Maryland’s Competitiveness:
Where We Lead, How We Lag
Gary D. Keith
Regional Economist – M&T Bank
November 2, 2011
Hyatt Regency Chesapeake Bay Resort
Inflation Adjusted Change From Q1 2007
Relative Growth in Gross State Product
Maryland vs. United States
7% A Solid Recovery From the
6% Great Recession… 6.6%
Forecast
5% Maryland’s GDP has grown at
4% nearly three times the U.S.
3%
average since Q1 2007 Maryland
2% 2.3%
1%
0%
-1%
-2% United States
-3%
-4%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2008 2009 2010 2011
Source: U.S. Bureau of Economic Analysis, Moody’s Analytics 2
Predicted Growth in
Economic Activity Six Months in the Future
Maryland Leading Economic Index
4%
R R
E E
3% C C
E E
S S
2% S S
I I
O O
N N
1%
0% 0.25%
-1%
The models include the following
variables that lead the economy: …But a Cloudy
-2%
(1) state-level housing permits (2), Outlook For 2012
state initial unemployment claims,
-3%
(3) delivery times from the Institute
for Supply Mgt manufacturing
Momentum has
survey, and (4) the interest rate faltered since the
spread between the 10-year
-4% Treasury and the fed funds rate first half of 2011
-5%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Sept
Source: Federal Reserve Bank of Philadelphia 3
Federal Spending as a Percent of GDP
“Super Committee” Cuts Pose Downside Risk
Federal spending cuts could act as a stiff headwind for
35%
Maryland’s near-term economic growth
30%
32.3%
25%
Maryland
20%
2010 Rank – 6th 21.9%
15%
United States
10%
00 01 02 03 04 05 06 07 08 09 10
Fiscal Year Ending September 30
Sources: U.S. Census Bureau, Bureau of Economic Analysis 4
Public Policy Objective
Question: How
can
Maryland
maintain
robust
and
sustainable
economic
growth
and
generate
quality
jobs
with
higher
salaries
and
long-‐term
impact?
Answer: Continuously
pursue
policies
that
accentuate
competitive
strength
(“Where
We
Lead”)
and
reduce
competitive
drags
(“How
We
Lag”)
-‐
Be
unique,
not
generic
-‐
Tell
our
story
to
the
world
5
No Shortage of Opinions…
April 2011 May 2011 June 2011 June 2011
June 2011 September 2011 October 2011 November 2011
6
The Problem With These Type of Studies
“How Does Maryland Really Stack Up?”
State Technology North American Chief Executive
& Science Index Business Costs Magazine
January 2011 April 2011 May 2011
2 nd
45th 37 th
No Change Up 2 spots Down 3 spots
CNBC.com ALEC-Laffer Site Selection
“Best Places” Index Competitiveness Index “Business Friendliness”
June 2011 June 2011 November 2011
29 th 21st 21st
Down 2 spots Up 8 spots Up 5 spots
7
Metrics That Matter
“Where
We
Lead” “How
We
Lag”
Economic
Performance
Business
Cost
Competitiveness
Workforce
Quality
Labor
Costs
Tax
Burden
Innovation
&
Productivity
Commercial
Energy
Costs
Access
to
Capital
Liability
/
Regulatory
Global
Focus
Environment
Fiscal
Stability
Infrastructure
Performance
Quality
of
Life
State
Pension
Funding
Gap
8
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Real Gross State Product Growth 2007-10
Overall Regional Avg Annual
Rank Rank Growth
5 1 West Virginia 2.2%
8 2 Virginia 1.2
11 3 MARYLAND 1.0
15 4 Massachusetts 0.8
16 5 Kentucky 0.5
18 6 New York 0.5
19 7 Pennsylvania 0.5
1% or More 20 8 Vermont 0.4
0.1% to 0.9%
23 9 Connecticut 0.2
0% or Less
26 10 North Carolina 0.0
Top State:
North Dakota 5.7% U.S. Average: -0.1%
Source: U.S. Bureau of Economic Analysis 9
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
October 27, 2011 Economic complexity reflects the
