Maryland Ranks Bad for Business: Even This Left-Leaning Study Can’t Save It

On CNBC’s 2026 Top States for Business list released last week, Maryland ranks #36 overall for best business climate in the nation for business, worse than it ranked last year at #32 (1st=best for business; 50th=worst). The study evaluates all 50 states using 138 metrics across 10 categories of competitiveness.

Maryland has long struggled in similar business climate rankings (many of which CNBC incorporated into its scoring for this year). For example, on the Tax Foundation’s State Tax Competitiveness Index, Maryland ranked #46 in FY26. And on Cato Institute’s 2023 Freedom in the 50 States index, Maryland ranked #47 regarding regulatory freedom and #35 regarding fiscal freedom.

What stands out about the CNBC study is that its scoring leans "left" in several categories. Even with this progressive scoring boost, Maryland still stands at a mediocre overall (#36). Maryland avoids the bottom 10 ranking thanks primarily to "Quality of Life," "Technology and Innovation," "Education," and "Infrastructure" – categories with some of the heaviest weighting for progressive and market-interventionist policies.

For example, the Quality of Life category rewards states with more federal research funding, “livable wage” laws, union and collective bargaining protections, and even pro-abortion policies.

Maryland’s weak #36 overall ranking stems primarily from its dismal #49 ranking in the study’s "Economy" category – calling Maryland out for having one of the worst economies in the nation. In the "Economy" category, Maryland fell behind West Virginia (#48) and beat only Rhode Island (#50).

This near-last ranking on "Economy" (#49) is because Maryland scored poorly on factors like GDP growth, job growth, and overall budget picture including spending, revenues, and reserves. The "Economy" category also includes factors like the number of major corporations headquartered in each state and health of the residential real estate market. Maryland also ranks poorly on the "Cost of Doing Business" category at #44, which includes things like tax climate and related costs.

Most nearby states rank better overall: Virginia (#3), Pennsylvania (#13), and Delaware (#32). So, it’s no surprise that Marylanders are voting with their feet – a problem I wrote about here.

The General Assembly and Governor Moore need to get serious about improving Maryland's ability to attract and grow businesses. They must remember that at the end of the day, it’s everyday residents – Maryland's consumers – who benefit from a stronger economy and lower costs of doing business.

Amazon Should Not Receive Government Handouts

Last week, Amazon announced that it will build its highly sought-after second "headquarters" (HQ2) in two separate locations, agreeing to move to Arlington, VA, and Queens, NY. Taxpayers in Maryland and Montgomery County should be pleased that they will not have to pay the $8.5 billion offered to Amazon to induce it to build HQ2 in Montgomery County.

Without having to pay a dime, Montgomery County, which like Arlington borders Washington, DC, still should experience positive spillover economic benefits.

Amazon likely will use HQ2’s close proximity to Washington, DC, in part, to continue lobbying the federal government for various regulatory changes – some good and some bad. As one of the two largest companies in the United States, with a market cap that exceeded $1 trillion in early September, Amazon does not need and should not receive government handouts or special regulatory advantages. Instead, governments at all levels should reduce tax and regulatory barriers that stifle competition and reduce investment and innovation.

After receiving bids from 238 cities across the United States and effectively creating a bidding war, Amazon decided last week that it would locate HQ2 in Arlington, VA, and Queens, NY, with more than 25,000 employees in each location. Maryland offered $6.5 billion in tax incentives and Montgomery County threw in an additional $2 billion. But had Amazon agreed to place HQ2 in Maryland, taxpayers in Maryland and particularly in Montgomery County would have paid for Amazon’s new headquarters.

While perhaps you can't fault the company for attempting to get as many government handouts as possible, Maryland’s government should do what is best for the residents, not what is best for Amazon.

The argument in favor of offering tax incentives to Amazon is that HQ2 would stimulate the local economy and create more than $8.5 billion in long-term economic benefits. Sage Policy Group performed an economic impact study which found that HQ2 would create more than $17 billion in annual economic activity in Maryland. At the time this study was performed, it was assumed that Amazon would deploy one HQ2 with 50,000 jobs, as opposed to two headquarters, each with 25,000 jobs. But even assuming HQ2 would have created 50,000 new jobs in Montgomery County, one of the touted benefits in the study is that Amazon would contribute $280 million in annual county taxes and $483 million in annual state taxes. If Amazon accepted the $8.5 billion handout, it would have taken Amazon more than seven years to create a net positive tax contribution to Montgomery County and more than thirteen years to create a net positive tax contribution to Maryland.

