During the State-of-the-State address last Tuesday, expect Governor Martin O'Malley to repeatedly state that Maryland is "better off" than other states. It is true that most economists believe that the proximity to the federal government and the infusion of federal agency spending props up Maryland's economy. But the federal largesse masks the troubling joblessness undercurrent in Maryland's private sector.

There have been mounting private sector job losses under O'Malley.

Obviously, you can't raise the sales tax, hike corporate taxes and enact a personal income tax surcharge on high-income earners without depressing the business climate and forcing small business owners to close their doors or move out-of-state. O'Malley's policies over the last three years have seriously harmed private sector economic growth in Maryland.

O'Malley will point to the state's high unemployment figures as a sign of Maryland's health. Even though unemployment rose again last month from 7.3% to 7.5%, O'Malley will point to the national average of 10% as evidence that Maryland is weathering the storm.

That's the spin we have come to expect from this Administration. Maryland's unemployment reaches a 26-year high but we are to believe that 7.5% unemployment propped up by federal spending is supposed to be good news.

However, the 7.5% unemployment rate does not factor in "dropout workers" in Maryland's workforce. As reported by the Baltimore Sun this week, this high 7.5% unemployment rate is misleading in that it does not capture the full scope of joblessness in the state (for full story, click here).

Citing data analyzed by Charles W. McMillion, president and chief economist at MBG Information Services, Maryland's joblessness rate would be 10% if the "dropout workers" (i.e. everyone who dropped out of the labor force in the past year) are factored in. That is much closer to the nationwide unemployment rate of 11% when labor-force dropouts are included in the calculations.

The problem in Maryland is compounded by the fact that there are fewer private sector employers: "About 139,000 employers were counted by the state Department of Labor, Licensing and Regulation at the end of 2009, the lowest number since 2004. Just as population typically grows, the number of employers opeing for business usually outpaces closures, but not last year when a net of 2,900 employers were shuttered, according to the agency."

With the unemployment insurance tax tripling under O'Malley, it is hard to envision this trend of declining employers reversing. We can expect businesses still surviving in the construction industry to be hit especially hard with closures in 2010.

What's the solution? O'Malley's anti-business policies over the last three years have dropped Maryland from the 25th most business friendly state to the 45th most business unfriendly state. The obvious solution is to repeal the high taxation enacted by O'Malley, reverse overburdensome regulations and incentivise small business growth in the state.

Unfortunately for O'Malley, these are all measures opposed by the special interests that support him. Thus his plan is to accept federal bailout monies and borrow more on the taxpayer credit card until he can proposed even higher taxes once the elections are over in November. With no relief in sight for the private sector, expect even more business closures and correspondingly reduced state revenues over the coming year.

For regular updates on the 2010 legislative session, sign up for our web alerts at www.mdsenategop.com.

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