Harvard University & MIT amount of knowledge embedded
in the productive structure of an
economy
Over time…it explains 75% of the
variance in GDP and per capita
income across countries
The most prosperous societies hold
a diversity of knowhow and are able
to recombine it to create a larger
variety of smarter/better products
and services
The policy message is clear: Create
an environment—and workforce—
where productive activities that are
relatively more complex can thrive
10
Change From 2000
Relative Change in U.S. Real GDP
by Industry Sector
40% “High Value Added” Services
Information, professional, scientific, business
Recession
35% real estate, heath care and education services
30% Manufacturing, construction, mining
25% All other private sector industries
28.9%
20%
15%
R
E
17.6%
C
E
10% S
S
I
O
5% N
0%
-5%
-1.2%
-10%
00 01 02 03 04 05 06 07 08 09 10
Source: U.S. Bureau of Economic Analysis 11
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Share of State GDP Derived From
“High Value-Added” Services—2010
Why it Matters States with large clusters of high value-added service providers*
are better positioned to have above average economic, job growth
Top 10 States Bottom 10 States
Rank GDP Share Rank GDP Share
1 Massachusetts 49.1% 41 West Virginia 29.0%
2 New Jersey 45.7 42 Oklahoma 28.8
3 MARYLAND 45.4 43 North Dakota 28.5
4 New York 44.4 44 Indiana 28.2
5 California 44.0 45 Louisiana 26.8
6 Colorado 43.1 46 Mississippi 26.5
7 Virginia 42.5 47 Iowa 26.4
8 Rhode Island 42.3 48 South Dakota 25.3
9 Florida 42.1 49 Alaska 23.0
10 Pennsylvania 41.3 50 Wyoming 17.7
* Information, professional, scientific, business,
U.S. Average = 38.3% real estate, health care and education services
Source: U.S. Bureau of Economic Analysis 12
Change From January 2000
Relative Change in U.S. Employment
by Educational Attainment
30%
Bachelor’s degree or higher Recession
25%
Some college or Associate degree 25.1%
20% High School grad or less
15%
R
E
C
10% E
6.8%
S
S
5% I
O
N
0%
-5%
-10%
Persons 25 years of age or older -9.3%
-15%
00 01 02 03 04 05 06 07 08 09 10 11
Source: U.S. Bureau of Labor Statistics 13
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Workforce Education Index—2010
Why it Matters An educated workforce is critical to increasing productivity, fostering
innovation and encouraging economic growth and investment
Top 10 States Bottom 10 States
Rank Score Rank Score
1 Massachusetts 51.5 41 Texas 29.9
2 MARYLAND 48.9 42 South Carolina 29.3
3 Colorado 48.4 43 Nevada 29.2
4 Connecticut 48.3 44 Tennessee 27.5
5 Vermont 46.0 45 Alabama 26.8
6 New Hampshire 45.6 46 Kentucky 24.7
7 Virginia 44.8 47 Louisiana 23.6
8 Minnesota 44.6 48 Arkansas 23.0
9 Washington 44.5 49 Mississippi 22.7
10 New Jersey 44.4 50 West Virginia 20.3
A weighted measure of the educational attainment
U.S. Average = 36.3 (advanced degrees, bachelor’s degrees, associate’s
degrees, or some college coursework) of the workforce
Source: Kauffman Foundation, State New Economy Index--2010 14
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Real Per Capita Personal Income—2011
(twelve months ending in June 2011)
Why it Matters Higher incomes foster increased consumer spending, savings and
investment, enable greater entrepreneurial risk taking
Top 10 States Bottom 10 States
Rank Average Rank Average
1 Connecticut $56,376 41 Indiana $34,997
2 Massachusetts 52,603 42 Alabama 34,280
