Dems could shift business climate

Changes to SOX, minimum wage could affect Maryland companies once party takes hold of House

Friday, Nov. 17, 2006

Reducing costs related to the Sarbanes-Oxley Act. A higher federal minimum wage. More funding for stem cell research.

These and other Democratic initiatives are expected to affect Maryland companies after the party takes the reins of Congress in January following 12 years of almost exclusive Republican domination.

Leaders of publicly traded businesses in Maryland have long complained about the cost of complying with Sarbanes-Oxley, approved in 2002 in the wake of corporate scandals involving accounting procedures at Enron Corp. and other public companies. House Speaker-designate Nancy Pelosi (D-Calif.) has said the law needs revision.

That would be a plus for many Maryland biotechnology companies and others, said C. Robert Eaton, president of MdBio Inc. The Frederick nonprofit is a division of the Tech Council of Maryland.

‘‘Many companies say SOX is overly burdensome,” Eaton said.

Still, the costs of complying with Section 404 of the act, which calls for an outside auditor to certify internal controls, fell at companies last year from 2004, according to a survey by consulting firm CRA International.

The costs for larger companies with a market capitalization greater than $700 million to comply with that section dropped by an average of 44 percent to $8.5 million. For smaller businesses, those expenses dropped by an average of 31 percent to $860,000, according to the survey.

Market capitalization is a company’s stock price per share times the number of outstanding shares.

Raising minimum wage

While Maryland raised its minimum wage to $6.15 an hour in February, the lowest legal wage has remained at $5.15 on the federal level since 1997. Leading Democrats have proposed raising the wage even higher than Maryland’s — to $7.25 by 2008.

If the minimum wage is increased by more than one more dollar per hour, many smaller retailers will suffer, said Thomas S. Saquella, president of the Maryland Retailers Association.

‘‘Many retailers won’t be able to hire as many people,” Saquella said. ‘‘That could have an impact on the industry, especially if retail sales slow down.”

But it’s doubtful raising the minimum wage will have a significant impact on the Washington, D.C.-area economy, said Stephen Fuller, professor of public policy and director of the Center for Regional Analysis at George Mason University in Fairfax, Va.

‘‘There are relatively few people in this area making the minimum wage,” Fuller said.

About 55,000 private workers in Maryland — some 2.5 percent of the state’s total private employees — earn the minimum wage, according to the state labor department.

About 6.6 million workers nationally would see increases, and 8.3 million more workers earning slightly more than $7.25 would likely benefit due to ‘‘spillover effects,” according to the Economic Policy Institute, a Washington think tank.

Studies of the federal wage increase in 1997 have not found a noticeable number of lost jobs, according to an institute report. Employers ‘‘may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism and increased worker morale,” the report said.

More stem cell research?

Democrats have also said they will increase funding for stem cell research. That would be a boost to companies and research institutes involved in that line of research in Maryland, Eaton said.

In addition, many Democrats want to give Medicare officials the authority to negotiate with pharmaceutical companies over prescription drug prices for seniors to reduce their costs. A federal law passed in 2003 keeps Medicare from doing that.

The biggest impact that reduced drug prices would have on Maryland’s biotech companies would likely be in investment, Eaton said. Investors might be less willing to invest in biotech companies if they perceive potential damage to one of their revenue sources, he said.

Many Maryland companies are fueled by federal contracts, but the process probably won’t change much in the next two years because the executive, not congressional, branch is responsible for the bid processes, Fuller said.

‘‘If you cut back on federal government procurement too much, the government has to shut down,” Fuller said. ‘‘There is no incentive to do that.”

There could be minor impacts on defense contracting with more congressional oversight expected, especially in contracts going to the Iraq war effort, Fuller said. What could be a larger impact is the natural delay in making decisions that occurs when one party takes over Congress from another, he said.

‘‘In 1995, when the Republicans took over Congress, the federal budget was not approved until April,” Fuller said. ‘‘If that happens this time, that could have some impact on the local economy. ... But the economy overall is healthier now than it was in 1995 so there might not be quite the impact this time, if Congress delays approving a budget.”

Federal spending on contracts going to private companies in the Washington region, which includes suburban Maryland, the District and Northern Virginia, increased by 80 percent between 1996 and 2004 to reach $108.2 billion, according to the Center for Regional Analysis.

That is a key reason why the Washington region remains one of the leading job producers among the largest metropolitan areas in the nation, Fuller said. Some 74,000 jobs were created in the region between August 2005 and this summer, more than any other area except New York City and Phoenix, according to the center.

Bethesda defense and aerospace giant Lockheed Martin Corp. does not foresee any impact to its contracting process with the Democrats taking over, said Jeffery Adams, a Lockheed spokesman.

‘‘Our approach to working with the Congress has been, and will continue to be, a bipartisan one in both how we run our business and in how we work with our customers,” Adams said.

Other areas that could be affected include funding for the U.S. Small Business Administration, which some said was not a big priority for Republicans, help with paying for health insurance, environmental regulations and credit card fees.

The House rejected a bill this week to permanently normalize trade relations with Vietnam — a measure important to some local businesses that want to trade with Vietnam. The issue is likely to be debated by the House again in the coming weeks.

More clout for Maryland

Maryland’s congressional delegation is likely to gain more clout from the Democratic takeover of Congress, analysts said.

Eight of the 10 representatives and senators from Maryland are Democrats. Those include Sen. Barbara A. Mikulski of Baltimore, a senior member of the Senate Appropriations Committee, and Rep. Steny H. Hoyer (D-Dist. 5) of Mechanicsville, who was chosen majority leader on Thursday.

Mikulski is likely to become chairwoman of the two subcommittees on which she is ranking member: the Appropriations’ Subcommittee on Commerce, Justice, Science and Related Agencies, and the Health, Education, Labor and Pensions Committee’s Subcommittee on Retirement Security and Aging. She has said that more money for homeland security in the region will be among her priorities.

Rep. Christopher Van Hollen Jr. (D-Dist. 8) of Kensington could become chairman of the Democratic Congressional Campaign Committee. Rep. Elijah E. Cummings (D-Dist. 7) of Baltimore is in line to head the Criminal Justice, Drug Policy and Human Resources Subcommittee of the Government Reform Committee. Rep. Albert R. Wynn (D-Dist. 4) of Mitchellville is also expected to play more of a leadership role on the Energy and Commerce Committee.

At the same time, the two House Republicans from Maryland are expected to lose clout. Roscoe G. Bartlett (Dist. 6) of Buckeystown will likely lose chairmanship of the Armed Services Committee’s Projection Forces Subcommittee and his post as vice chairman of the Small Business Committee. Wayne T. Gilchrest (Dist. 1) of Kennedyville is probably out as chairman of the Resource Committee’s Fisheries and Oceans Subcommittee.

Alia Malik of Capital News Service contributed to this report.