Lawmakers want more details of biotech tax credits

Posted: 4:38 pm Thu, March 21, 2013
By Alexander Pyles
Daily Record Business Writer

ANNAPOLIS — Lawmakers want the state’s economic development department to explain why investors in a handful of Maryland biotechnology companies received a majority of the money distributed through a tax credit program.

The House of Delegates and Senate have both tacked on an amendment to House Bill 100 — Gov. Martin O’Malley’s budget proposal — that questions how the tax credits are awarded.

“There appears to be inequity in the distribution of the tax credits,” the amendment states.

In 2012, investors in five companies received 60 percent of the $7.4 million in credits provided, according to state records, while those seeking to pump money into new companies received just 12.7 percent of those credits.

“The fact that 60 percent of all the biotech tax credits are going to five companies and only 13 percent are going to new companies … in one of the fastest-growing industries in our state … is a big problem,” said Andrew Feldman, a spokesman for small business advocacy group Maryland Business. “We need to make sure there is diversity going on in this industry and diversity for every business to be able to succeed and get these tax credits.”

The House and Senate have asked the state Department of Business and Economic Development to submit a report describing its process for awarding the tax credits. If the budget passes with that language intact, DBED would be compelled to submit that report in December

Mark A. Vulcan, who manages tax programs for DBED, said the agency does not object to filing the report. But he added that DBED staff was just administering the tax credit program the way it was directed to by the legislature.

“We follow the intent of the legislature,” Vulcan said. “If the legislature feels there needs to be a tweak that needs to be done with the program, we’re happy to do it.”

Credits are awarded to investors — recruited by companies — on a first-come, first-served basis. Recipients receive an income tax credit equal to 50 percent of their total investment in a qualified biotech company, provided that investment is at least $25,000. The incentive cannot surpass $250,000, and investors in a single company cannot receive more than 15 percent of the total credits available.

Outside of that, Vulcan said there are no caps on the $8 million program, started in 2007.

“The phenomena that occurred is based on an investor decision,” he said. “DBED doesn’t make that decision to influence whether or not they get the credit. … We understand there’s a concern that a majority of the credits may go to several companies, but at the same time we’ve benefited over 60 companies.”

Feldman, however, said distribution of the biotechnology investment tax credits was part of a larger problem in the state.

“This is clearly not a level playing field,” he said. “This is about making sure everybody understands and knows how to get these tax credits.”

“It’s going to bring more transparency to the entire system,” said Andrew Feldman, the spokesman. “If big business is not coming through on the amount of jobs they said they would, then it will create an opportunity for a small-business owner to apply for these funds. Right now, it’s not that simple to know about these tax credits.”

Delegates push for data on tax credits

Posted: 3:00 pm Sun, March 3, 2013

By Alexander Pyles

Daily Record Business Writer

ANNAPOLIS — When Del. Herbert H. McMillan began drafting legislation to end a long-standing tax credit on the purchase of coal, the Anne Arundel County Republican was met by a troubling impediment.

“We had wanted to find out what companies received the subsidy,” McMillan said. “The State Department of Assessments and Taxation said they couldn’t release the information to us. We don’t have access to who’s getting it.”

That makes it difficult, McMillan said, for policy makers to make educated decisions on whether business tax credits — hundreds of which are offered by the state for a variety of industries and actions — are achieving their purpose. Usually, businesses that apply for and receive the credits say the tax giveaway allows them to keep their work in Maryland or hire extra people.

The state Department of Business and Economic Development keeps some data on the effectiveness of various tax credits and economic development funds operated by Maryland. But McMillan is not alone in thinking DBED and other state agencies do not do quite enough.

In fiscal 2012, the state provided more than $4 billion in tax breaks to various corporations and other entities.

House Bill 1231, cosponsored by McMillan, Del. Andrew A. Serafini, R-Washington and Del. Jon S. Cardin, D-Baltimore County, would require a business that receives more than $25,000 in government handouts to disclose data, including how many jobs it created in the previous year and some executives’ compensation numbers.

