Northrop Grumman Corporate HQs Relocation - You Decide
Let’s role play! You are a corporate executive for Northrop Grumman, a Fortune 100 company that touts itself as a “leading global security company whose 120,000 employees provide innovative systems, products, and solutions in aerospace, electronics, information systems, shipbuilding and technical services to government and commercial customers worldwide.”
You are considering whether to move your corporate headquarters from sunny Los Angeles, California, to a Mid-Atlantic location.
Two states are offering the typical economic incentives and “sweet-heart deals” available for a high profile corporate headquarters relocation. Their officials identify potential sites and outline a package of enticing assistance for land acquisition and tax incentives to influence your decision. The proposals for both states are comparable.
One state has a Governor who announced in January that his state is the “national epicenter for cyber security.” Regardless of this braggadocio, however, his state’s business climate is suffering. Under his three-year tenure, his state’s business ranking has slipped from 24th to 45th. He led the charge to increase the corporate tax rate to a daunting 8.25%. He pushed legislators to enact a so-called “millionaire tax” which places a personal income surcharge your corporate executive’s salaries. His state recently lost the corporate headquarters of Black & Decker in November. He has taken his state budget to the “edge of a cliff,” with no plan to reconcile out-year deficits of $8 billion except for a second massive tax increase after Election Day.
The other state has a Governor who understands the need to brand his state as a leader in job creation: “We need to send a clear message that [our state] is open for business, with a pro-free enterprise climate that stands out because of low taxes, incentives for job creation, limited and sensible regulation, a predictable litigation climate, and a fiscally sound and efficient government that lives within its means.”
The other state’s business climate ranking is 15th in the nation. In recent years, this state has used their business-friendly environment to entice a number of high profile companies to relocate, including Volkswagen of America Inc., Hilton Hotels, and Scientific Applications International Corporation. The 6% corporate tax rate is under attack in the state legislature to be eliminated entirely. That’s right – the other state’s House Finance Committee Chairman has introduced House Bill 119 this year to entirely eliminate that state’s corporate income tax.
Also, you need to consider the impact of personal tax rates on your company’s executives when you make this relocation decision. As pointed out by Jay Hancock of the Baltimore Sun last month: “One probable reason you want to exit California is that state’s personal income tax, whose top bracket of 10.55 percent is among the highest in the country. Will you put the new home office in Maryland, where the top rate for combined state and local income tax is only a little less than California’s? Or will you choose Virginia, where there is no “millionaire tax” and everybody pays 5.75 percent on income over $17,000?”
The competition is on – as a corporate executive, which state would you pick?