By Donald C. Fry
There is little dispute over Maryland’s many compelling strengths when it comes to business climate and its potential for economic growth. But a long-standing disconnect appears to remain between the public and private sectors over the effect of taxes and regulations on our state’s business climate.
It was announced last week that Maryland ranks among the top five states for economic growth and is the 7th best-positioned state for potential growth, job creation, and prosperity in the next decade, according to the U.S. Chamber of Commerce’s “Enterprising States” report.
The report recognizes our state’s considerable strengths in innovation, workforce development and quality of life. But it also recognizes one significant challenge that is widely perceived within the business community and cited in most business climate rankings – Maryland’s tax and regulatory environment.
At the Greater Baltimore Committee’s Annual Meeting last month, GBC Chairman Brian Rogers, chairman and chief investment officer of T. Rowe Price, called on the GBC business leaders to develop a Top Ten list of “barrier regulations” that inhibit economic growth in Maryland.
He lamented Maryland’s ranking of 40th on CEO Magazine’s 2012 list of “Best and Worst” states for business, which was published last month. Similar to the U.S. Chamber report, CEO Magazine gives Maryland four stars for workforce quality and living environment, but only two stars for “taxation and regulation.”
CEO magazine ranked Maryland low overall because of its tax and regulatory environment, while the U.S. Chamber ranked our state high in spite of it. Nevertheless, in the eyes of CEOs around the country, “we want to be better than Number 40,” Rogers told GBC members.
Similar less-than-glowing assessments of Maryland’s tax and regulatory environment can be found in most business climate rankings issued from a variety of sources.
A key issue in sorting through how Maryland can improve its business climate, however, is differentiating regulatory barriers from taxation barriers. Most state business climate surveys lump both into a “taxes and regulations” category. But a closer look at what is measured within study categories reveals that such surveys tend to focus almost exclusively on taxes as opposed to debilitating regulations.
The recent U.S. Chamber report, for instance, includes no direct quantitative measure of costs to comply with states’ regulatory requirements. Three of the six elements it measured are business taxes. Statistics relating to business survival and cost of living in states are also factored in.
Only one study that the Chamber report cited as a source of information – the Small Business and Entrepreneurship Council’s 2011 Small Business Survival Index – mentions a regulatory issue for Maryland, noting that our state ranks 50th for health insurance mandates.
When the Greater Baltimore Committee in 2010 held an almost year-long series of focus groups and feedback sessions with business leaders and economic development experts in Maryland to develop a set of core pillars for a good state business climate, study participants established separate core pillars for tax policy and for regulatory policy.
Good business climates are characterized by regulatory policies that are streamlined, reasonable, relevant, free of surprises or redundancy, and considerate of business’ sense of urgency, study participants agreed. The state’s permitting processes should be re-evaluated, they said. Existing processes were described by one economic development director as being too slow, redundant and unpredictable.
Effective policies and processes should focus on reducing business compliance costs, reducing time of permitting, and creating a more predictable regulatory climate, states the GBC’s report “Gaining a Competitive Edge,” which was compiled from input offered by study participants.
If we are to effectively make these points about the regulatory process or structure to our elected officials, what’s needed now is more specifics.
Identifying our state’s Top Ten regulatory barriers to economic growth would be useful for elected officials and policy makers so they could see precisely what regulatory policies in Maryland are keeping our state from achieving its otherwise unlimited economic growth potential and why.
The Small Business Administration’s Office of Advocacy, in a 2010 report on the impact of federal regulatory costs to small firms nationally, divides costs into four categories:
• Economic regulation: restrictions on the way businesses can operate, what products and services they can produce and how and where they produce them, price them and market them to consumers.
• Environmental regulation: the costs of complying with environmental statutes.
• Tax compliance regulation: the so-called “paperwork burden” costs associated with time and resources required to comply with tax regulations.
• Occupational safety and health regulation: the costs of complying with labor-related laws.
This could serve as a good framework for compiling Maryland’s “Top Ten” list for regulatory reform.
Maryland has done an admirable job of strengthening its technology and innovation capacity, its workforce development and its quality of life. It’s time for the state to seriously address regulatory issues.
Recognizing business community concerns over the state’s regulatory environment, last fall Gov. Martin O’Malley asked business owners and heads of all state agencies to identify regulations that could be eliminated or streamlined.
Business responses to O’Malley’s request to submit ideas via the governor’s web site were moderate at best. State agencies submitted to the governor more than 130 suggestions for eliminating or streamlining regulations. It was a start, but most were administrative in nature. The process yielded no suggestions for major regulatory reform.
The key takeaway from this initiative? It’s probably not practical to expect state government to take the lead on regulatory reform in Maryland. The exercise of reforming Maryland’s regulatory environment must be aggressively driven by the private sector.
Maryland could use a Top Ten “regulatory barrier” list to enable business leaders and lawmakers to focus on specific issues that they could work together to address. To nominate a regulation for the Top Ten list, email me at firstname.lastname@example.org or Molly Moyer, the GBC’s director of economic development, at email@example.com.
The ball is currently in the business community’s court. It’s clear that such a list for regulatory reform must be developed and action on it advocated by the regulated, not the regulators.
Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.
Recent Center Maryland columns by Donald C. Fry: