A sobering 2008
Unemployment rate increased as business sectors coped with recession; National Harbor, tech tax repeal were bright spots
Maryland's economy and business climate were not immune to the national recession and financial-market meltdown in 2008, but the state still fared better in most respects than the nation as a whole.
The unemployment rate rose, job losses mounted in industries such as manufacturing and construction, and the two largest banks headquartered in the state were sold to out-of-state institutions. But even during the recession, Maryland employers added about 13,000 jobs in the past year, with some 10,000 in health care and education sectors, according to the U.S. Department of Labor. Nationally, employers shed a whopping 1.9 million positions, with Florida, California and Michigan hit the hardest.
Maryland job gains included the much-anticipated opening of the $865 million Gaylord National Resort and Convention Center in Prince George's County. About 2,000 full-time, part-time and on-call employees started work at Gaylord, and retailers and restaurants opened near the facility as well.
Part of National Harbor, the 300-acre mixed-use project in Oxon Hill, Gaylord brought in some $55.7 million in revenue during the third quarter, officials said. But the hotel was not without controversy, including early reports of mice, an $80 million lawsuit for allegedly unpaid contracting bills and claims that it did not live up to its promise to award 20 percent of contracts to local and minority-owned businesses.
Montgomery County welcomed new companies such as Europ Assistance USA, part of the multinational Europ Assistance Group that provides travel services, identity theft resolution and medical referrals. Europ's United States headquarters moved to a larger space in Bethesda from Washington, D.C., bringing 175 jobs.
"Ours is still a good story," Shubert said. "It's going to be another record-breaking year for us. We don't anticipate seeing much of an influence from the downfall of the economy."
Other companies that continued to grow and add jobs in the recession included Germantown satellite provider Hughes Communications and Viable Inc. of Rockville, which develops video relay services and other technology for deaf and hard-of-hearing people.
Near Aberdeen Proving Ground in Harford County and Fort Meade in central Maryland, companies such as high-tech contractor CACI International opened offices to prepare for the influx of thousands of U.S. Defense Department employees expected in the next few years through the base realignment program.
Business groups help force
repeal of tech tax
But legislators approved another proposal that some business organizations opposed, the Flexible Leave Act, which requires private companies that offer paid time off to allow employees to use it without notice if they have a sick family member.
Other business-related laws that passed this year included raising the average annual gross sales a company can have in its most recent three fiscal years to qualify for the state Small Business Reserve Program, including from $2 million to $10 million for service companies; increasing the years a biotechnology business can exist from 10 to 12 years to qualify for the state biotech tax credit; and establishing a state task force on the Minority Business Enterprise Program to review how to help minority-owned companies acquire investment capital.
Unemployment rate rises
Maryland's unemployment rate increased to 5.3 percent in November from 3.6 percent a year earlier. Still, that was significantly below the national rise to 6.7 percent from 4.7 percent a year ago.
Numerous companies laid off workers. HSBC Finance Corp. Card Services closed a call center in the Baltimore area, giving 445 employees pink slips, in the largest single layoff action of 2008, according to state figures. Reading, Pa., department store operator Boscov's shut stores in Baltimore, Owings Mills and Glen Burnie, laying off almost 400 employees.
But the national recession has not impacted Maryland as much as many states "thanks to federal government jobs, federal contracting and the health care sector," said Anirban Basu, chairman and CEO of Baltimore economic and policy consulting firm Sage Policy Group.
The economy of the Washington region, which includes suburban Maryland, has fared better than the nation and should start seeing its regional output rise next year, according to a report by the Center for Regional Analysis at George Mason University in Fairfax, Va.
But there were problem areas, such as general fund sales tax receipts — adjusted for the rate increase and other factors — declining 2.5 percent through October from the same period in 2007, according to a recent report by state Comptroller Peter V.R. Franchot. November and December likely did not fare better, he said.
