by Mark Di Vincenzo

March 11, 1999, is a date that David Edgerley won't forget any time soon. Neither will Gerald Gordon. But only one of them will recall it fondly.

In what became one of the worst-kept secrets in metropolitan Washington, D.C., Marriott International Inc., the hotel conglomerate headquartered in Montgomery County, Md., was falling out of love with Maryland and flirting with Fairfax County in Virginia. Company officials and their consultants scouted two sites in Fairfax where the corporate headquarters might fit and began wondering aloud — in the presence of some very powerful Virginians — whether it should pack up and move. Virginia Gov. James S. Gilmore III and his predecessor, George Allen, called Marriott CEO J.W. "Bill" Marriott Jr. and encouraged him to do just that.

Deep down, Virginia officials thought landing Marriott, which has been in Montgomery County since 1955, would be a long shot. But Gordon, Fairfax County's economic development chief, was hopeful. And Edgerley, Gordon's counterpart in Montgomery County, had to take seriously Virginia's overtures to Marriott.

Virginia has a pro-business and low-tax allure, and Marriott officials figured the company would save $40 million in taxes and operating expenses during the next 20 years if it moved to Fairfax County. Time savings were also tempting. Company officials liked Fairfax because Washington Dulles International Airport is there. As it is now, it takes Marriott officials about 45 minutes to drive from the company's headquarters to either Dulles or Baltimore-Washington International Airport.

Maryland couldn't afford to lose Marriott, which has 3,600 workers at its headquarters alone, so it put together what has been described as the most generous package of incentives ever offered to a company to keep it from leaving. Maryland and Montgomery offered tax credits and job-training grants worth between $31.7 million and $44.2 million during the next 19 years. The exact amount hinges on whether Marriott remains in Bethesda or moves to another site in Montgomery. Maryland officials point out that the incentives amount to only $22.4 million to $28.8 million in today's dollars. Maryland sweetened the offer by agreeing to complete road improvements ahead of schedule, while Virginia countered with a paltry $6 million in incentives.

So on March 11, Marriott announced it was staying put. Virginia officials insisted that landing Marriott was doubtful from the beginning and that Maryland and Montgomery had given away the store to keep the company. Most Maryland officials defended their incentive package as a good investment, and a few even gloated. Casper Taylor, the speaker of the Maryland House of Delegates, told The Washington Post, "Our team is red hot. Virginia's team is all shot."

*   *   *

The outcome of the Marriott story may have been predictable, but it highlights an escalating battle for business between Maryland and Virginia. The Old Dominion's ancient rivalry with North Carolina may be more emotional, but Virginia's cross-border competition with Maryland may be more important now that Washington, D.C., has emerged as a mecca for high technology.

"In the past, we haven't had to compete with Maryland," says Gordon, Fairfax County's economic development chief. "They have not been a player for a long time."

Although economic development officials in Northern Virginia still sound like neighborhood bullies who win more than their share of fights, they admit their counterparts in Maryland are getting bolder.

Maryland realized it wasn't doing a very good job of marketing itself to prospective businesses, so its lawmakers budgeted five times more money to do that this year. And the state has a new secretary of economic development, Richard C. "Mike" Lewin, whom Maryland businessmen describe as more aggressive and articulate than his predecessors.

"We have a shrinking global market," Lewin recently told Virginia Business. "There is a 51 percent corporate tax rate in Germany, a 30-hour work week in some parts of France. The cost of living in Santa Clara, Calif., is 70 percent higher than here. These are opportunities for Maryland."

But Maryland appears to be doing more than just talking about embracing business and industry. In recent years, it has cut 16 corporate taxes in hopes of getting existing businesses to invest more money close to home. For example, Maryland no longer taxes certain computers as well as the equipment companies use for research and development.

In addition to tax cuts, Maryland last year approved a job-creation tax credit program that provides new incentives for businesses to hire more people. Maryland's more aggressive approach seems to be working: Its job growth rate of 2.5 percent last year ranked it 20th among the 50 states, according to a recent study. Virginia ranked 24th with a 2.4 percent growth rate. Another recent report by the U.S. Commerce Department's Bureau of Economic Analysis listed Maryland 16th — and Virginia 17th — in job creation from 1996 to 1997. Only a few years ago, the bureau ranked Maryland 42nd.

Lewin isn't shy about citing these statistics, and he isn't convinced that taxes in Virginia are any lower than they are in Maryland. He says he wants to commission a reliable study that compares Maryland's tax situation with those of neighboring states. But Lewin insists he isn't interested in fueling the competitive fires between Virginia and Maryland. His main goal is to get businesses thinking of Maryland as their friend.

"Maryland needs to be more aggressive," he says, "and we're getting more aggressive every day."

*   *   *

Maybe so, Virginia officials say, but Maryland still lags behind the Old Dominion. Virginia boosters point out — and Marylanders grudgingly agree — that the Old Dominion has lured away bigger companies than the Terrapin State has. And the job growth reports that Maryland officials cite highlight the rate of growth, not actual growth, the Virginians note. The reports conclude that Virginia created 77,900 jobs in 1998, while Maryland created 57,000.

Virginia also looks good when comparing the numbers of new corporate facilities and expansions. From 1996 to 1998, 812 companies either opened new corporate facilities or expanded in Virginia, while 333 companies did so in Maryland during that period, according to a recently released study done for Site Selection magazine.

The Port of Virginia continues to beat up on the Port of Baltimore. In 1983, Baltimore received 15 percent of the general cargo shipped to East Coast ports, and Virginia took in 9 percent. By last year, Virginia's share had risen to 18 percent, while Baltimore's had dropped to 10 percent.

