The cost of landing Northrop Grumman's headquarters in tax breaks and other public assistance could exceed $25 million.

So how have economic development officials in Maryland, Virginia and Washington, D.C., determined it's worth dangling that much before the military contractor's executives in the heated competition to lure this latest corporate plum from Los Angeles?

Montgomery County conducted an analysis to estimate the direct fiscal impact of having Northrop's headquarters in the county, said Steven A. Silverman, director of the county's Department of Economic Development. That includes the income taxes from the company's 300 executives and property taxes on buildings the company would lease or own, he said.

"We don't do an indirect economic analysis, one where you try to determine how much 300 people with high-paying jobs will spend in the local economy," Silverman said. "A lot of that is intuitive. Those types of studies are easy to poke holes in."

It's easier to defend the validity of a study on direct financial impact, such as payroll income taxes, he said.

Landlords of the sites in the region that Northrop has focused on have submitted their proposals, and so have public entities, Silverman said. So there may be a situation where Maryland is competitive in its incentive package, but has a landlord charging $5 a square foot more than one in Virginia or the District, he said.

Besides Montgomery County, National Harbor and College Park in Prince George's County are possible locations for the Fortune 100 military and aerospace giant's headquarters. Northrop ranked 69th on Fortune Magazine's most recent list of the largest public companies in the nation, with 2008 revenue of $33.9 billion. The only Maryland company higher on the list than Northrop was Bethesda military and aerospace giant Lockheed Martin, at No. 54.

The Maryland Department of Business and Economic Development found it difficult to perform an accurate economic impact assessment, because there are so many variables in terms of location; how many employees will be moving versus locally hired; and what type of building Northrop needs, said Karen Glenn Hood, a DBED spokeswoman. State officials have also met with Northrop executives and discussed offers.

"It makes it difficult to say with any accuracy what the true economic impact would be," Hood said. "We know there would be significant economic impact from the high-paying jobs. We are just focusing on presenting what we feel is the best proposal that keeps us competitive."

As far as when Northrop would make up its mind, Dan McClain, a company spokesman, said this week that the timeline of March to early April had not changed.

Study: Focus on existing firms, not incentives for new ones

While $25 million may seem like a lot to offer Northrop, it pales in comparison with some incentive packages in recent years, according to a new study by Good Jobs First. The Washington, D.C., nonprofit research center promotes "best practices" in economic development matters.

In 2004, the state of North Carolina offered a $242 million subsidy package to attract a Dell personal computer manufacturing facility, and local authorities chipped in an additional $37 million. Dell executives promised to invest at least $100 million in the plant and create at least 1,500 jobs by 2020. After opening a 750,000-square-foot facility in 2005, Dell officials said recently they would close it in an efficiency move, expected to occur this year.

Rather than spending money on incentives that often don't pan out, public officials should focus on boosting existing small businesses and providing more employee education and training, the Good Jobs First report says.

The basic problem with offering tax breaks to attract key corporate facilities is that the incentive structure for public officials invariably leads to spending more than is needed, said Peter Fisher, a professor of urban and regional planning at the University of Iowa who contributed to the Good Jobs First study.

"It may well be that no incentives are needed at all — that Maryland is the best location for Northrop for basic business reasons, and they have already decided to locate there," Fisher said. "Negotiating for incentives is just the icing on the cake for them. But only Northrop knows that."

Election-year politics plays a big role in these deals and is likely driving the incentives higher, Fisher said. Maryland Gov. Martin O'Malley (D) and Washington Mayor Adrian M. Fenty (D) are up for re-election this year, and landing Northrop could boost their campaigns. If they lose the Northrop sweepstakes, opponents will likely use that against them.

Virginia Gov. Robert F. McDonnell (R), who was elected last year, could also use the Northrop deal to help support his campaign pledges to boost job creation in the state.

"The political costs of ‘losing' Northrop are enormous," Fisher said.

Granting tax incentives provides only political gain because of the difficulty of actually knowing if the breaks were too generous or unneeded, he said. Meanwhile, failing to provide incentives and to do everything possible to land Northrop appears to be a high political risk, Fisher said.

Some officials criticized Maryland's and Montgomery County's efforts to land the headquarters of Hilton Hotels, which moved from Los Angeles to Fairfax County, Va., last year. Virginia and Fairfax County's incentives totaled $4.6 million, Hilton executives said, while the Maryland effort was about $2 million less.

In some cases, the competition can become like a poker game, with entities putting up big figures to attempt to bluff their way to a win, said Montgomery County Councilman Michael J. Knapp (D-Dist. 2) of Germantown.

"If you put a big enough number out there, will others ... walk away? I don't know, maybe some will," Knapp said.

Rarely are economic development decisions made solely on the basis of a number, he said. While it's important to be competitive in the incentive figures to stay in the running, a county or city needs to have the kind of amenities and qualities that would make Northrop executives want to settle there, Knapp said. Making sure that overall package is competitive is likely more relevant, he said.

"One of the things Montgomery County has always had is great schools and quality of life," Knapp said.

Staff Writer Steve Monroe contributed to this report.