What’s The Deal?

Fiscal year 2011 is shaping up to be a tough year for many District government agencies.  But it could be a good year to be a “high technology commercial real estate database and service provider.”

Why?  Because under a new bill introduced in the DC Council, these businesses would get up to $700,000 in annual property tax breaks for 10 years ‘  a $7 million subsidy.  Considering that the District is already anticipating a $300 million budget shortfall for FY 2011 now seems to be an especially bad time to be giving up precious tax dollars.

Moreover, a close look at this bill raises a number of questions:

  • Why these companies ‘ or this company? The criteria for eligible recipients of the proposed tax abatement are very specific.  No companies are named in the legislation, but in testimony before the DC Council a representative from the Deputy Mayor for Planning and Economic Development  testified that they are actively recruiting one company, which was not named.
  • What does DC get out of this deal? The deputy mayor’s office said that these subsidies were important because office vacancy rates are high in the District.  Yet, despite an increase over the past year, DC’s office vacancy rate is still the second lowest in the nation.  And DC’s vacancy rate is much lower than our suburban counterparts in Maryland and Virginia indicating that DC is still a more attractive place to be for many companies.

The deputy mayor’s office also talked about DC’s unemployment rate being very high, which is true.  But the unnamed company being recruited will simply relocate 400 employees at first (with hopes but no commitment to expand to 1,000).  Relocating jobs is not creating new jobs for DC residents.

This raises another big question:

  • Won’t they already qualify for incentives? The deputy mayor’s office testified that the unnamed company will likely also qualify for a rich set of tax breaks under the Net 2000 legislation.  This means they are eligible to get up to $250,000 a year for just moving their employees to DC, up to $1 million a year if they can get enough of their employees to move their residence to DC, plus potential reductions to franchise, personal property, sales and use and capital gains taxes.

Fiscal times are tough.  Given the enormous challenge still ahead for balancing the FY 2011 budget, elected officials should think twice about giving away so much tax revenue and what they will actually get in return from paying one “high technology commercial real estate database and service provider” to move into the District.