3 New Jersey 52,198 43 New Mexico 34,204
4
4 MARYLAND
MARYLAND 50,313
50,313 44 Arkansas 33,486
5 New York 49,565 45 Utah 33,410
6 Wyoming 46,306 46 South Carolina 33,278
7 North Dakota 45,596 47 Kentucky 33,146
8 Virginia 45,376 48 Idaho 32,979
9 Alaska 45,150 49 West Virginia 32,716
10 New Hampshire 44,591 50 Mississippi 31,707
U.S. Average = $41,062
Sources: U.S. Bureau of Economic Analysis, Census Bureau, M&T Bank estimates 15
Other “Leading” Indicators
2010 Rank Top State
Entrepreneurship
High tech firms as a share of private firms 3 Virginia
Inc. 5000 firms as a share of private firms 3 Virginia
Workforce Quality
Concentration of Scientists & Engineers 3 Virginia
Migration of U.S. Knowledge Workers 5 Massachusetts
K-12 Student Preparation for Science & Math Careers 7 Massachusetts
Infrastructure / Investment
Broadband Telecommunications Bandwidth 2 New Jersey
Contribution to GDP from R&D Spending 3 New Mexico
Access to Capital
Venture Capital Investment Per
$1,000 of Gross State Product 5 Massachusetts
Sources: TechAmerica.org, Inc. magazine, Kauffman Foundation, American Physical Society, U.S. Bureau of Economic Analysis, PriceWaterhouseCoopers 16
Economic Growth Priority: Quality of Life
Gallup “Life Evaluation” Index—2010
Overall Regional
Rank Rank Score
4
3 1 MARYLAND
1 MARYLAND 51.5
54.3
8 2 Georgia 51.8
10 3 Connecticut 51.5
11 4 Massachusetts 51.4
15 5 Virginia 50.5
21 6 New York 49.2
24 7 South Carolina 48.6
Higher Range 27 8 New Jersey 47.7
Mid-Range 29 9 New Hampshire 47.4
Lower Range
Based
on
self-‐evaluation
of
present
life
situation
31 10 Pennsylvania 47.3
and
anticipated
situation
five
years
from
now
U.S. Average = 49.8
Source: Gallup-Healthways data—2011 17
Metrics That Matter
“Where
We
Lead” “How
We
Lag”
Economic
Performance
Business
Cost
Competitiveness
Workforce
Quality
Labor
Costs
Tax
Burden
Innovation
&
Productivity
Commercial
Energy
Costs
Access
to
Capital
Liability
/
Regulatory
Global
Focus
Environment
Fiscal
Stability
Infrastructure
Performance
Quality
of
Life
State
Pension
Funding
Gap
18
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Economy.com State Business Costs—2011
(Based on unit labor costs, energy costs, state/local taxes, office
rents)
Maryland
3%
below
12% Above
U.S. Average
46th out of 51
78-89
90-100
100-109
110-plus
U.S. Average = 100
Source: Moody’s Analytics—June 2011 19
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Private Sector Employee Compensation
as Percent of Private GDP—2010
Why it Matters High unit labor costs can be an impediment to business formation
and employment growth
Top 10 States Bottom 10 States
Rank Percent Rank Percent
1 Wyoming 33.5% 41
41 MARYLAND
MARYLAND 51.9%
51.9%
2 Alaska 36.4 42 Maine 52.0
3 Delaware 36.7 43 Wisconsin 52.8
4 South Dakota 39.1 44 Ohio 52.9
5 Louisiana 41.3 45 Pennsylvania 53.2
6 Nevada 44.9 46 Minnesota 53.2
7 New Mexico 45.2 47 Vermont 53.6
8 Iowa 45.2 48 Missouri 54.0
9 Hawaii 45.3 49 New Hampshire 55.0
10 North Carolina 45.5 50 Massachusetts 57.3
U.S. Average = 49.5%
Source: U.S. Bureau of Economic Analysis 20
Chamber Priority: Seek a Competitive Tax Structure
Measure State Business Tax Climate Index—2011
Why it Matters Uncompetitive tax burdens influence business location, investment
and job creation decisions, impacting long-term economic health
Top 10 States Bottom 10 States
Rank Index Rank Index
1 South Dakota 7.43 41 North Carolina 4.47
2 Alaska 7.39 42 Rhode Island 4.46