Of course, had Amazon accepted the deal, it would have been under no obligation to pay back the tax incentives. What would have stopped Amazon from moving HQ2 to a new location after a few years? Taxpayers would bear all the costs with little benefits, particularly Maryland taxpayers who live far from Montgomery County who would not experience any of the increased economic activity created by HQ2.

Montgomery County and Maryland officials now have a combined $8.5 billion that can be allocated to services that will directly impact the state and local residents. Whether this means more funding for schools, roads, or tax breaks for the current residents, Maryland is likely much better off using this money in other ways.

Importantly, because Arlington, VA, a suburb of Washington, DC, will become the location of one of Amazon’s second headquarters, Montgomery County’s local economy will experience spillover economic benefits. Amazon’s move to the DC area will bring 25,000 new jobs and those new employees will spend their money on housing, food, and entertainment throughout the area. Sage’s study states that an HQ2 located in Montgomery County would positively impact DC, and Northern Virginia, as well as Maryland’s Anne Arundel County, Baltimore City, Baltimore County, Frederick County, Howard County, and Prince George’s County. So under the same locale-related assumption, an Arlington-based HQ2 should positively impact Montgomery County and other Maryland jurisdictions. Spillover effects do not stop at state borders, so Maryland should experience some of the indirect economic benefits of Amazon moving to the DC area without having to spend $8.5 billion in taxpayer money. Moreover, additional companies may consider the Washington, DC, area as a good home for their headquarters, and Maryland can use this opportunity as a way to reinvent its sales pitch to prospective companies – by lowering tax rates and eliminating costly regulations that stifle entrepreneurial and economic activity.

Despite a whopping $8.5 billion left on the table, I am not claiming that Amazon chose Virginia over Maryland due to its tax and regulatory policies. I don't have evidence for that. But that does not mean that Maryland’s improving but still sub-par business climate does not deter other companies from setting up shop within the state. (See these blogs here, here and here.) Instead of attempting to persuade companies – including one of the world's largest firms – to move to Maryland with promises of government handouts, the state and localities should remove, or at least reduce, barriers to entry. This will induce businesses across many industries to locate their headquarters in Maryland.

Maryland's Fiscal Condition Improves Under Governor Hogan

Earlier this month, the Mercatus Center at George Mason University released its 2018 edition of "Ranking the States by Fiscal Condition," which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. 

In the 2018 edition, Maryland ranks 33rd among the states in overall fiscal condition. This is an increase of 13 spots from 46th overall in 2017. Importantly, this report uses data from fiscal year 2016, which is the first full year of Maryland Governor Larry Hogan's term. As Free State Foundation President Randolph May and I have discussed in three different Perspectives from FSF Scholars, Governor Hogan has made commendable efforts to improve Maryland's business climate by eliminating or reducing unnecessary regulations and taxes. (See here, here, and here.)

In the Mercatus report, assessment of fiscal condition is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 41st but moving up five spots from 46th in 2017.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 102% of expenses. This ranks Maryland 27th in the country, moving up twelve spots from 39th in 2017.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.69 and Maryland ranks 44th in long-run solvency, which is the same as its 2017 rank.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 17th in the country, falling just one spot from last year.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 17th, moving down three spots from 14th in 2017.

One significant issue Maryland policymakers should address is the state's looming unfunded liabilities. Maryland has nearly $21 billion in unfunded pension liabilities and has a funded ratio of 71%. This means the value of the state’s assets are 71% of the value of the state’s pension obligations. The most effective plan for decreasing Maryland's long-term debt and fixing its fiscal condition goes hand-in-hand with Governor Hogan’s efforts to improve the state's business climate.

