Tier Technologies Inc., until recently based in Walnut Creek, Calif., is exactly the sort of prize that economic development agencies all over the country dream of: a profitable, publicly traded company that has highly paid employees, doesn't pollute and can operate anywhere that has smart workers and a good airport.
When Tier Technologies decided it wanted to move, it quickly rejected Boston and other locations in California as too expensive, tossed aside other major cities for not having enough skilled technology workers, and decided on the Washington area as the most logical place for its headquarters. But that was only the start of the decision-making.
Companies moving to the District and the eight Maryland counties and eight Virginia counties in the greater Washington region face a sometimes bewildering variety of tax structures, regulatory environments and geographic features.
Virginia, Maryland and the District have different corporate income taxes. Taxes on property, business equipment and occupational licenses vary by counties. Montgomery and Calvert counties are considering laws to make it more difficult for certain big-box stores to operate, while Prince George's officials said they welcome big-box and other retail stores. Maryland has tougher anti-smoking laws than Virginia, and Montgomery County is even tougher. Commercial real estate in Frederick, Charles and Stafford counties costs less than in Montgomery and Fairfax counties and the District.
Localities sometimes offer financial sweeteners to try to lure desirable businesses. Virginia and Fairfax recently pledged $1.2 million to persuade International Business Machines Corp. to put 1,250 new high-paying government contacting jobs in Fair Lakes. Two years ago, Maryland offered $1.25 million in incentives to keep Giant Food Inc. from moving its distribution center and 550 jobs to Delaware or Virginia.
For professional services firms, the kind that create many of the high paying jobs in the Washington area, good schools, the pool of available workers, cultural and sports offerings and other quality-of-life issues play a key role. Many such companies have experiences similar to that of Tier Technologies.
Chief executive James R. Weaver said Tier Technologies was not offered financial incentives here. The company reviewed local taxes but decided that the differences weren't enough to be a deciding factor.
Other issues were more important, Weaver said. He wanted to move near a large concentration of high-tech workers. He wanted to be near major airports, because employees need to be able to quickly get to clients.
Tier Technologies set up shop this year in Reston -- not coincidentally, 10 miles from Weaver's house in Oakton.
For similar reasons, Bechtel National Inc., a unit of the giant engineering firm, decided two years ago to move about 250 people who run that division from San Francisco to Frederick County. Bechtel had offices in Frederick, the District and McLean. But many of its employees lived near Frederick, and real estate in the more rural county was easily accessible and cheaper than the two other areas.
"Internally, it was an easy business decision to look at joining some of the other Bechtel companies that were already here," said Michael Kidder, manager of public affairs for Bechtel National.
"To me this is the best of both worlds. There's a great quality of life out here. We can make sure we provide a good working environment for employees and the family, and it's only about an hour drive into the city to work with clients," Kidder said.
The top driver for companies thinking of being in Washington is their proximity to the customer, and second, access to a workforce," said Thomas G. Morr, managing partner of the Greater Washington Initiative, which markets the Washington area to companies around the world.
The group has conducted a study of prospects' top considerations. "Incentives and cost of doing business were fairly far down the list," Morr said.
"For the kind of businesses that make sense to locate in Washington, it comes down to an educated workforce, quality of life, and cost of living," said Dennis J. Donovan, principal of Wadley Donovan Gutshaw Consulting LLC, which advises large companies on where to locate.
Drawn to Clusters
Jim Ballard bought a new car about a year ago. It already has 25,000 miles on it. The reason: Ballard, chief operating officer of Perot Systems Government Services Inc., spends much of his day driving between the company's six offices around the Washington region.
It was a prime example of why Perot Systems had to consolidate those offices -- and 700 local employees -- in one place. "Whenever we have a meeting in one location, at least two-thirds of the folks have to drive to get to it," Ballard said.
So Perot Systems' government division, an arm of the giant information technology company that does high-tech projects for defense, intelligence, and other government agencies, started looking. Its real estate broker came up with more than 30 properties, from near the Loudoun County border east to Arlington and Alexandria.
Perot executives reviewed the options, and quickly narrowed them to seven office parks, focused in Tysons Corner, the Merrifield area of Fairfax County, and Fair Lakes, farther out Interstate 66 in Fairfax.
The company had a map plotted with every employee's address represented by a dot. From the intersection of Route 50 and the Capital Beltway, they drew a circle with a 25 mile radius, but cut the circle off at the Potomac, to exclude Maryland and the District. About 70 percent of their employees live within the shape remaining.
Company President J. Gregory Bedner said Maryland and the District were never seriously considered.
"Half of it is where our folks are," Bedner said. The other half is that Northern Virginia is where most of Perot Systems' customers and competitors are based.
"This is where you have the resources for the next big win," Ballard said. "We all talk to each other. The CEOs of all the other organizations are right around the corner. Heck, I know where half of them live. There's sort of a community thing. Today they're competitors, the next day they're teammates."
Thus, Perot Systems recently settled on Merrifield.
For the same reason, biotech firms flock to Montgomery County to be near the National Institutes of Health. Firms that do intelligence work are pouring into Anne Arundel County to win contracts from the National Security Agency. Shanga Hankerson, son of singer Gladys Knight, is opening his newest restaurant in Prince George's County to tap into the rising wealth of that county's black middle class, the same reason that Magic Johnson is opening a 12-screen movie theater there. Lobbying firms pay high rents to be close to Capitol Hill, and Daniel R. Wegman said he put his first Washington area Wegmans Food Market, in Sterling, not because of lower taxes or less-restrictive zoning, but because of the area's high income and education levels.