Similar legislation, H.B. 1315, would force businesses receiving a public subsidy to disclose less information than McMillan’s proposal, but would still require DBED to collect data from various state agencies on how effective tax credits were in creating jobs and generating revenue for the state. Both bills are scheduled for hearings, in separate committees, on Thursday.

The bills were conceived through the same thought process — businesses receiving public money ought to make more information about their business publicly available.

“It’s hard to get a handle on what programs are working,” said Del. Galen R. Clagett, a Frederick County Democrat who was just appointed co-chair of a new business climate workgroup in the House of Delegates. Clagett, the lead sponsor of H.B. 1315, said he was open to working with DBED officials on creating an effective evaluation program.

But the state agency is wary of the costs associated with either bill, though only Clagett’s legislation specifically requires DBED to collect data from state agencies that award business tax credits.

“We don’t necessarily disagree with the spirit of the bill. We’re all about transparency,” said Karen Glenn Hood, DBED’s spokeswoman. “But most of what they’re looking to do with this bill is already accessible in various forms, and it is going to be onerous for our department to collect data from other state agencies. … It would put an undue strain on our department.”

Clagett said he’s willing to work with DBED to craft legislation that is friendlier to the department. Ultimately, though, he said the money and time need to be spent.

“We need to clean up the way the state does business,” he said. “If we’re serious about helping business, that’s the cow that provides the milk. We may need to bite the bullet and pay for it.”

McMillan, who met recently with DBED officials, was even more direct.

“When you come to the government and you ask for money, we’re entitled to know how it’s being spent,” McMillan said. “There should be some metric and some commonality. … If you want your business information to be private, then don’t ask for money.“We need to make sure the juice is worth the squeeze. I’m rather tired of hearing businesses say they create so many jobs. I need to put my hand in the wound.”

Having more information available on the effectiveness of business tax credits could benefit small businesses in the state, according to a spokesman for small businesses advocacy group Maryland Business. The organization convinced Clagett and Del. Craig J. Zucker, D-Montgomery, to sponsor business reporting legislation.

“It’s going to bring more transparency to the entire system,” said Andrew Feldman, the spokesman. “If big business is not coming through on the amount of jobs they said they would, then it will create an opportunity for a small-business owner to apply for these funds. Right now, it’s not that simple to know about these tax credits.”

Either bill could also help lawmakers when tax credit expiration dates come up, McMillan said.

“Maybe you can spend the money better somewhere else,” he said.

Maryland to launch program to stimulate
lending to small businesses

Success will depend on banks’ participation

 By Eileen Ambrose | May 21, 2012

Maryland small businesses gripe that they can’t get loans from banks. Lenders complain of a dearth of borrowers.

Is there any way to get these two together?

The state is going to try, under legislation expected to be signed into law today. Maryland will use a carrot — or, rather, up to $50 million in deposits — to encourage banks here to lend to small businesses.

Basically, participating banks that make loans to small businesses will receive an equal amount of deposits from the state. Borrowers will receive loans at 2 percentage points below the going rate. In exchange, the state will accept less interest from the banks on its deposits.

The program, which could be making loans by the end of the year, would seem like a win for all sides. Banks get a steady source of low-cost money to lend, businesses receive the low-rate loans they need to expand, and the state winds up with more residents working and a stronger economy.

But the question is whether many lenders will participate. If history is any guide, small businesses could be in for a big disappointment.

The program will be fashioned after another state-sponsored effort launched in 2009 to promote lending to minority businesses. Only three community banks participate in that program, which has generated 19 loans totaling $5.5 million — out of $50 million available. Hardly a raging success.

Clearly, small businesses need help securing capital at a time when banks remain cautious after the 2008 credit crisis.
An informal survey of more than 200 small-business owners in Maryland in the past year found that their No. 1 concern was access to credit, according to Maryland Business, which advocates for small enterprises.

