesterday.
"But it looked like they [Maryland officials] were going to level the playing field with Virginia. And at that point, to be fair to Virginia, I wanted him to know that it was highly likely that we would remain in Maryland" if the state's preliminary offer came through.
"Did we tell Maryland at that point that we were going to stay? No," said the Marriott executive.
But by getting serious at the negotiating table, "Our actions screamed at Maryland that we would stay, or that we probably would stay," he said.
Richard C. Mike Lewin, Maryland's secretary of economic development, said that the state had made a substantial offer to Marriott on Jan. 29 and that Marriott ultimately got less than what was in the Jan. 29 package.
"It was a preliminary offer, but it contained all aspects of what was contained in the final offer," he said. "I think it was a great deal for Maryland, and I think they absolutely operated in good faith in every aspect of the talks."
Other sources, however, said yesterday that substantial negotiating took place after Feb. 10 and that the Marriott deal was not a sure thing until Feb. 25 or so.
Items on the table at that time included Marriott's controversial request for tax breaks on its existing property, a feature that was not part of the final deal.
"An awful lot" of back and forth happened after mid-February, said David Edgerley, economic development director of Montgomery County, where Marriott is based.
Negotiations "went into overdrive" at the end of February, said another government source, who asked not to be identified.
John Sternlicht, a lawyer for Virginia's Economic Development Partnership, defended the state's move to keep Marriott's decision confidential.
"It wouldn't be odd at all or raise an eyebrow for a company official to say, 'This is what we're thinking, but please keep it confidential' " said Sternlicht, who was designated by the agency to answer questions about the case.
"We appreciate that a company will let us know where we stand."
Bluffing not unusual
Secrecy in economic development negotiations is normal, independent experts said. And, they added, it's not unusual for companies to bluff about relocating or to decide part way through the process that they prefer one location over another.
What's unusual, they added, is evidence of the decision-making process coming to light.
"I think we knew this. Every state knows it," said House Majority Leader John Adams Hurson, a Montgomery County Democrat.
Marriott's behavior "seems absolutely reasonable and proper," said James Schriner, director of location strategies for Deloitte & Touche Fantus Consulting in New Jersey. "It would have been, 'We're focusing our attention on completing our deal in Maryland, and if that falls through, we still need a place to go. And then Virginia is likely to get it.' "
"Was it wrong of them to retain the leverage? No," said Kate McEnroe, a corporate site consultant in Atlanta.
"Now that doesn't answer the moral, ethical and bad faith questions. The standard of behavior we expect in incentives negotiation with government is much higher than the standard of behavior we expect when private companies are dealing with one another. "If these were two private companies, you wouldn't be writing [about] this."
Staff writers C. Fraser Smith and Thomas W. Waldron contributed to this article.
Pub Date: 3/27/99