3 Wyoming 7.30 43 Minnesota 4.40
4 Nevada 6.74 44
44 MARYLAND
MARYLAND 4.25
4.25
5 Florida 6.53 45 Iowa 4.20
6 Montana 6.39 46 Ohio 4.16
7 New Hampshire 6.18 47 Connecticut 4.01
8 Delaware 6.03 48 New Jersey 3.96
9 Utah 5.80 49 California 3.78
10 Indiana 5.79 50 New York 3.73
Index: U.S. Average = 5.00
Source: Tax Foundation—October 26, 2010 21
Chamber Priority: Seek a Competitive Tax Structure
State & Local Taxes Relative to U.S. Average
Year Rank Maryland U.S. Virginia
Personal Taxes
Per $1,000 of Personal Income 2010 48 $37.10 $24.10 $28.50
Unemployment
Insurance Taxes 2010 32 $9.20 $8.00 $3.90
Per $1,000 of Payroll
Corporate
Income Taxes 2009 25 $2.63 $2.89 $1.55
Per $1,000 of Gross State Product
Sales & Use
Tax Rate 2011 14 6.00% 9.63% 5.00%
Property Taxes on
Owner-Occupied
Housing as Percent
of Home Value 2010 27 0.94% 1.08% 0.80%
Sources: U.S. Census Bureau, Bureau of Economic Analysis, Department of Labor, Tax Foundation, Vertex Inc., M&T calculations 22
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Commercial Energy Cost per Btu—2009
Why it Matters High utility costs increase operating expenses and inhibit business
formation and employment growth, particularly for larger firms
Top 10 States Bottom 11 States
Rank Per Trilions of Btu Rank Per Trillions of Btu
1 Utah $13.62 40
39 MARYLAND
MARYLAND $24.06
2 Iowa 13.68
41 Alabama 24.92
3 North Dakota 14.17 42 Vermont 24.96
4 Nebraska 14.40 43 Delaware 25.19
5 Minnesota 14.47 44 Massachusetts 25.19
6 Idaho 14.89 45 Rhode Island 25.51
46 New Hampshire 26.07
7 South Dakota 15.04
47 California 26.54
8 Montana 15.33
48 Florida 27.65
9 Colorado 15.35 49 Connecticut 28.48
10 Wyoming 15.70 50 Hawaii 44.30
U.S. Average = $20.69
Source: U.S. Energy Information Administration—June 2011 23
Chamber Priority: Create a Competitive Business Climate and Encourage Job Growth
Measure Number of Health Insurance Mandates
Why it Matters High mandate levels drive up insurance costs, inhibiting business
formation and employment growth, particularly for smaller firms
Top 10 States Bottom 10 States
Rank Mandates Rank Mandates
1 Idaho 13 41 California 56
2 Alabama 21 42t Virginia 57
3 Utah 23 42t Pennsylvania 57
4 Hawaii 24 42t New Mexico 57
5 Michigan 25 42t Washington 57
6 Iowa 26 46 Connecticut 59
7 Delaware 28 47 Texas 60
8 Mississippi 29 48 Minnesota 64
9 Ohio 29
49 MARYLAND 67
10 South Carolina 29
50 Rhode Island 69
U.S. Average = 43
Source: Small Business & Entrepreneurship Council, “Small Business Survival Index”—December 2010 24
Chamber Priority: Protect & Fund the State’s Transportation System
Measure State Highway Performance and
Cost-Effectiveness—2008
2008 Rank
Total
Disbursements
44
Capital
&
Bridge
Disbursements
47
Cost-Effectiveness Rank
Maintenance
Disbursements
45
Overall
rank
in
2008
43
Overall
rank
in
2007
41
Administrative
Disbursements
33
Overall
rank
in
2006
37
Urban
Interstate
Condition
39
Overall
rank
in
2005
38
Urban
Interstate
Congestion
48
Overall
rank
in
2000
34
Deficient
or
Functionally
Obsolete
Bridges
31
Fatality
Rates
18
Source: Reason Foundation—19th Annual Report on the Performance of State Highway Systems—September 2010 25
Chamber Priority: Protect & Fund the State’s Transportation System
Measure Combined Federal, State & Local Gasoline
Tax Per Gallon—July 2011
$0.569 MD with $0.15 hike
$0.489 U.S. Average
$0.419 Maryland (29 th)
$0.384 Virginia (37th)
Source: American Petroleum Institute 26
Too Important To Fail?