“We still see folks struggling,” says Jim Racheff, chair of the Maryland Business advisory board. “A number of businesses say they are still concerned about being able to have reliable, predictable access to credit.”

Racheff, also CEO of DMS Inc. in Frederick, saw firsthand how big banks retreated during the credit crunch.

DMS, an information technology company that’s been around since the early 1980s, had done business with Bank of America for nearly 20 years. But Racheff says once the credit crisis hit, Bank of America told him it was dropping DMS as a customer — along with many other small businesses.

“I had access to credit, and then I didn’t,” even though nothing had changed at the company, he says.

Racheff says he sold his house to quickly raise cash to keep the business running in the short term while he lined up another source of credit.

“When you talk to small businesses, one of their top issues is always access to capital,” says Del. C. William Frick, a Montgomery County Democrat, who introduced the legislation.

In recent years, Frick has pushed for the state to deposit its money in Maryland community banks as a way to promote lending to small businesses.

Frick’s original legislation steered state deposits into community banks with under $5 billion in assets — knocking out big players here such as Bank of America and M&T.

Massachusetts launched a similar program just over a year ago. More than $230 million of state money has been deposited in 44 participating community banks. And in the first six months, they made 892 loans to small businesses — although the state acknowledges that some of those loans might have been made without the program. Still, that’s impressive.

But the Maryland Bankers Association balked at excluding big banks, Frick says, and a compromise was reached.

Banks of all sizes will be able to participate in what’s called the Linked Deposit Program for Small Businesses. The state will deposit $1 in participating banks for every $1 they lend to a small businesses.

The definition of a small business varies, based on what it does, how many people it employs and its reveune. Loan amounts can be up to $1 million for a term not to exceed 10 years.

“Times are tough, and business margins hinge on such small differences that the 2 percent can really help a business succeed,” says Carol Gilbert, assistant secretary to the state’s division of neighborhood revitalization.

The Linked Deposit Program for Minority Business Enterprises runs much the same way, although it hasn’t taken off. It’s unclear why.

Gilbert suggests that the loans aren’t profitable for banks. Some bank officials say the program is too small, too narrowly focused or requires too much paperwork.

Judy Greenwald, a senior vice president at Columbia Bank in Washington County, says her bank has made more than a dozen loans through the minority business program. The loans are profitable, she says, even when money is lent at an interest rate of 2 percent to 3 percent.

“It’s been really easy to work with,” Greenwald adds. “I don’t know why more banks aren’t doing it, to be honest with you.”
Regulations for the new program will have to be drawn up. Before that happens, Gilbert says, banks, legislators, small businesses and state agencies will brainstorm on how to make both programs successful.

Some community banks worry the small-business program will come with onerous paperwork. Others banks note that the problem isn’t getting money to lend but finding enough qualified borrowers.

Mary Ann Scully, chairman and CEO of Howard Bank in Ellicott City, says she’s on the fence about participating until she sees the new regulations. But she adds, “I think this one has a fighting chance for working.”

Let’s hope so. Many small businesses in Maryland are counting on that.

eileen.ambrose@baltsun.com
Copyright © 2012, The Baltimore Sun

Maryland Business wants to be voice
for small business

By Gary Haber, Staff Reporter | Friday, May 4, 2012

The fight over a bill to boost small-business lending in Maryland has led to the creation of a new group to advocate in Annapolis on behalf of small business in the state.

Now that it helped get the Lend Local Act passed — the bill steers a slice of state government banking business to banks that increase their lending to small business — Maryland Business wants to tackle other issues of concern to small business.

That includes affordable health care, improving public education and making sure small businesses don’t pay more in taxes than larger ones, said Jason Judd, Maryland Business’s founder.

Judd is a former campaign director and consultant for the SEIU, Service Employees International Union, where he organized campaigns against Bank of America and other large banks. He said he formed Maryland Business because the General Assembly favors big companies at the expense of small business.

