Va., Md. governors pledge to create jobs but lack money and power to do so

By Aaron C. Davis
Washington Post Staff Writer
Thursday, February 18, 2010; A01

Even before President Obama acknowledged Wednesday that the stimulus has not done enough to create jobs and called for new federal measures, governors across the country had launched their own initiatives to increase employment.

But the job-creating ability of governors -- who are making lofty and, at times, suspect claims -- is severely constrained by a lack of money and authority.

Maryland Gov. Martin O'Malley (D) was among more than 30 governors to use a statewide address in recent weeks to vow that tax credits and other measures would entice employers to begin widespread hiring. Virginia Gov. Robert F. McDonnell (R) has gone so far as to declare that his plans will create 29,300 jobs in the next two years, although thousands would come from initiatives that haven't worked elsewhere.

Economists and some proponents of governors' plans say those pushed by O'Malley, McDonnell and others are likely to produce fewer jobs than advertised and exaggerate what states can do to spur job growth. None, for example, appears able to significantly lower their states' unemployment rates this year. And with so many states trying similar strategies to grab a finite number of jobs, one governor's win is bound to be another's loss.

"I'll be honest with you, these things cost money. And given the fiscal situations they are in, there's not a lot they can do in terms of job creation," said Raymond C. Scheppach, executive director of the National Governors Association. He added that he has been surprised by governors' boisterous assertions.

McDonnell, for example, has predicted that with a fraction of the state's likely share of the federal stimulus money, his administration will produce six times as many jobs as the Congressional Budget Office says are likely for Virginia under the jobs package that the Senate is expected to vote on next week.

Even if their plans work as advertised, state numbers show that the tax subsidies O'Malley and McDonnell would give to businesses for hiring unemployed workers would max out after adding fewer than 13,000 workers to the 7 million-person workforce of Virginia and Maryland. That's less than one-seventh of the 99,000 jobs the two states lost over the past year.

Beyond direct tax breaks to businesses, much of the plans by O'Malley, McDonnell and other governors would do little more than recast decades-old development programs, small-business lending options and other initiatives as job-creators.

"You've got to say you get it and you're doing something, but the rhetoric is always going to exceed the reality," said Bruce Cain, director of the University of California's Washington Center.

The Maryland approach

In Maryland, as well as in more than two dozen other states with unemployment insurance systems that have gone or expect to go bankrupt, tax credits might be more about cushioning businesses from rising insurance costs than creating jobs.

O'Malley began writing the centerpiece of his plan -- a $3,000 tax credit for every worker hired off the state's unemployment rolls -- in part to offset a scheduled 300 percent increase this year in businesses' unemployment insurance premiums, administration officials said.

But the immediate incentive for businesses is limited because the payout for hiring workers won't come until April 2011. And even if businesses begin hiring workers right away, fewer than 6,700 jobs would be filled before the state reaches O'Malley's maximum proposed payout of $20 million.

At best, the effort might help hold Maryland's 7.5 percent unemployment rate constant. Maryland lost 44,400 jobs last year, and in December its economists projected that unemployment would peak this year at 7.7 percent.

Despite months of saying that the tax credits are critical to reviving the state's economy, O'Malley recently acknowledged the limitations of his plan in a meeting with state lawmakers.

"It's capped at $20 million. Some say that's not enough, that it should be $200 million, and I agree," O'Malley said. "But we don't have that."

Bankers and small-business owners said another component of O'Malley's plan, using $10 million in tax money to guarantee fractions of small-business loans, shows promise but remains in its infancy and pales compared with proposed federal action.

The plan would amount to no more than about 5 percent of the $552 million that Maryland might receive under a proposal by Obama.

Several of O'Malley's other proposals recast programs as new jobs efforts. He has renamed a 14-year-old program for rehabilitating aging buildings in Baltimore and elsewhere, saying the program would continue to create hundreds, and perhaps thousands, of construction jobs in coming years.

The Virginia way

In his first speech to state lawmakers after taking office last month, McDonnell asked for $50 million to fund his jobs plans. Among them, millions of dollars would be used to better market Virginia and lure businesses from other states and overseas.

Less than a third of the 29,300 jobs that his administration says it can create in the next two years, however, would come from such big-ticket employers, which can often take several years to move or open facilities.

Without those, the underpinning for the bulk of the remaining jobs that McDonnell has said his proposals would create remains tenuous.

His plan assumes that $2 million to set up marketing offices to promote Virginia in China, India and the United Kingdom will net 1,300 direct jobs in Virginia and 700 related jobs for state residents within two years. Many states, including California, have recently closed overseas offices because they concluded the sites weren't paying off.

McDonnell's plan also assumes that $3.6 million in additional marketing -- the equivalent of a modest television ad campaign -- will drive $61 million in new tourism and generate 2,000 jobs. And $2 million to promote the movie industry will generate short-term stage construction and other work equivalent in "man hours" to 200 jobs, said James Cheng, McDonnell's new secretary of commerce and trade.

One of the single largest boons -- 5,000 jobs -- is expected to come from spending $1 million to streamline the state's Business One Stop program, a Web-based interface with state regulatory offices designed to make it easier for businesses to incorporate.

The administration's calculations omit the potential economic cost from more than $1 billion in spending cuts that McDonnell has privately advocated to close the state's budget gap. McDonnell has advocated furloughs and cuts that some have suggested could necessitate layoffs. In Maryland, O'Malley has laid off hundreds and eliminated thousands of unfilled positions.


Marisa Di Natale, a director of state and metro-area financial modeling for Moody's Economy.com, said a higher percentage of educated workers and proximity to Washington put Maryland and Virginia in a better position than most to create jobs. Both, for example, continue to court Northrop Grumman, which has announced it will move 300 executive positions to the region.

She said, however, that the most effective role for governors might not be in economic policy, but in cheerleading.

In his State of the State address this month, O'Malley uttered the word "jobs" nearly 30 times and promised better economic times. In meetings with business leaders before that speech, he used the word "jobs" almost 100 times and pulled out everything but pompoms.

"This will not be the first recession that lasts forever," he told a meeting of the state's high-tech trade group. "Turn to your neighbor and tell them, 'This will not be.' Come on, sing it with me, people. Now doesn't it feel good to say that?"

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