Saturday, May 28, 2005

Entice or Drive ‘Em Out?

“This bill directly threatens jobs and economic development in Maryland,” said Governor Robert Ehrlich when he vetoed a new bill this week that would have specifically signaled out Wal-Mart because of the number of employees it has in the state. It would have required the company to spend at least 8% of its payroll on health care benefits, at a time when the company is planning to build a distribution center on the south shore of Maryland. If the bill had passed, I’m guessing that Wal-Mart would have pulled up stakes, and we’d have had another one of the numerous examples of the Law of Unintended Consequences, when lawmakers pass one law which too often results in exactly the opposite affect. It’s happened too often, often with catastrophic ramifications.

Wal-Mart’s distribution center (DC) is being built in Somerset, a rural county on the south shore of the state. Our continuing research shows that this is a very successful strategy of the retailing giant. Part of their success is due to the fact that virtually all of their distribution occurs in lower cost rural areas. It is a tremendous advantage that the company has fully utilized, especially when compared to a company like K-Mart with its more urban DCs.

Princess Anne, the town where the DC will be located is a small town of only 2,313 in a county of 25,863. It has the second lowest population in the state but the highest poverty rate. The unemployment rate in Somerset is the 5th highest in the state. A Wal-Mart DC with 750 jobs would be a big economic boost for this rural community. Its average starting wages of $12/hour are more than $2.50/hour above the county’s current average wage.

Maryland’s ED Secretary Aris Mellissaratos probably said it best, “The legislature has flirted with economic disaster by passing this tax. This new business tax would have driven large companies out of Maryland.”

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