When Judd was looking to mobilize support for the Lend Local bill — which passed this session after unsuccessful tries in 2010 and 2011 — he says he was struck that existing business groups like the Maryland Chamber of Commerce and National Federation of Independent Business weren’t taking up the cause in the Maryland General Assembly.

"Small-business interests aren’t being dealt with," said Judd, who runs a small Frederick company and is a consultant on financial reform issues to Demos, a progressive New York think tank. Judd, who ran unsuccessfully for mayor of Frederick in 2009, put together a loose coalition of like-minded small business owners that pushed hard with state lawmakers to get the bill passed.

Their support was crucial to showing lawmakers that small businesses around Maryland were willing to go to bat for the bill, said Del. C. William Frick, a Montgomery County Democrat who was the bill’s primary House sponsor.

"They helped give voice to the small business community," Frick said.

"I think what you’re seeing is more businesses getting involved, trying to have a voice not only at the state level, but at the local level," said Kimberly Burns, president of Maryland Business for Responsive Government, a group that has been in existence for several years and serves as an alternative to the state Chamber of Commerce.

Business owners in Cecil County formed a political action committee in October 2011 called Cecil Business Leaders for Better Government to recruit and support candidates who take positions in favor of economic development and growth in the county.

The group formed when county commissioners backed away from a deal to sell the county’s water and sewer system to a private company — a sale that business groups supported, said David Williams, the group’s chairman and owner of Williams Family Auto Malls in Elkton.

Judd said one reason he wanted to launch Maryland Business is because he feels the Maryland Chamber of Commerce tends to favor big businesses over small ones when their interests conflict. That is not how the Chamber, the state’s largest pro-business group with 800 members, sees it.

The Chamber advocates for businesses of all size, said Will Burns, its director of communications. Seventy-three percent of the group’s members have fewer than 100 employees, Burns said. Burns said the Chamber did not take a position on the Lend Local bill. He said the group does not discuss bills on which it does not take a position.

"We will continue to advocate on behalf of our members," he said. "We would welcome any additional help in Annapolis in advocating for Maryland’s business community and on behalf of small business."

The National Federation of Independent Business’s Maryland chapter also did not take a position on Lend Local. Instead, the group focused its legislative priorities on fighting tax increases and working to reform workplace fraud laws and combating state mandates on small businesses, said Ellen Valentino, NFIB’s Maryland state director.

"We were aware of the bill," Valentino said of the Lend Local Act. "It was not a priority."

Maryland Business is not funded by dues-paying members. Instead, the group’s small budget, which Judd described as in the "tens of thousands," is funded from nonprofits, the private sector and some churches and synagogues, he said. He declined to disclose whether SEIU is helping to fund the group. The union won’t have any influence over the group’s priorities, Judd said "Our agenda will be driven by the needs of small business in Maryland," he said. "Their needs have been ignored for too long."

Ann Costlow, the owner of Sofi’s Crepes, is a member of Maryland Business’s steering committee. She said she would like to see the group tackle affordable health care, an issue for many small business owners.

"It’s really a grass roots program," she said of the group.

Maryland Business is pushing past the notion that small business is powerless in a politics that tilts heavily towards big business.

We don’t make donations, host lobbyist dinners or organize fancy award banquets. That’s how big business operates. Maryland Business is organizing instead to hold our elected leaders accountable for the issues that matter most to Maryland’s economy.

Maryland Business members around the state have made passage of the Lend Local Act of 2012 possible. ‘Lend Local’ (H.B. 571, S.B. 792) puts more of Maryland’s public deposits in our community banks where they will be working for Maryland’s small businesses, creating jobs and strengthening our local economies.

