In October, 2000, the Finance and Revenue Committee of the DC Council approved legislation providing a package of incentives designed to attract and retain technology business in DC. According to the Mayor: "my vision for our city is to become the technology capital of the world. This legislation sends a clear message that the District is open for business. We want to attract and retain leaders in the fields of e- government, e-commerce, e-business, and technology."

The bill was crafted with the help of The "New Economy Advisors" and the "Digital Capital Alliance", representing the private sector. The incentives are grouped into three categories:

Workforce Development incentives include relocation, wage, and training credits for qualified Hi-Tech companies triggered by the relocation or creation of new jobs within the city, for hi-tech workers who become DC residents, and for training TANF recipients and ex-offenders.

Affordable Facilities will help companies "facing challenges in securing DC office space". According to the Post, the Mayor's office will create and administer a Security Deposit Assistance program and a Master Lease program, which allow DC to lease office space and turn it over to hi-tech companies at below market rents. DC- owned or controlled properties will also be made available to qualifying firms at competitive prices if they provide community assistance, teacher training, and student internships. The bill also offers real property tax incentives for the rehab and new construction of facilities at least 50% occupied by hi-tech companies.

Targeted Financial Incentives include beneficial rates on virtually every tax levied by DC from personal property, sales, corporate and unincorporated business franchise, to asset depreciation, capital gains, and investment roll-overs. Franchise taxes, for instance, would be reduced to 6% anywhere in the city, or to 0% in certain targeted areas.

NARPAC Commentary:

NARPAC still finds it difficult to accept the notion that either people or businesses have to be bribed to live and work in their nation's capital. Why on earth shouldn't the city be able to provide a unique environment for which successful people and businesses would be willing to pay a premium? DC officials frequently point to the overabundance of non-profit and tax-exempt entities and individuals already in the city. NARPAC frequently points to some of the city's most lucrative (service) businesses which are relatively untaxed, and to the odd phenomenon that assessed property values are declining during a sustained real estate boom period.

It seems unlikely that the city can strengthen its somewhat tenuous fiscal foundations by attracting new groups of under-taxed people and businesses. It reminds one of the old saw about losing money on every sale, but making up for it by high volume. The city is clearly short of fully productive land and residents (from whom revenues substantially exceed required public service expenditures). Legislation to further constrain such productivity over the long haul appears to be counter-productive. At the very least, DC needs to keep public records on the number of tax breaks being handed out and the extent of the growing imbalance between those who are getting "bargain rates" compared to those few who are still paying "full fare".

Finally, "tax expenditures" (as foregone revenues are often called) seldom address directly the root causes for which the incentives are provided. The primary root cause of the city's lack of appeal to new residents and businesses is endemic poverty and the blighted areas, blighted schools, blighted safety and blighted purchasing power that result. The notion that residents and businesses coerced into moving here will somehow remediate these core problems through tax relief and 'trickle down' seems dubious at best. More direct attacks on the root cause would appear preferable: poverty sharing within the Washington metro area is certainly one approach that might be incentivized, involving fixing the regional imbalances in affordable housing.

This item was archived in September, 2002

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