Barry DuVal, Virginia's commerce and trade secretary, attributes the Old Dominion's successes to its pro-business policies. Virginia's corporate income tax rate accounts for only about 4 percent of the state's revenues. The state has 50 "enterprise zones," which offer tax benefits to qualified businesses. And it also is a right-to-work state, which means workers do not have to join a union to benefit from labor agreements between unions and employers. Economists say Virginia's right-to-work status discourages union membership, making Virginia more attractive to any business that has ever tangled with a union.

Virginia economic development officials are quick to rattle off several large companies that have moved from Maryland to Virginia in recent years: Geico Direct, the auto insurance

company, opened regional offices in Fredericksburg and Virginia Beach; Andersen Consulting, a management consulting firm, put a regional office in McLean; Booz-Allen & Hamilton Inc., a management consulting firm, put its technology consulting headquarters in McLean; and the American Type Culture Collection, a biotechnology organization, crossed over to Prince William County.

The American Type Culture Collec-tion, known as "The Library of Congress of Biological Cultures," supplies information and microorganisms to support biological research. The company started in Chicago in 1925 and ended up in Rockville, Md., in 1960, where it stayed for 37 years. In the early 1990s, it grew to about 150 employees and was running out of space in Rockville, so it began looking around for a new site. Last year the organization moved to Prince William County, where it anchors a 529-acre research and development park.

"We had given a number of states the opportunity to woo us," says Nancy Wysocki, a vice president at the company. "Virginia gave us the best package."

It doesn't always work that way, however. Maryland has lured companies away from Virginia. ISSI Consulting Group Inc., a management consulting firm that started out in Montgomery County in 1988, moved to Fairfax County a few years later, then returned to Montgomery in 1997. When the company was in Fairfax, it expressed interest in returning to Maryland, and Maryland offered tax incentives, training dollars and moving money. It wasn't "quite as much as Marriott got," jokes Philip Wright, ISSI's president and co-owner. "But Maryland's dollars were well-spent. We lived up to our goals. We said we'd grow, and we did." The company, which also has offices in Denver, Kansas City and San Francisco, has increased its Silver Spring, Md., work force from 40 to 120 people since 1997.

So would Wright consider moving back to Virginia? "I never say never. If Fairfax put together a great deal, we'd take a look at it."

*   *   *

Economic development officials on both banks of the Potomac River expect their states to compete fiercely in biotechnology and information technology and in a hybrid of the two called bioinformatics.

Simply put, this highly technical industry uses the Internet to conduct biological research. Computers are helping researchers do more in less time, and bioinformatics companies are expected, among other things, to help drug companies get their products to market faster.

Montgomery County is a national leader. When biotech companies look to relocate, Montgomery is usually on their short lists. That's because the county is home to the National Institutes of Health, a federal agency with 13,000 scientists, 25 institutes or centers and the largest biomedical research budget in the world. The NIH dishes out multimillion-dollar grants to companies across the country. Even in a world where coast-to-coast communication has never been easier, a lot of biotech companies like having the NIH nearby.

While Montgomery claims dominance in the biotech industry, Northern Virginia calls itself the birthplace of the Internet. The region, dubbed the Netplex by Fortune magazine, is home to America Online, Network Solutions, UUNet and PSINet plus more than 1,000 other information technology and telecommunications companies. These firms employ 16 percent of Northern Virginia's population and account for nearly 25 percent of the region's income.

Many researchers say the emergence of the Internet makes their proximity to a place like the NIH less important today. The American Type Culture Collection received a $9.7 million grant for malaria research from the NIH this year. The company, like many biotech firms, is also involved in bioinformatics.

"I think Virginia is poised to be a leader in bioinformatics," says Jerald P. Coughter, industry director for biotechnology and medical applications at Virginia's Center for Innovative Technology. "The more we do in bioinformatics, the more biotechnology companies we'll attract. Of course, Maryland is thinking the same thing: The more they do in bioinformatics, the better off they'll be in information technology. I think there will be a real battle for bioinformatics firms between Virginia and Maryland."

*   *   *

For now, Lewin and DuVal still are talking nice. "I don't want to comment on Virginia's assets or lack thereof," Lewin says. "I don't think that's appropriate." As improbable as it sounds, Lewin says he wishes Virginia and Maryland would sign an agreement not to compete for businesses.

That isn't too likely, but DuVal stresses that he and Lewin are working together. They plan to join with Washington, D.C., to bring the 2012 Summer Olympics to the region, DuVal says. And the states' governors are expected to announce this year an initiative to create jobs in both states to support work being done at Wallops Island, the National Aeronautics and Space Administration's rocket-launching facility on Virginia's Eastern Shore.

Some of the pleasantries seem to have filtered down to the local level, where David Edgerley, Montgomery's economic development chief, mentions that he regularly talks with Gerald Gordon, his counterpart in Fairfax.

"That's true, despite what you hear on the street," Edgerley says during a recent interview. Even the battle over Marriott was not all or nothing, he insists. "The discussion has been couched as: 'What did Fairfax do wrong and what did we do right?' That's doing a disservice to the company. A company relocates based on the strength of a region. Both jurisdictions — Montgomery and Fairfax — have high qualities of life, good schools and similar demographics and income levels.

"The reason we kept Marriott," he continues, "is because we satisfied them. I really believe what's good for Montgomery County is good for Fairfax County."

Really?

"Absolutely," Edgerley says.

Without pausing, he mentions a recent job growth report, which favors Maryland.

"So what? We beat Virginia last year in job growth," he says. "So what?"

Does he plan to use that report to bring more businesses to Montgomery?