Maryland Business leaders’ testimony [PDF Files]

• Baltimore Main Street Organizations
• Maryland Biotech and IT Firms – Lesher testimony
• Maryland Biotech and IT Firms – Racheff testimony

Community Bank and other testimony [PDF Files]

• Community Banks Testimony – Capital Bank
• Community Banks Testimony – Congressional Bank
• Economic Development Expert Testimony – City of Frederick

Short shrift for small banks

Maryland should do more for its financial institutions
that invest in local communities

By Jason Judd | Published March 12, 2012

If our largest banks are the “one-percenters” of American capitalism, small business is our 99.

And, just as our largest corporations are ruling the roost in Washington, so too do they rule in Annapolis. In fact, Maryland’s politics have become so lopsided over the last decade that support for Maryland’s small businesses has degenerated into a mere talking point — “backbone of our economy,” “the engine of economic growth,” etc.

Here’s Exhibit A. In spite of all the talk from big business groups about taxes and regulation in Maryland, the top issue for small businesses is lending. They need affordable and reliable credit to grow their businesses.

We know this anecdotally from the hundreds of conversations my organization, Maryland Business, has conducted around the state, and from the numbers — the latest Pepperdine University survey of small business puts access to credit at the top of the list.

You could fairly expect that the legislators singing hymns to Maryland’s small business owners would get right on it. You would expect them to get behind Maryland’s Lend Local Act, a bill in the current legislative session. HB571 and SB792 would put more of the state’s deposits in the community banks that are lending to our small businesses.

And you’d be wrong.

The Maryland Bankers Association objects, and the hymns in Annapolis have stopped. The banks’ lobbyists object that the bill encourages the state to shift more of Maryland’s public dollars to work in the community banks that are helping Maryland’s economy recover.

Exactly.

We should stop rewarding giants like Bank of America with our public deposits. With Bank of America, Maryland’s deposits are as likely to be invested in Wall Street trading desks, Brazilian steel mills or Chinese high-speed rail projects as in Maryland’s small businesses.

In fact, Bank of America’s lending here under the Small Business Administration’s flagship lending program collapsed at the start of the financial crisis and never came back. The state’s largest bank made 312 of these federally guaranteed loans in 2007. In 2010, it made two. And a February analysis of the bank’s lending nationwide shows that its small business lending fell by more than 5 percent in 2011.

The bank has surely invested more in its pricey ad campaign touting its small business lending than it’s put into affordable SBA lending here in Maryland.

We should free up Maryland’s market and ensure that the community banks that are lending to small business can get the deposits they need to do more of it. This is critical to creating new jobs in Maryland.

A 2010 analysis from the nonpartisan Center for State Innovation demonstrates that every $10 million moved from large, out-of-state banks to our community banks will help create up to 11 new Maryland jobs. Moving $150 million in short-term deposits — a tiny percentage of Maryland’s short-term funds — can help us create hundreds of new jobs in the next few years.

Other states are moving ahead of us. New York, Pennsylvania and Massachusetts have started to keep their public dollars closer to home, and the District of Columbia is also considering its own “lend local” legislation. In just 10 months, the Massachusetts Small Business Banking Partnership has put more than $160 million into the state’s community banks.

Maryland’s Lend Local Act has the support of community banks, the state’s treasurer, the state’s bank commissioner and Gov. Martin O’Malley, who recognizes the program’s power to create new jobs. Perhaps most important, it has the support of small businesses around the state, from retailers in Baltimore’s Federal Hill to Technology Corridor companies with dozens of employees.

But will it be enough in Annapolis’ lopsided, big-business political culture?

Grass-roots organizations like Maryland Business don’t make donations, host lobbyist dinners or organize fancy award banquets. That’s how big business operates. Maryland’s small businesses are instead counting on their elected leaders to stand with them in a political economy that tilts against them.

That’s what brought more than 40 small business leaders together in Baltimore’s Belvedere Square recently in support of the Lend Local Act.

They are pushing past the notion that small business is powerless in a politics dominated by big interests. They are hopeful that the last four years of collapse and painful recovery have taught our elected leaders which side they’re on.