BALTIMORE – Economists said this week they are perplexed by the poor health of Maryland’s economy, which continues to lag behind the nation’s.
“We should be growing, given [Maryland’s] innate resources,” which include an educated and productive work force and hefty spending on high-tech research and development, said Richard Clinch, an economist with the Maryland Business Research Partnership.
And yet key 1995 indicators of economic growth show Maryland is in trouble. For instance, the number of new jobs in Maryland increased by 0.5 percent, well behind the 2 percent national average, giving the state the dubious ranking of 44th in the country.
Maryland ranked 32nd in attracting new facilities or expanding current ones, while Virginia ranked 14th.
And Maryland ranked 42nd in manufacturing employment, falling 15 percent from 1990 to 1995. That compared to a decline of 3 percent nationally.
“Maryland has gone from one of the fastest growing states … to one of the slowest,” said a report released Wednesday by the partnership, a privately funded research unit of the University of Baltimore.
The report analyzed 160 variables of Maryland’s business climate in areas such as taxes, regulations, infrastructure and labor markets.
Explanations for Maryland’s economic woes include:
* High taxes. Marylanders pay among the nation’s highest state and local income taxes as a percentage of personal income – – an average of $932 in 1995. The national average was $478 and Virginia’s average was $554.
* A continued dependency on federal contracts, despite half a decade of dramatic declines in federal spending.
* Seemingly cumbersome regulatory laws, including those governing the environment and work place safety. Maryland is one of 23 states with a state arm of the Occupational Safety and Health Administration, giving the appearance of double regulatory compliance needs.
* A reliance on taxes to raise revenues to take care of the poor. By contrast, Southern states promote economic growth to take care of the poor.
“Growth comes when states use the economy to solve social problems,” not the other way around, Clinch said.
Even some assets have not been producing results.
The state enjoys enormous research and development spending – roughly $1,501 a person in 1995, compared to Virginia’s $454, according to the report. This spending put Maryland in second place in attracting federal and university research dollars.
But the products resulting from the research are produced in other states that have lower taxes, fewer regulations and lower real estate costs, said Mahlon Straszheim, a nationally recognized economist and an advisor to Gov. Parris Glendening.
Some steps are being taken in Maryland to address the problems.
For instance, businesses are being encouraged to reduce their dependency on defense contracts and move toward private, high-tech industries, said Champe McCulloch, president of the Maryland Chamber of Commerce.
In addition, Maryland legislators and the governor are working out a tax plan that would reduce personal income taxes. Legislators want to phase in a 10 percent state and local income tax reduction, while increasing taxes in other areas, such as telecommunications.
Straszheim said this proposal is “extremely critical” to attracting new businesses. The legislation is being considered by the House Ways and Means Committee.
Opponents of the bill, including some members of the Senate Budget and Taxation Committee, support an increase in tax exemptions favoring businesses over income tax rate cuts.
Straszheim said Maryland’s “very moderate employment growth” will not exceed 1.25 percent this year without the income tax cut. He said businesses make location decisions based on state and local taxes, not just exemptions.
Meanwhile, other economists say Maryland’s outlook is not uniformly bleak.
Michael Funk, an economist with the Regional Economic Study Institute, said Maryland’s job growth in 1997 will reach 2.1 percent, compared to Straszheim’s prediction of 1.25 percent. That’s a difference of 22,000 jobs.
Funk and other economists with the institute, a privately funded research group designed to forecast employment and economic growth, believe the biomedical industry will grow jobs in the state. But, they said, it will take five to 10 years for full employment advantages to be realized.
Another striking plus for Maryland, according to the partnership’s report, is its black-owned business start-ups. Maryland ranked 12th in the country; Virginia ranked 24th. The start-ups have been boosted by Maryland’s “history of minority entrepreneurship, especially in Baltimore City, and the strength of the African-American middle class in … areas such as Prince George’s County,” the report found. -30-