Supporters of Gov. Larry Hogan's proposal to give Northrop Grumman Corp. $20 million to keep the headquarters of its Missions System division in Maryland say the state is protected if the firm were to move, downsize or go out of business.
That's because the deal is structured as a conditional loan that would only be forgiven if the defense and aerospace giant makes $100 million in capital investments and maintains 10,000 workers in Maryland for a decade.
But if Northrop Grumman failed to meet those terms, it's unlikely the state would recoup all of its money.
Most conditional loans offered through the state's Sunny Day program are structured on a "pro rata" or proportional basis, meaning firms often keep at least some of the money, even if they end up employing fewer workers or meeting the conditions for only some of the years of the agreement.
That's apparent in the case with Bechtel Corp., the global construction and engineering firm that received the last incentive package offered through the program.
In 2011, Bechtel received a $9.5 million conditional loan, to be forgiven if the firm kept 1,250 employees in Maryland through 2018. The state, which structured the loan in installments, only disbursed about $5.2 million, including a $1.1 million grant.
But Bechtel announced plans in 2014 to relocate its Maryland workers as part of a global restructuring.
State officials said they would seek a clawback.
In May 2015, Bechtel returned about $1.9 million to the Sunny Day program, including interest, and agreed to forgo future disbursements, said Gregory Cole, senior director of the Maryland Department of Commerce's Office of Finance Programs. Thanks in part to the pro rata provisions, the firm kept about $3.4 million for the workforce it maintained in Maryland until April 2015.
Cole said pro rata provisions are important because companies are vulnerable to market factors outside their control and the incentive is meant to encourage and enable firms — not penalize them.
"We want the company to try to achieve the employment number," Cole said. "The whole intent is to cause them to do that, not punish them for not doing it."
"The Department of Commerce doesn't just give the money and say, 'Hey, good luck,'" he added. "If in fact the deal isn't finalized it's our obligation to get the money back, and we do."
In all, the state has made 62 Sunny Day loans worth about $92.4 million since about 1998. It's sought clawbacks in 32 cases, recouping about $20 million, Cole said.
And what is the biggest Sunny Day loan to be disbursed? Cole said that was $11.5 million approved in 1996 — for Northrop Grumman.