About 84% of Maryland’s state
roadways are at least 30 years old
25% were built prior to 1930
38% of the non-interstate and 72%
of the interstate network in Maryland
were built between 1950 and 1975
Washington is the most congested
metropolitan area in the country and
Baltimore ranks 5th
Washington ranks third in mass
transit system usage per capita and
Baltimore ranks 11th
Source: American Society of Civil Engineers, Maryland Section—February 2011 27
Other “Lagging” Indicators
2010 Rank 2008 Rank
Infrastructure
Percent of Bridges Deficient or Obsolete 32 30
Mean Travel Time to Work 50 49
Business Costs
Top Marginal Corporate Tax Rate 32 32
State Liability System Survey 20 30
Cost of Living
Relative Cost of Living 44 45
Net Domestic Migration Rate 26 44
Financial Stability
Unfunded Share of State Pension Obligation 40 (2009) n.a.
Sources: U.S. Energy Information Administration, Federal Highway Administration, Census Bureau, ALEC-Laffer, C2ER, Moody’s Analytics, CNBC.com 28
Constructing a
“State Business Attractiveness Index”
Lead ators
ing
In
dicat g
Indic
ors
Laggin
Leading
Indicators
Lagging
In
dicators
29
Index Components
Indicator
Period
Source
Index
Weight
Growth
in
Private
Establishments
2008-10 Bureau of Economic Analysis 10.0%
L
Human
Capital
Investment
Index
2010 Milken Institute 10.0%
E
High
Tech
Share
of
Private
Payrolls
2010 Bureau of Labor Statistics
7.5%
A
R&D
Share
of
Gross
State
Product
2007 National Science Board
5.0%
D
Venture
Capital
Investment
2010 PriceWaterhouseCoopers/BEA
5.0%
50%
I
Per
Capita
Personal
Income
2010 Bureau of Economic Analysis
5.0%
N
State/Local
Debt
as
%
of
Personal
Inc.
2008 Census Bureau
2.5%
G
Ten-‐Year
Avg.
Unemployment
Rate
2001-11 Bureau of Labor Statistics
2.5%
Recently
Enacted
Tax
Changes
2009-10 ALEC-Laffer/BEA
2.5%
Employee
Compensation
Costs
2010 Bureau of Economic Analysis 10.0%
L
State
&
Local
Tax
Burden
2009 Tax Foundation 10.0%
A
Comparative
Cost
of
Living 2011 C2ER (formerly ACCRA)
7.5%
G
Commercial
Energy
Costs
Per
Btu
2009 Energy Information Admin.
5.0%
G
State
Liability
System
Rating
2010 Institute for Legal Reform
5.0%
50%
I
State
Transportation
Spending
2008 Census Bureau/BEA
5.0%
N
State
Heath
Care
Mandates
2010 Small Business Survival Index
2.5%
G
Unfunded
State
Pension
Liability
2009 Pew Center For the States
2.5%
State
Export
Growth
2008-10 Department of Commerce
2.5%
30
“State Business Attractiveness Index—2011”
Overall Regional Pct. Above / Below
Rank Rank U.S. Average Score
5 1 Massachusetts 23.6%
6 2 Virginia 23.0
11
14 3
3 MARYLAND 16.5
15 4 Delaware 9.6
22 5 New Hampshire 3.4
24 6 Indiana 3.2
27 7 Pennsylvania (0.7)
10%+ Above U.S.
28 8 New York (1.6)
0-9% Above U.S. 33 9 Tennessee (4.3)
Below U.S. Avg. North Carolina (6.7)
35 10
Top State: Washington 36.7%
Source: M&T Bank calculations based on 18 input variables 31
“It
is
not
the
strongest
of
the
species
that
survive,
nor
the
most
intelligent,
but
the
ones
most
responsive
to
change.”
—
Charles
Darwin
Hyatt Regency Chesapeake Bay Resort 32
Maryland’s Competitiveness:
Where We Lead, How We Lag
Gary D. Keith
Regional Economist – M&T Bank
November 2, 2011
Hyatt Regency Chesapeake Bay Resort
No Shortage of Opinions…
January 2011 April 2011 May 2011 June 2011
June 2011 June 2011 September 2011 October 2011
35