Franchot cracked down on national companies to pay corporate income taxes. In one case, the Maryland Tax Court ordered subsidiaries of retail chain Nordstrom Inc. to pay $1.3 million in back taxes for 2002 and 2003.
Bank changes
The repercussions of mortgage loan defaults and bad investments by big Wall Street banks hit local Maryland institutions. Amid earnings declines and loan defaults, executives with Chevy Chase Bank of Bethesda and Provident Bankshares Corp. of Baltimore — the two largest banks headquartered in the state — both signed deals to be acquired by out-of-state banks.
Chevy Chase signed an agreement to be sold to Capital One Financial Corp. of McLean, Va., in a $520 million transaction. Provident agreed to be purchased by M&T Bank Corp. of Buffalo, N.Y., in a stock deal worth $401 million.
Many banks, including local ones such as Provident, participated in the U.S. Treasury Department's capital infusion program, designed to help banks stay afloat.
Smaller banks welcomed former customers of the larger institutions. "It's amazing how many people are bringing their money to us because we have high ratings with the agencies," said Marty Lapera, president of Frederick County Bancorp, parent of Frederick County Bank.
Other Maryland banks have been sold this year. Bethesda institution Eagle Bancorp acquired Fidelity & Trust Financial Corp. of Bethesda in a deal valued at $13.1 million, and American Partners Bank of Bethesda changed its name to Waterfield Bank after being bought by Affinity Financial Corp. of Irvine, Calif.
Bank deposits in Maryland grew by only 1.7 percent to $96.6 billion from June 2007 to June 2008, the weakest growth since 1996, when deposits fell slightly, according to Federal Deposit Insurance Corp. figures. The state growth rate was below the national average increase of 4.8 percent.
Stock decline leads to French twist at Constellation
In the wake of the Wall Street meltdown, many Maryland public companies saw their stock prices decline.
The rapid decline in stock price at Constellation Energy Group of Baltimore, one of the state's largest businesses, played a key role in that company having to scour around for a buyout, executives said. A few days after Constellation's stock price free-falled from $47.67 to $13 in September, Constellation signed a $4.7 billion deal with MidAmerican Energy Holdings, a Des Moines, Iowa, energy holding company controlled by billionaire investor Warren Buffett.
But in December, Constellation terminated that agreement in favor of selling to a subsidiary of French energy giant EDF Group half of its nuclear business for $4.5 billion. That transaction allows Constellation to remain its own publicly traded business, Mayo A. Shattuck III, president and CEO of Constellation, said.
Buffett still received about 10 percent of Constellation's outstanding stock and some $593 million in termination and other fees. Constellation is also forced to repay a $1 billion investment from MidAmerican with 14 percent interest by Dec. 31, 2009. That payout drew protests from some Maryland legislators and consumer groups.
The stock of Avalon Pharmaceuticals, a Germantown biotech that develops cancer treatments, slid more than 90 percent in the past year. The company agreed to be bought by Clinical Data of Newton, Mass., in a stock deal valued at $10 million.
Also on the losing side was Radio One, which, like many radio companies, was squeezed by the Internet and personal digital music players. The Lanham media company, which is trying to diversify and capture a piece of the growing Web pie, saw its stock decline more than 75 percent in the past year. In the third quarter, Radio One recorded a $337 million non-cash impairment charge when it wrote down the value of its Federal Communications Commission license in the third quarter, leading to a net loss of $266 million.
Bethesda defense and aerospace giant Lockheed Martin Corp. was not nearly as impacted by the erratic stock market. Lockheed's stock slid only 27 percent from a year ago. Lockheed's programs continue to be well supported, as the U.S. Congress has approved "robust funding" for the Defense Department in fiscal 2008 and fiscal 2009 defense appropriation bills, a spokesman said.
Building industry still suffering
Building industry players, grappling with a declining housing market for more than two years, continued to hope the cycle would turn in '08. It didn't much.
