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Maryland, Virginia incentives likely did little to lure Bechtel

Friday, November 11, 2011

In Bechtel’s case, silence is not goldenEconomists: Maryland's taxes hurt corporate recruitmentMaryland's taxes hurt corporate recruitment Follow this company ’s decision to move several divisions and 625 employees from Frederick, Md., to Reston will pay off quickly for Virginia in corporate and personal income taxes, but the mega-contractor will have to wait years before it collects most of the grant that the commonwealth has promised it.

In return for a $5 million Virginia Economic Development Incentive grant, San Francisco-based Bechtel has agreed to create 625 high-paying jobs and invest $18 million in the new headquarters for its global operations division and government services business subsidiary at Reston Overlook I and II on the Dulles Toll Road near Reston Town Center Reston Town Center Latest from The Business Journals Appian readies hiring push, possible relocationBechtel moving more than 600 jobs to RestonBoston Properties winner in Bechtel move to N.Va. Follow this company .

But the performance agreement is less a grant than it is a payback. Bechtel must notify the Virginia Economic Development Partnership Virginia Economic Development Partnership Latest from The Business Journals Prince William official Martin Briley tapped for Virginia agencyVirginia Economic Development Partnership names new headBechtel on the hunt for large office space in Northern Virgina Follow this company that it has completed its investments and hiring, and then it must wait 36 months before receiving the first of five annual $1 million installments. The company is expected to begin its move next year.

The agreement requires Bechtel to complete its end of the deal by Jan. 31, 2016, meaning the corporation may not receive its first $1 million until 2019. The grant is reduced or eliminated if Bechtel fails to achieve the investment and hiring targets.

Within months, however, Bechtel will receive $1.5 million from the Governor’s Opportunity Fund to help jump-start its move.

The company expects to spend $4 million of its $18 million investment on furniture, fixtures and equipment and $14 million in the “up-fit” of its Reston buildings.

Bechtel, founded in 1898, is a global engineering, project management and construction company that had $27.9 billion in 2010 revenue. Its five global business units specialize in power generation; communications and transmission; mining and metals; oil, gas and chemicals; and government services.

The company is building the Metrorail extension to Dulles.

In late October, Bechtel and Maryland Gov. Martin O’Malley announced that the 1,250 employees of Bechtel Power Corp. in Frederick would remain at their existing location — in return for a $9.5 million conditional loan from Maryland’s Sunny Day economic development fund. The company was cagey then about what it was planning for its remaining 650 Maryland employees.

The payments by Maryland and Virginia are outlays that neither government had to make, said Anthony Yezer, professor of economics at George Washington University George Washington University Latest from The Business Journals D.C. Contract Appeals Board tackles backlogGeorge Washington University presents concept sketch of new museumOFPP Administrator Daniel Gordon to step down Follow this company .

It’s just a transfer payment that doesn’t have a whole lot of real implications for society,” he said. “This wasn’t what made the decision [for Bechtel], but they just tell people it was.”

Both states paid Bechtel to do something the company probably would have done anyway, Yezer said.

The great waste comes at the state and local levels with “all the real resources we employ to play these games,” the professor said. “Those people could actually be paid to do something useful, like working at the DMV when I need my license updated.”

Even with last month’s announcement, Frederick County Economic Development Director Laurie Boyer said, Bechtel made it clear early on that it would not keep all its workers in her county. Boyer said she considers it a victory that the company kept two-thirds of its employees there.

Still, the announcement drew criticism from government watchdog Maryland Business for Responsive Government.

President Kimberly Burns said Maryland needs to develop a new strategy for retaining and attracting businesses and throwing money at corporations like Bechtel will do little to expand the state’s job base.

While keeping the jobs in Maryland is certainly a laudable goal, incentives like Bechtel received is simply no alternative to a sound business environment,” she said. “Economic development by selective bribery is never a good economic policy.”

Burns said she thinks the state needs to create a more welcoming business environment, including updating its tax structure to be more competitive with its neighbor to the south.

She also thinks the Maryland Department of Business and Economic Development should develop a more comprehensive strategy for luring and keeping businesses rather than relying on incentives like the one offered to Bechtel.

Geography plays a large part in companies’ decisions, and in this case, Bechtel needed to establish a presence closer to its government clients in D.C.

Jim Henry, who oversees incentive programs for the Maryland DBED, said the state did not learn that Bechtel was in the market for a new global operations headquarters until it was too late. By then, Bechtel had already settled on Reston.

Henry said he considers it a partial victory that Bechtel committed to keeping its power division and the jobs tied to it in Frederick. He noted that about 90 percent of the Bechtel workers staying in Frederick live in Maryland, a factor that helped convince the company that it should maintain its presence in the state.

We got into the game a little late,” Henry said. “It wasn’t that they didn’t want to talk to us or didn’t think they had anything to talk to us about.”

Asked why Bechtel would move some, rather than all, of its employees out of Maryland, Jerry Gordon, CEO of the Fairfax County Economic Development Authority Fairfax County Economic Development Authority Latest from The Business Journals Fairfax County Economic Development Authority CEO pens book CEO of Fairfax County Economic Development Authority pens bookInova eyes venture with California company Follow this company , said, “I can’t answer that. I signed a nondisclosure agreement.”


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