Those comparative advantages are not easily changed, although counties and states spend a lot of money trying. For example, Loudoun County officials are giving $6 million in tax breaks to the Howard Hughes Medical Institute to open a research campus in Ashburn, hoping that it will be a magnet for biotech firms.
For the same reason, Eli Lilly and Co. is getting $2 million in Prince William County assistance and $2.25 million in state incentives to build an insulin plant just west of Manassas.
Maryland and Montgomery County, which is trying to create a media cluster in Silver Spring, offered TV One LLC, the new black cable television network, $250,000 to locate there, which it did this year.
"To grow a cluster, we'll change our tax policy," said Lawrence S. Rosenstrauch, the Loudoun County economic development director. The county did so to develop an aviation and aerospace cluster around Dulles International Airport and to encourage online services companies such as America Online to expand.
Some counties try to avoid handing out financial incentives because of the precedents they set and the cost. "Our board of supervisors says, 'Let's not get into a bidding war for business,' " said R. Talmage Reeves, Fauquier County's economic development director. "So we do not offer financial incentives in any form. I think it's good. When you offer incentives, you wind up bidding against other places. And my experience is you come out okay sometimes, sometimes not so well."
But Prince William County, which has given financial incentives to 10 of the 170 companies that moved to the county in the past five years, said it's hard to lure desirable companies without such inducements. "If you want to be on the dance floor, you need incentives," said Martin J. Briley, executive director of Prince William County's Economic Development Department. "If I could pull a switch and everybody would get rid of them, I'd pull it. But until then, you go first."
Companies not interested in clusters are generally more concerned about traditional issues, such as restrictions on how they can operate or the speed of the permit process.
At Bowl America in Gaithersburg, customers can nosh on a hamburger or sip a martini from the bar. They just can't light up a cigarette, at least not anywhere near a lane.
That is bad for business, said Bowl America Inc.'s president and chief executive, Leslie H. Goldberg. With no ashtrays at the bar, liquor sales tumbled. So have overall bowling sales, compared with those at Bowl America's Virginia alleys, where smoking rules are more lenient.
Under Maryland law passed in the mid-1990s, Bowl America must relegate smokers to separate, ventilated spaces. Over the past decade, Bowl America has closed five alleys in Maryland, because of slipping sales. Goldberg thinks part of the problem is that people who like to smoke while they bowl quit coming. The company now operates just two alleys in Maryland, in Gaithersburg and Glen Burnie.
In Virginia, Bowl America operates 12 alleys. There, it is required only to offer comparable nonsmoking areas for bowling and eating. "It's a lot easier for us," Goldberg said.
Bowl America could soon face more smoking troubles. Gaithersburg's smoking ban for restaurants and bars went into effect in March. Bowl America's general manager, Irv Clark, said the Gaithersburg alley would be exempt until early 2005.
Joseph Shapiro, a spokesman for Montgomery County's economic development office, downplayed the impact of the smoking ban. "We have found it's not as devastating and draconian as people feared," he said. "If you are a business that can attract customers, this will not break you."
Counties say they are conscious of the impact of restrictions and requirements on businesses. Many counties, including Frederick, Charles, Prince George's, Montgomery, Howard and Stafford, offer programs designed to streamline the permit process. Some counties also offer loans, subsidies and workforce training grants to attract companies.
The city of Manassas, which is the Prince William County seat, bought land for an office park, which it offers to businesses at a discount. TML Copiers & Digital Solutions, the first company to open there, praised the program. Chief executive Thomas M. Lensis said he got a 10 percent discount from the city on the three acres he bought for $421,000.
"But the biggest incentive was actually the streamlining of the process," Lensis said. "We got our permits right away. We weren't caught up in months and months of red tape. We didn't have to fight city hall. I'm in the copier business; I don't want to be in the building business."
Quality of Life
Development officials around the region say that quality of life issues seem to be key in luring the Tier Technologies of the world. That's why Prince George's County has focused on getting more executive-style housing, better restaurants and more upscale retail and on improving schools, getting trash off the streets and reducing crime.
It's also why the Washington business community often supports more money for transportation, education, and most recently a new baseball stadium in the District, even when it means higher taxes. They say the higher taxes are offset by the benefits, including a boost to the economy and an increased ability to attract and retain workers.
Some business leaders attribute the District's economic resurgence to an improving quality of life in the city.
"The government has done an awful lot to make this a more business friendly town," said Barbara Lang, president of the D.C. Chamber of Commerce. "A lot of that has to do with things that people don't normally think of as business recruitment tools," such as more reliably cleaning streets when it snows and making garbage pickup more regularly, she said.
The people who advise companies on their location decisions say it takes all these things to make an attractive locale.
"Nobody is going to put a corporate headquarters in Timbuktu where there isn't access and a workforce," said Ann Woessner, senior vice president of Staubach Co., who advises companies nationwide on their location decisions. "All these things have to work for a location to make sense."
Staff writers Michael Barbaro and Michael Flagg contributed to this report