By David Ress
Published: April 25, 2010
It's been an unusual wooing: The courted, defense-contracting giant Northrop Grumman, announced it wanted to move its headquarters and even picked its new hometown before the courting started.
But the metropolitan Washington region that Northrop Grumman picked is split by state lines. Usually, the very quiet but very fierce jockeying among states for a big relocation ends with the company saying where it is going, instead of starting with it.
Northrop Grumman is on a fast track, though. The company plans to open a 300-person headquarters somewhere about 100 miles north of here, in Virginia, Maryland or the District of Columbia, in a bit more than a year. It expects to decide exactly where within the next few weeks.
"The primary factors are proximity to our customers and economics," said company spokesman Dan McClain.
More than 91 percent of Northrop Grumman's $35 billion a year in revenue comes from the U.S. government, and much of that is with the Pentagon, in Virginia's Arlington County, according to the company's financial filings with the U.S. Securities and Exchange Commission.
The Defense Department is the main customer of its $6 billion-a-year shipyard in Newport News, as well as a major customer of its $10 billion aerospace business and its nearly $8 billion Maryland-based electronic-systems business.
The military is a big customer of Northrop Grumman's nearly $3 billion technical-services operation, based in Virginia, which focuses on logistics support and training. The company's Reston-based information-services business, a nearly $9 billion-a-year operation, provides IT services to a variety of federal, state and local government agencies, as well as to commercial customers.
"A lot is going to have to do with what they already have in Maryland and Virginia, and how they feel about how they've been treated in each state," said Dennis Donovan, a principal with Wadley Donovan Gutshaw, a New Jersey-based consultant to corporations selecting sites for facilities.
Northrop Grumman employs 31,000 people at 22 main locations in Virginia, including 20,000 at Newport News Shipbuilding and more than 400 in Chesterfield County, one of the facilities it operates to provide IT services to state government operations across Virginia. The company employs 11,525 in Maryland, where it is the largest industrial employer.
Donovan said the acrimonious, recently resolved controversy over Northrop Grumman's $236 million-a-year IT services contract with the state was probably not the kind of thing that would weigh on the company. The dispute ended when the state extended the contract by three years to 2019 and payments totaling an additional $105 million.
"They'll be looking at how they're treated with infrastructure, permits, the important things," Donovan said.
Some Maryland politicians have suggested that Virginia Attorney General Ken Cuccinelli's opposition to colleges' policies banning discrimination against gays might sway Northrop Grumman -- known for its policies giving gay employees the same workplace and compensation benefits available to others -- to move to Maryland.
Asked about that issue and the dispute over the Virginia IT services contract, company spokesman McClain repeated that proximity to customers and economics were the company's main considerations.
When it comes to economics, Montgomery County, Md., has the edge when it comes to property taxes -- its rate is the lowest in the region, though the differences in the bill for a $5 million property would range between $34,000 and $92,500 and may not be a big deal for a company that made a pretax profit of $2.3 billion last year.
But Virginia has a big edge when it comes to taxing that profit -- or, at least, whatever portion of income that would be deemed to be earned in whatever state Northrop Grumman ends up picking for its headquarters. Every million dollars of pretax income costs the company $22,500 more in Maryland than it does in Virginia.
Other taxes, for business equipment or on purchases, are pretty much a wash, Donovan said.
Personal-income taxes, though, may be a factor.
Donovan thinks Maryland's 6.25 percent income-tax rate for people earning more than $1 million a year might not look so good to Northrop Grumman, compared with Virginia's 5.75 percent rate for everyone earning more than $17,000 a year.
On the other hand, Maryland's rates are lower for people earning less than $1 million -- 5.5 percent for those earning more than $500,000 and 5.25 percent for those earning more than $300,000, according to the Tax Foundation, a nonpartisan, nonprofit group that monitors federal and state tax policies and practices.
"You're talking about 300 people, and some of them are must-keeps," said C.R. "Buzz" Canup, founder of Canup and Associates, a South Carolina site-selection and economic-development consulting firm.
"Northrop is going to be listening very closely to what they want."
Commuting time to desirable neighborhoods will be a critical factor, he and Donovan said.
"A great deal has to do with the real estate package," Donovan said. "There are a lot of elements that go into it. It's a headquarters, and they'll probably want something distinct -- a branding thing."
Amenities in or near the headquarters will be important, too, he said.
Donovan said the incentives -- tax credits and grants -- that states and local governments offer could be key.
Moving is a big one-time cost, and companies like being able to offset some of those costs with public money.
Last month, District of Columbia Chief Financial Officer Natwar M. Gandhi told the district council that the city could not afford a $25 million package of incentives proposed by Mayor Adrian M. Fenty.
"I think Maryland and Virginia have both clearly signaled that they would like to be the destination for Northrop Grumman's new HQ, and I have the sense that both have offered competitive economic-development incentives," said Bobbie Greene Kilberg, Northern Virginia Technology Council president and CEO.
How any incentives are customized will be important, Canup and Donovan said.
How the states and localities will do that, though, is a closely guarded secret. And there aren't many clues from the tools Maryland and Virginia officials have available, Donovan said. The two have a similar range of incentives such as tax credits, grants, infrastructure improvements and other financial sweeteners.
"They're both pretty much in the middle of the pack."
However, Virginia Gov. Bob McDonnell last month pushed through the General Assembly job-creation legislation that increases funds for economic-development incentives by $30 million over five years. The legislation also allows the use of state funds to pay for the refurbishment of private office buildings to lure such companies as Northrop Grumman.
Gregory H. Wingfield, president and CEO of the Greater Richmond Partnership, said the company's already-large presence in Virginia is a key advantage.
"We also have a large concentration of Fortune 500 companies headquartered in Northern Virginia, so they would be among peers," he said.
"My take on the Northrop Grumman headquarters race is that it is Virginia's to lose."
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Contact David Ress at (804) 649-6051 or dress@timesdispatch.com.
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