By reducing the burdens of taxes and regulations, Governor Hogan's reforms are intended to continue to attract more businesses into Maryland. In turn, this will expand Maryland's tax base, increase tax revenue, and improve Maryland's fiscal condition by diminishing the amount of unfunded liabilities overtime. Moreover, lessening the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout Maryland.

It is fairly clear that Governor Hogan's tax and regulatory reforms are having a positive impact on Maryland's overall fiscal condition. In the first full fiscal year of Governor Hogan's term, Maryland moved up 13 spots in the Mercatus ranking. Based on the achievements that the Hogan Administration has made over the last couple of years in terms of eliminating outdated and unnecessary regulations, Maryland's fiscal health ranking should continue to improve.

In the meantime, the Maryland General Assembly should work harder to collaborate with Governor Hogan's efforts to decrease tax and regulatory burdens. This will have a positive impact on Maryland's long-term fiscal condition.

Maryland’s Fiscal Health Is Poor Even as Business Climate Improves

On July 11, 2017, the Mercatus Center at George Mason University released its 2017 edition of “Ranking the States by Fiscal Condition,” which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. And CNBC recently released “America’s Top States for Business 2017,” which ranks each state by the attractiveness of its business climate.

Despite Governor Larry Hogan’s thus far commendable efforts to reform Maryland’s business climate, the state nevertheless ranks 46^th in overall fiscal solvency in the new Mercatus Center study, falling five spots from 41^st in 2016. The data used in the Mercatus study comes from fiscal year 2015, which only covers the first six months of Governor Hogan’s administration. So his reform efforts will not be recognized in this study. But it is still important to see how Maryland ranks relative to other states.

In the Mercatus study, fiscal solvency is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 46^th and falling three spots from 43^rd in 2016.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 101% of expenses. This ranks Maryland 39^th in the country moving up seven spots from 46^th in 2016.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.83 and Maryland ranks 44^th in long-run solvency, moving down one spot from 43^rd in 2016.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 16^th for the second year in a row.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 14^th, moving up four spots from 18^th in 2016.

Maryland’s unfunded liabilities may be small relative to other states, but they are large relative to Maryland’s current assets. Maryland has a funded ratio of 74%. This means the value of the state’s assets are 74% of the value of the state’s pension obligations. Although 74% is consistent with the national average, Maryland has over $20 billion in unfunded liabilities.

Despite Maryland’s poor ranking in the new Mercatus study, Governor Larry Hogan has done a commendable job starting to transform Maryland’s business climate. As Free State Foundation President Randolph May stated in a January 2017 Perspectives from FSF Scholars, Governor Hogan’s Regulatory Reform Commission has identified specific areas where Maryland can reduce regulatory barriers. Also, in May 2016, Governor Hogan reduced or eliminated over 155 fees, claiming to save businesses and taxpayers over $60 million over the next five years.

These efforts have helped propel Maryland upward in CNBC’s new ranking “America’s Top States for Business 2017.” Since Governor Hogan took office in January 2015, Maryland has moved up eleven spots to 25^th in CNBC’s 2017 ranking. Notably, Maryland currently ranks 4^th in technology and innovation, 7^th in overall economy, 11^th in workforce, and 15^th in access to capital.

Despite the positive direction of Maryland’s business climate, the Mercatus study shows how the decisions of past administrations, along with past legislatures, have created long-term debt and left Maryland with one of the worst fiscal situations in the country. In a couple of years when the data used in the Mercatus study takes into account the reforms made by the Hogan administration, it will be interesting to see whether the improvements to Maryland’s business climate have positively impacted Maryland’s fiscal health.

The most effective plan for fixing Maryland’s fiscal health should go hand-in-hand with Governor Hogan’s reformist goals when he first took office. The Maryland General Assembly should work with Governor Hogan to reduce tax and regulatory burdens. This would enable Maryland to attract economic activity that has migrated over state lines in past years. Creating an economy more conducive to “permissionless innovation” will incentivize entrepreneurs to open up shop in Maryland. This will expand Maryland’s tax base, increase tax revenue, and improve Maryland’s fiscal health by reducing the amount of unfunded liabilities. Reducing the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout the state of Maryland.

The Maryland General Assembly should support Governor Hogan’s efforts to reform Maryland’s tax and regulatory environment and attract more businesses into the state.