The state still faced increasing foreclosures rates and plummeting housing sales and prices, forcing developers to rework projects and homeowners to rely less on equity.
In November, Maryland's rate of foreclosures rose by 11 percent from a year ago, according to RealtyTrac, a data company in Irvine, Calif. That was lower than the national increase of 28 percent. The number of existing homes in Maryland sold in November dropped by 28 percent from a year ago, while the median price declined by 11 percent to some $262,000, according to the Maryland Association of Realtors.
Real estate brokers in Prince George's County, responding to slow sales and continued foreclosures, created Prince George's Real Estate Agents for Change to advance ideas to help buyers and sellers. Much of the group's attention centered on a $10.8 million federal recovery grant, which the County Council, against the wishes of the agents, decided to spend on buying and refurbishing foreclosed homes to sell back to the public.
Some major mixed-use development projects in Prince George's ran into roadblocks, as state and county governments tightened their budgets. Westphalia, a 6,000-acre project near Upper Marlboro, was among the hardest hit, as developers worked to finance Suitland Parkway and the Westphalia Interchange, which would connect the project with Route 4.
The Greenbelt Towne Centre, a $1 billion project, also hit snags such as difficulty selling its residential segment and FBI raids on the offices of county officials and developers associated with the project. Konterra, a planned 2,200-acre mixed-use development in Laurel, could also face problems in connecting to the Intercounty Connector, an 18-mile toll highway linking I-270 in Gaithersburg to Route 1 and I-95 in Laurel.
The slow housing market hurt a variety of businesses besides developers, builders and brokers. Structural Systems in Thurmont, which makes trusses and other housing parts, eliminated 110 jobs in November. Redland Brick, also in Thurmont, cut back brick production significantly in the past year.
In Frederick County, developers broke ground on Ballenger Center, which will become certified by Leadership in Energy and Environmental Design. Expected to be Frederick City's first LEED certified building, it will join Fannie Mae Technology Center in Urbana as among the first official "green" buildings in the county.
Tough year for retailers
While many merchants welcomed a boom on Black Friday and Cyber Monday last month, many Maryland retailers are facing a grim holiday season. For the first time since it began forecasting state holiday retail sales more than two decades ago, the Maryland Retailers Association predicted a flat season this year.
"Even in the electronics markets, we've seen a softening," said Thomas Saquella, president of the retail organization. "It's been lackluster sales all year. It's a difficult situation."
Numerous national chains filed for bankruptcy and shuttered stores this year. Besides Boscov's, retailers that closed Maryland stores included C-Mart, Sharper Image, Mervyn's, Circuit City and Tweeter.
Mattress Discounters in Upper Marlboro also filed for Chapter 11 bankruptcy and agreed to be acquired for $4.5 million. Borders Group executives said they would close the book store at Gaithersburg Square next month, citing weak sales there.
Tom England, owner of Dancing Bears Toys in downtown Frederick, is among retailers who have fared well this year, as he expects a 27 percent increase in revenues. "It's a totally different atmosphere downtown than anywhere else," England said recently. "People get better customer service here."
Gas prices rise and fall
From the price of bagels to the cost of a cab ride, average gasoline prices left few businesses unscathed this year as they fluctuated between $4.11 and $1.65 for regular unleaded in a matter of months, according to AAA Mid-Atlantic.
Earlier in the year, as gas prices reached record levels, many businesses that rely heavily on transportation, including truckers, water haulers and pizza and flower delivery services, took drastic measures to cushion the impact. The high fuel prices also contributed to high food costs for restaurants.
Comings and goings
In December, David W. Edgerley said he was leaving as secretary of the Maryland Department of Business and Economic Development, effective Jan. 30, after almost two years on the job. Edgerley said he will work in the private sector, adding that the resignation was of his own choosing.
James A. Dula resigned as CEO of the Prince George's Chamber of Commerce, a position he had held for two years.
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