Gov. Larry Hogan claims the legislature is manufacturing a non-existent link between its choice of whether to approve $20 million in economic development loans to aerospace giant Northrop Grumman and the governor's decision not to spend about $100 million legislators had set aside for K-12 education and other priorities. But while there surely is some political tit-for-tat going between Democratic lawmakers and the Republican governor, there are some substantive questions, too. Mr. Hogan said he made his choice out of fiscal prudence at a time when state tax revenues are coming in lower than expected. Why should it be irresponsible for the legislature to make the same calculation? More to the point, as Sen. Richard Madaleno of Montgomery County put it, if the state can't afford a $25 million appropriations for its schools, how can it afford to $20 million for a huge and profitable corporation?
In the big picture of a $42 billion state budget, choices aren't really that stark. Legislators and the governor annually balance competing priorities to fund everything from prisons to state parks; it is merely a quirk of how this year's spending plan played out that these are two of the only remaining choices left to make. But the question is more complicated than whether we value corporations or schoolchildren more highly.
Governor Hogan's budget placed $20 million in the state's so-called Sunny Day Fund, which is designed to provide grants, loans or investments to induce employers to make capital investments in the state and attract or retain workers. Mr. Hogan and Northrop negotiated the deal — which also includes a separate, $17.5 million income tax credit the legislature approved this year — to ensure that the company's consolidated Mission Systems Division remains in Linthicum. Northrop promised to retain an average of 10,000 jobs there and to invest $100 million to buy its currently rented Linthicum facilities and to upgrade them. The income tax credit was controversial, but loan prompted little discussion. Northrop completed the purchase of the building in April after the legislature approved the budget, including the loan funds.
The Sunny Day Fund has been existence for decades but has seen relatively little use of late. It has been seeded over the years with money from the state's general fund, but not since 2002, and in recent years, lawmakers diverted funds paid back into it from loan repayments or clawbacks of incentives to support other priorities, including film tax credits. Consequently, Governor Hogan had to take the $20 million out of general funds in order to pay for the Northrop Grumman loan. Thus, the money comes out of the same pot that could otherwise be used on schools, so to that extent the Democrats' linkage of the issues is valid.
But in the world of apples-and-oranges comparisons that state budgeting requires, there's a lot to consider. For one, the funds for schools Governor Hogan has declined to spend — including $6.1 million to upgrade aging facilities and $19 million to help defray local government contributions to teacher pensions — were part of an $80 million collection of line items legislators lumped together in such a way that Mr. Hogan had to fund all of them or none. The governor could not, at this point, shift the $20 million meant for Northrop over to the public schools — at least not without spending another $60 million, mostly on other things.
And the value of keeping such a large presence in Maryland for Northrop — a corporation that surely would be wooed by any number of states — is not something to be taken lightly. Department of Legislative Services analysts, who recommended approval of the deal, estimated that the company's presence in Maryland provides more than $49 million in direct annual tax revenues for the state and more than $20 million for Anne Arundel County. The loan would be disbursed over four years, subject to the company's ability to meet certain benchmarks for investment and job retention, and the money is subject to clawback provisions if the company fails to meet its promises.
On the other hand, Northrop has been the beneficiary of a wide variety of incentives from state and local governments in Maryland dating back two decades. Sometimes it has lived up to the terms of its deals, sometimes it hasn't, and sometimes it has persuaded the state to change the requirements in its favor. Legislators have every reason to question the Hogan administration and corporate officials about that track record.
And then there are the intangibles. Is there a real risk that Northrop would move its operations elsewhere if the Legislative Policy Committee rejected the deal? A Northrop spokesman said at the time the budget was approved that "we don't have plans to leave the state." What would it say about the state's attractiveness to private sector investment if it promised incentives only to back out after a company followed through on its purchase of property here? Would approving the deal open the door for the state's other big corporations — Marriott, for example — to demand the same treatment Northrop is getting? What about the subtler benefits of Northrop's presence — for example its extensive partnerships with UMBC on scholarships, internships, business incubators and, most recently, an initiative to create state-of-the-art facilities and instruction in science, math, engineering, arts and technology at Lakeland Elementary/Middle School in Baltimore?
Those are the sorts of questions that would best be answered in a hearing of the Legislative Policy Committee. Legislators can reject the deal or delay a vote if they want to, but they ought to at least hear all sides and get the facts. If it's important to the governor, he can come to testify.