As the 2025 Legislative Session approaches, MACo is profiling some of the most pressing issues likely to shape policy debates in the General Assembly. Among them, the future of economic development tax credits looms large.

Local governments, just like the State, have a vested interest in economic development. Local economic growth creates jobs and increases salaries, expanding the local and statewide tax base. Therefore, the State and local governments must partner to implement these efforts.

Designed to drive growth in urban, suburban, and rural areas, attract businesses, and create jobs–economic development incentives have sparked growing debate over fiscal impact and effectiveness.

Counties stand at the heart of this conversation, working to balance the need for targeted revitalization, equitable economic opportunities, and sustainable revenue strategies that support essential public services.

The Role of Economic Development Tax Credits

Maryland’s economic development tax credits—such as the Research and Development (R&D) Tax Credit, Enterprise Zone Program, and One Maryland Tax Credit—aim to stimulate investment, job creation, and growth in areas that need them most.

These programs are critical tools to attract businesses, drive innovation, and revitalize local economies, offering significant incentives to encourage private-sector engagement. However, recent evaluations by the Department of Legislative Services (DLS) reveal challenges in effectively targeting these benefits.

Additionally, some programs, like the Enterprise Zone Tax Credit, create a local fiscal impact by reducing property tax revenues—placing further strain on counties already grappling with budget challenges.

Bolstering these programs could help ensure they deliver tangible benefits for communities while maintaining a balance between economic growth and fiscal sustainability.

Enterprise Zone Program

For decades, the Enterprise Zone Program has supported businesses and communities across Maryland, offering property and income tax credits to encourage investment and job creation. These incentives have drawn businesses to areas with the greatest need, helping to grow local economies and create jobs.

But the program isn’t perfect. It doesn’t always reach the state’s most distressed communities, and outdated criteria sometimes allow resources to go to areas that don’t need as much help. Counties also bear some of the costs through property tax credits, adding strain to already tight local budgets.

According to DLS, the program could deliver more meaningful results with better targeting and more substantial data collection. A sharper focus on the areas and residents that need it most would help ensure this tool continues to drive real growth and opportunity in communities across Maryland.

Still, the program has effectively allowed local economic development directors to recruit new businesses. As such, MACo has consistently advocated for the General Assembly to keep the program’s incentives intact.

One Maryland Tax Credit

The One Maryland Tax Credit aims to spur investment and job creation in Maryland’s most economically distressed counties, but a 2022 DLS evaluation raised several concerns.

The program lacks an annual cap, leading to unpredictable fiscal impacts that complicate budget planning. According to the 2022 analysis, the credit has awarded over $300 million to 79 projects since its inception. Still, gaps in data collection and verification processes hinder the state’s ability to assess its effectiveness.

DLS recommended consolidating overlapping programs, instituting annual limits, and improving compliance measures to ensure this credit meets its goals while safeguarding public resources.

Despite these challenges, the One Maryland Tax Credit remains vital for counties. It incentivizes businesses to locate or expand in low-income or underserved urban and rural areas, creating jobs, improving quality of life, and growing the local tax base.

R&D Tax Credit

Maryland’s R&D Tax Credit promotes innovation and investment, especially for small businesses facing high costs. However, according to a DLS analysis, less than one percent of statewide R&D activity is tied to the credit, so it has yet to deliver significant economic gains.

DLS recommended that the General Assembly consider terminating the R&D tax credit and explore other options to increase R&D activity in the state. One option is to provide State matching funds for federal Small Business Innovation Research grant awards or grants to improve human capital in science and technology.

The program remains a valuable resource for counties seeking to attract and retain high-tech businesses and high-paying jobs. Eliminating this credit could risk losing ground in the competitive landscape for innovation-driven industries.

MACo’s Perspective: Protect Local Solutions, Tackle Inequities

MACo has consistently supported tax incentives like the Enterprise Zone Program as vital tools for fostering economic growth and community revitalization.

However, counties oppose legislation restricting local autonomy in managing these programs, as such changes could limit their impact and flexibility.

For example, MACo has opposed proposals imposing stricter criteria on enterprise zones, arguing that these restrictions would reduce their effectiveness in revitalizing communities.

Additionally, such changes could strain county revenue structures, impacting the ability to fund essential services like public health, education, public safety, and infrastructure maintenance—services that benefit all county residents.

Moving Forward: Reforms for Equity and Efficiency

As legislators consider changes, counties advocate for reforms that enhance the equity and efficiency of tax credit programs:

• Modernized Criteria: Aligning program eligibility with practical and updated indicators of economic distress.
• Targeted Investments: Prioritizing local hiring and workforce development to ensure community benefits.
• Streamlined Administration: Addressing data gaps and reducing administrative barriers to improve transparency and accountability.

County Concerns and Opportunities

Counties face significant fiscal challenges, with rising costs tied to mandates like the Blueprint for Maryland’s Future. Economic development tax credits represent a double-edged sword: while they drive growth, they can strain county revenues without proper alignment.

In this legislative session, the General Assembly must weigh the effectiveness of tax credits in fostering equitable economic growth while safeguarding counties’ capacity to fund core services. MACo remains committed to ensuring economic development initiatives drive growth and reflect county priorities, promoting equity, innovation, and long-term sustainability.

Stay tuned to Conduit Street for more information.