Marylanders need more of Gov. Martin O’Malley’s economic development ideas like a fish needs a bicycle.
One of his most recent proposals is to give business owners a $3,000 tax credit for hiring Marylanders who lost their jobs. It sounds clever, but makes no sense. Think about it.
First, he’s punishing business owners who managed through the downturn and either retained their employees or hired new ones throughout the year.
Second, he’s providing a huge incentive for business owners to fire employees and then rehire them to attain the credit. Unless O’Malley hires people to police the tax credit program, how would anyone know if businesses took advantage of the system?
Another proposal he’s discussing with Treasury Secretary Timothy Geithner is to create a loan guarantee fund for small businesses with federal bailout money.
For those not familiar with the state’s business track record, it’s worth looking at how direct loan programs work. The Department of Housing and Community Development has loaned about $12 million since 2005. About 22 percent of the loans are in default according to documents supplied by the department.
DHCD will not disclose the qualifications for obtaining a loan, the names of the business owners who received money, or whether the agency has attempted to recoup its losses. What’s clear is that state taxpayers have not made any money from the program.
Perhaps the most infamous loans DHCD made were to the owner of the Senator Theatre, a one-screen Art Deco movie house in Baltimore City. DHCD loaned Tom Kiefaber $385,000 in 1999 for the theater. It then loaned him another $378,000 in 2005 and 2006 when he was delinquent on the first loan so that he would not default on other loans.
Baltimore City taxpayers eventually bailed out Kiefaber last year by taking over his $900,000 mortgage to 1st Mariner Bank, headed by O’Malley financial supporter Edwin Hale. City taxpayers had already given Kiefaber $180,000 in 1999 and guaranteed half the loan in 2002.
It would be one thing if the Senator were an anomaly. But the state routinely loans money to people who do not pay it back, including homeowners for whom it was trying to prevent foreclosure.
As noted in a recent column, nine of 22 loans are in default for the Homesaver Refinance Mortgage Loan Program, and 10 of 52 are in default for the state’s Lifeline program. There are no delinquencies for the 53 Bridge to HOPE loans.
Even if the state does not directly loan money through the guarantee program, it will effectively allow banks to lower their standards because of an implicit taxpayer guarantee, which will result in more defaults. If economic development programs are supposed to generate wealth, neither of the tax credit nor loan program pass the test.
Legislators would better use their time by focusing on reforms to make Maryland more competitive for the long term. That means returning the tax code to 2006 rates before the massive across the board increases passed in 2007.
Examiner Columnist Marta Mossburg is a senior fellow with the Maryland Public Policy Institute and lives in Baltimore.
