‘Corporate welfare’? Incubator tax break assailed

Under new state law, Frederick organization needs county’s OK for exemption

Per a state law effective July 1, all qualified incubators in Maryland may receive tax-exempt status with the approval of the counties in which they operate, but they must first get a one-time approval from the county government for each location.

Michael Dailey, president of both the Frederick incubator organization and the state incubator association, said the new law was designed to put all the state incubators on a ‘‘level playing field” because only some facilities were exempt from property taxes.

‘‘Obviously, Maryland has recognized the value that a business incubator can promote jobs,” Dailey said of the new law. He said the original draft of the law called for all incubators to be exempt without requiring county approval, but the Maryland Municipal League wanted some oversight.

The county commissioners are to discuss, and perhaps vote on, the request Nov. 20 at Winchester Hall in Frederick.

The incubator organization has occupied the third floor of Rosenstock Hall at Hood College in Frederick since 2004, opening in January 2005, but has been exempt from paying real property taxes because the college itself is exempt.

When Fitci expanded to a second incubator on Metropolitan Court in Frederick in April, its monthly lease included real taxes of $10,000 per year. Fitci has paid roughly $5,800 since April in taxes through rent and could receive that money back if commissioners make its tax exemption retroactive.

‘‘We’ve asked for credit to be available for the period of time we are in this building,” Dailey said. ‘‘We, as business incubators, compete with each other. We’re trying to remain competitive.”

Chris Marschner, director of Technical Innovation Center of Hagerstown and former president of the Maryland Business Incubation Association, with 15 incubators, said the incubators that are leasing space from private developers are subject to county property taxes. Those in colleges and universities are exempt.

The law was drafted to allow incubators to be exempt from all property taxes, but was amended to exempt them from only county taxes, Marschner said. It is unclear whether incubators at colleges and universities that were exempt from state taxes will now be subject to them, he said.

‘‘We’re just waiting to see how the State Department of Taxation handles it,” Marschner said of the state tax issue.

‘‘What will happen is the incubators [without county tax exemptions] will go under,” he said. ‘‘I don’t think the counties know much about it. ... What people don’t understand is the incubators provide a real benefit. They wouldn’t have those jobs — especially in Frederick County with all those bio-sciences companies.”

Volunteers organized Fitci to provide assistance to promising high-tech startups. Several organizations partnered with the effort: the Frederick County Office of Economic Development, Hood College, the city of Frederick’s Department of Economic Development, the Maryland Technology Development Corp. and the state Department of Business and Economic Development.

Fitci was granted a $100,000 annual incentive commitment for five years by the county commissioners so that it can collect $1.2 million in state funding; that funding is contingent on county contributions.

This is the third year the county is providing funding to Fitci.

The Frederick County Office of Economic Development requested the incentive be increased in 2008 from $100,000 to $150,000, and the county commissioners approved the request for fiscal 2008, said department Director Laurie Boyer. The county’s fiscal 2008 operating budget is $472 million.

At least two commissioners — Charles A. Jenkins (R) of Frederick and John L. ‘‘Lennie” Thompson Jr. (R) of Walkersville — oppose the tax exemption. Thompson called Fitci a ‘‘corporate welfare” beneficiary and said he resented that several Fitci tenants are registered in Delaware, not paying income taxes in Maryland. Jenkins said he does not believe young businesses should benefit more than established businesses and said he was unconcerned about whether the tax exemption would reduce Fitci’s competitiveness.

‘‘I’ve heard that some counties are more aggressive to what they offer incubators,” Jenkins said. ‘‘I’m not getting into bidding wars. ... I’m not interested in giving the waiver.”

Between its two locations, Fitci has housed 30 startups, mainly biotechs, whose clients employ 110 people with all but seven of those working in Frederick County, according to Dailey. Both incubators use leased space, but plans are in progress for a permanent building to house more growth.

Many of the tenants have science and technology-transfer agreements with Fort Detrick and federal government agencies.

BioElectronics Corp., which developed an electromagnetic skin patch for healing soft tissue, was the first company to graduate from the incubator. It moved out last year, but marked its graduation at the county’s Office of Economic Development awards ceremony Oct. 24. The second to leave, Akonni Biosystems, is celebrating its graduation Friday at its new location on Sagner Avenue in Frederick.