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Q&A With Augustine Commission Chair Norman Augustine

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Norman Augustine, the chair of the Maryland Economic Development and Business Climate Commission — commonly known as the Augustine Commission, a group of 26 business leaders from around the state — was raised in Colorado and attended Princeton University, where he graduated with a BSE in Aeronautical Engineering, magna cum laude, and an MSE.

His career began in 1958 when he joined the Douglas Aircraft Company, in California, where he worked his way up to chief engineer. In 1965, he joined the federal government and served in the Office of the Secretary of Defense as assistant director of defense research and engineering. In 1970, he joined LTV Missiles & Space Co. as a vice president, then returned to the government as assistant secretary of the Army; in 1975, he became undersecretary of the Army, later acting secretary of the Army.

Joining Martin Marietta Corp. in 1977 as a vice president, he was elected CEO in 1987 and chairman in 1988, having previously been president and chief operating officer. He served as president of Lockheed Martin Corp. upon the formation of that company in 1995, and became CEO later that year. He retired two years later, and became a lecturer with the rank of professor at his alma mater, where he served until 1999.

Along the way, Augustine has been very active in nonprofit affairs, serving as chairman and principal officer of the American Red Cross for nine years, chairman of the council of the National Academy of Engineering, president and chairman of the Association of the United States Army, chairman of the Aerospace Industries Association and chairman of the Defense Science Board. He is a former president of the American Institute of Aeronautics and Astronautics and the Boy Scouts of America.

He has also served on numerous boards, for such organizations as the National World War II Museum, ConocoPhillips, Black & Decker, Proctor & Gamble, Lockheed Martin and Colonial Williamsburg. He is a regent of the University System of Maryland, trustee emeritus of Johns Hopkins and a former member of the boards of Princeton and MIT. He also has served on numerous advisory boards and commissions.

Augustine has been presented the National Medal of Technology by the President of the United States and received the Joint Chiefs of Staff Distinguished Public Service Award, has five times received the Department of Defense’s highest civilian decoration, the Distinguished Service Medal, and he is the co-author of The Defense Revolution and Shakespeare in Charge, and the author of Augustine’s Laws and Augustine’s Travels — which he was highly qualified to do, as he has traveled in 112 countries and stood on the North and the South poles.

He holds 34 honorary degrees and was selected by Who’s Who in America and the Library of Congress among Fifty Great Americans on the occasion of Who’s Who’s 50th anniversary.

The Augustine Report reveals a reluctance of the commission to cut any funding for education. Why?

The competitive strength of our state depends on people, money and knowledge, and our education system produces two of these assets. In terms of higher education, we continue to improve, with The Johns Hopkins University and the University of Maryland, College Park, ranking 10th and 20th, respectively, in a recent survey published by U.S. News & World Report, and UMBC and others up and coming.

Our K–12 system has an extraordinary share of high quality schools, but overall we’re not much than better than average. Since the educational system underpins much of what our commission hopes to accomplish, whatever else we do should not come at the expense of education.

What surprised you as you got deeper into discussions with the commission?

Without question, the greatest surprise was the enormous potential our state has to be far more competitive for jobs and a higher quality of life for its citizens.

The future economy will be technologically driven, and considering people, money and knowledge, we rank No. 1 among the states in median family income, No. 2 in research and development intensity and No. 2 in percentage of residents with advanced degrees. However, we also have many impediments, mostly self-created, that have prevented us from achieving what we should; our state is like a prize fighter who punches below his weight.

Why isn’t Maryland the host of more major corporations?

Our report cited five principal reasons: a perceived negative attitude toward business, excessive regulation, a high tax structure, inadequate infrastructure and the lack of startup (risk) capital. In the past, we have largely depended on the federal government for our growth; in the future we will have to depend more on the commercial sector.

Are you concerned that the state’s nonprofits don’t get as much support as those in other states due to Maryland’s lack of Fortune 500/1,000 companies?

There’s no question that much of the nation’s nonprofits’ resources come from corporate gifts. That is, of course, the shareholder’s money and, as such, tends to be gifted in locales where employees, customers and decision-makers are located.

Might there be a way to phase in a personal income tax break over three years, just as the commission has suggested doing with reducing the corporate income tax rate from 8.25% to 7% during that same timeframe?

