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O’Malley-McDonnell business duel moves offshore

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The spirited competition between Maryland Gov. Martin O'Malley and Virginia Gov. Bob McDonnell to bring jobs and businesses to their respective states has moved offshore.

The governors have most recently turned their attention to India, whose fast-growing economy ranks as the ninth largest in the world.

Mr. McDonnell, a Republican, returned last week from an 11-day trade mission that included a visit to the nation of 1.2 billion people, and Mr. O'Malley, Democrat, left Friday for his own six-day trip to the country.

The similarly timed trips mark the latest chapter in the states' economic rivalry.

"We continue to compete and never like to lose," Mr. O'Malley said earlier this month when engineering-construction giant Bechtel Corp. moved several hundred jobs from Frederick County, Md., to Fairfax County. "But at the same time, there aren't many things in terms of economic strengths that I would trade with Virginia."

Said Mr. McDonnell: "Gaining an international company like Bechtel Corp. is a huge coup for Virginia. ... The company was attracted to the commonwealth due to its business environment, cost and ability to attract the best workforce."

The fight between the states has intensified in the past couple of years as the need for jobs has grown in a bad economy, and as Mr. O'Malley and Mr. McDonnell — respective chairmen of the Democratic and Republican governors associations — have emerged as national leaders in their parties.

In June, Mr. O'Malley led an economic-development trip to China mere weeks after Mr. McDonnell conducted his own trade mission there.

While Virginia has been able to draw businesses with its relatively low tax rates and limited regulation, Maryland has had to overcome the perception that its policies are unfriendly toward business.

Studies consistently rank Virginia as the more attractive place to do business and some have taken Maryland to task for its myriad regulations, higher-than-average income- and corporate-tax rates and the heavy influence carried by labor unions.

CNBC and Pollina Corporate Real Estate this year ranked Virginia as the most business-friendly state in the country, while Maryland ranked 29th and 36th in the respective studies.

"There's a pretty big difference there," said Mark Robyn, an economist for the District-based Tax Foundation, which in 2010 ranked Virginia's business climate 12th nationally and Maryland's 44th. "Virginia is generally a lower-tax state and by our measure they have a tax system that is structured better than Maryland's."

Despite the Bechtel loss, Maryland has long had success attracting life-science and biotech companies.

The state's life-sciences industry employs more than 71,000 people and each year drives $17.6 billion in direct and indirect economic activity, while generating about $500 million in income- and sales-tax revenue, according to the state.

Industry giants such as Gaithersburg-based MedImmune LLC and Rockville-based Human Genome Sciences Inc. have been joined by scores of new companies, allowing the industry to create one-third of the state's new jobs from 2002 to 2010.

In addition, during Mr. O'Malley's trade mission to Asia earlier this year, state officials secured a $40 million commitment from a China pharmaceutical company to build a production facility and training center in Montgomery County.

State officials will focus mostly on the same industries during their India visit. Virginia officials focused largely on potential agricultural exports, such as apples, soybeans, wood and wine during visits this year to India and Asia.

Mr. McDonnell said the trip was an attempt to stimulate business for American companies that have seen jobs and capital drift overseas in search of cheaper labor and lower interest rates — part of an emphasis on job creation he has pursued since taking office in January 2010.

In his first year as governor, he led passage of $50 million in economic incentives that included more than doubling the Governor's Opportunity Fund — a program that provides cash grants to companies that create jobs in Virginia.

By June, the state had given 24 mid- to large-sized companies $9.74 million in grants to create 3,189 jobs.

While seeking various kinds of business, the two states have fought especially hard to build their own prestige and tax bases by luring government contractors looking to set up offices near the District.

Observers say the states' differing tax policies helped Virginia win a notable business victory last year.

When Northrop Grumman Corp. signaled last year that it wanted to establish a presence in the area, the announcement set off an all-out bidding war among the District, Maryland and Virginia to lure the corporate headquarters of the defense contracting giant and the 300 employees it would bring. Virginia won the battle, in part by offering the company a $13 million economic incentive package to locate in Falls Church.

Maryland was able to keep Bechtel's 1,250-employee power division in Frederick until 2018 by offering the company $9.5 million in state grants.

Aside from Maryland's economic policies, the state's political climate has caused some tension with businesses.

Last month, Bethesda-based defense contractor Lockheed Martin Corp. clashed with the Montgomery County Council over a proposed council resolution that would have asked Congress to reduce defense spending and instead use the funds for social programs.

Council members withdrew the resolution under pressure from the company and various state officials, causing them considerable embarrassment and drawing criticism from Mr. McDonnell, who publicly suggested the company might be more welcome in Virginia.

"To be hostile to them in a time of war was somewhat stunning to me," he said during a radio appearance. "If people don't want them in their state, I'm delighted to have them in Virginia."

While Maryland is still criticized by some for its taxes and regulations, state officials have tried to improve the state's image.

Mr. O'Malley has said he will introduce a jobs package during next year's General Assembly session that could include more incentives for new businesses, relax or eliminate redundancies in many of the state's business regulations and increase capital spending to create opportunities for contractors.

"We're glad to have Virginia as a neighbor, and I think you want strong neighbors," he said. "If you have a store in a mall, you want that mall to be vibrant and you want the other stores in the mall to also be attractive."

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