The magnitude of Maryland’s individual income tax is clearly one of the major factors limiting competitiveness. Unfortunately, reducing it has a major impact on state revenues that support education and the like. To cut the individual income tax across all brackets by just 0.2 percentage points costs the state about as much as implementing the other 13 tax-related recommendations our commission has offered.

For this reason, it was the consensus of the commission that in today’s uncertain economy, the first order of business is to assimilate the other 13 recommendations — and then to implement a phased reduction of the individual income tax. Both are extremely important.

What are your thoughts about incentives, in general?

It is our commission’s view that what is needed are broad improvements to tax, regulatory and other structures that will raise all boats. While special incentives can be unavoidable at times, they have a very mixed record and, at best, lead to favoritism; and, at worst, to what might be termed corporate extortion.

We therefore have proposed a sunset on all special incentives and a thorough review to determine which ones are worthy of pursuit in the future.

It has already been reported by various news outlets that implementing just three of the recommendations could cost the state $325 million. True?

Implementing the 13 near-term recommendations we have offered will reduce state revenues by less than 2% — a reduction of a scale that the business community deals with routinely.

Why is raising alcohol and tobacco taxes, which has already been shot down, considered a bad idea?

One can make many strong arguments in favor of such taxes, particularly when the proceeds are devoted to worthy causes; however, it was the view of the majority of the members of the commission that this would not be an appropriate recommendation, at least at the present time.

What can be done to expedite technology transfer?

The best way to transfer technology is to transfer people. Most people who are creating new technology tend to be working at universities or government labs. Therefore, we have to make it easier to move people from the public to the private sector, to start businesses, and for these people to return to their initial job.

We also need more risk capital. Today, 72% of all of the nation’s venture capital goes to three states: California, Massachusetts and Texas. Too often, people get ideas for businesses here in Maryland but go to another state to start a company. We have to change that.

Professionals in technical fields have been known to not communicate their findings, which slows or stops the process of new products coming to market. What can be done to improve this problem?

We need to make information that comes out of our universities and federal laboratories readily available to entrepreneurs through incubators and other transfer mechanisms. The historic incentives for faculty have largely been to publish scholarly articles in peer-reviewed journals. But we also need to make the results of their work applicable for the benefit of society whenever possible. The National Institutes of Health, Hopkins and the University System of Maryland have all taken important steps in this regard.

How was the state’s cybersecurity community analyzed, and how can it be promoted to make Maryland the top cybermarket in the U.S.?

Maryland is in an extraordinarily strong position with regard to the growing field of cybersecurity because of the federal facilities located here and our universities that support them.

However, we found competition growing from other states that view that market as one of their top priorities as well, including, but not limited to, California, Massachusetts, Texas and New Mexico.

What are your observations about the state’s tax situation and the second half of the report that the commission just completed?

There is much to be said here. If you look at the overall tax burden at the state and local levels, taken as a fraction of gross state product, Maryland finishes nationally in the 33rd (from the bottom) percentile among states. If you compare us simply to local states, we finish in the 50th percentile; that is, average.

This is part of what inspired the founding of the commission. The two highest-tax states in the entire nation are New York and New Jersey — and they are the only local states that rank more unfavorably than us. There is intense competition among the states to become more attractive to business, but even if everything we’ve proposed in the tax sphere were adopted, we’ll still only be in the 50th percentile nationally.

It was mentioned in the report that the Columbia-based Maryland Technology Development Corp. (TEDCO) might be getting a budget hike. What would you like to see out of that organization?

We need to invest much more in attracting businesses, but shouldn’t allocate funds to any area simply because we’ve been doing it in the past. Every investment must stand the return-on-investment test.

Much of the Department of Commerce’s fiscal 2015 $3.1 million marketing budget, due to a state statute, went to tourism efforts. Might that money be dispersed differently?

Tourism is obviously very important to the state; however, overall, it is not at all clear that we have been spending our money in an optimal fashion. This is why we propose a review of all incentive packages and related expenditures.

What are your thoughts after completing the first phase of the report?

After we submitted the initial phase of our report, there were five pieces of implementing legislation passed and signed by Gov. Hogan, [Senate President] Mike Miller and [House Speaker] Mike Busch, who created our commission. They were particularly prescient to realize that our state must address a number of issues relating to its competitiveness and standard of living.

Given this understanding of the importance of competitiveness by our legislative leaders and our governor, the planets seem to be aligned for Maryland to become a far greater force in creating businesses and jobs. However, it will be up to the business community to provide the support needed to make our commission’s proposals reality.