Government
Let's attract companies with our workers, not with subsidies
DC has grown its private sector by investing in urban amenities that attract a 21st century workforce. Other states simply give companies direct subsidies to attract them instead, providing little external benefit. But the DC Council is about to do exactly that, by giving LivingSocial a $32.5 million location subsidy with few strings attached.
Photo by Sweeter Alternative on Flickr.
DC's sizable, hard-fought investments to create a livable, walkable city that attract top tier workers have benefited few firms as much as LivingSocial. Talented young people want to live in DC, and LivingSocial has been a major beneficiary, as have dozens of tech start-ups across the city.
The proposed LivingSocial deal, however, is not an investment in attracting a workforce. It's just a location subsidy. That means they don't have to grow, they just have to stay here. DC could use this money to invest in more development that attracts "creative class" workers like better retail, arts, transportation, and the actual growth of tech companies.
DC tech firms benefit from DC's investments in the creative class
The District didn't just suddenly become an attractive place for talented young people to live. That transformation took years of investments, often at the expense of other priorities. DC is still making these investments, and needs to keep funding them.
Buying more Circulator buses and streetcars and operating them on more routes is costly. Building more cycle tracks and multimodal streets requires money. Renovating more schools, extending library hours, and investing in mixed-use development projects like St. Elizabeths and Walter Reed is expensive but critical to attracting and retaining a world-class workforce of knowledge workers.
The payoff from these investments is that DC has experienced the largest domestic population growth of any state, and the fastest growth of creative class jobs of any large metropolitan area. Creative class workers are the knowledge workers in demand by many of the fastest-growing companies, including tech companies like LivingSocial.
That's why just over half of LivingSocial's employees already live in DC, whereas 30% of employees at other DC employers live in DC. LivingSocial isn't hiring them for charity, they're hiring because DC residents are excellent employees. This is a fact that's widely recognized, every DC tech company I know hires DC residents in at least half their positions.
One investment that would grow our workforce of knowledge workers to have LivingSocial grow further. DC could invest in LivingSocial's growth, but is instead offering $32.5 million for LivingSocial to simply stay in DC. They don't have to actually add any new positions to get this money.
That approach to attracting and retaining companies, known as location subsidies, is practiced by states who can't offer a 21st century workforce because they haven't invested in one.
Richard Florida, whose book The Rise of the Creative Class has shaped urban development strategies for a decade, opposes a location subsidy for LivingSocial for the same reason:
I am fan of high-tech companies and very much like what LivingSocial does. But they are already leveraging the enormous historic investments made in DC over decades to become an attractive city with extraordinary quality of place that attracts highly skilled creative class workers. They don't need the subsidy and our cities and states need to put a stake in the ground and stop this corporate welfare. I doubt they'll leave the region anyway. Where would they go?The DC Council should demonstrate the same faith in DC's ability to attract companies for the right reasons
Chicago required job growth in return for Groupon subsidy
Groupon, LivingSocial's primary competitor, did not a get location subsidy from Chicago. Instead, Chicago offered Groupon $3.5 million on the condition that Groupon add 250 new jobs.
If the LivingSocial subsidy were similarly structured, DC would see 2,321 new jobs at LivingSocial in return for its $32.5 million subsidy.
Furthermore, Chicago's subsidy to Groupon is in the form of income tax and training credits. That ensures that Chicago doesn't subsidize a company that is losing money and perhaps about to go bankrupt.
$15 million of the proposed LivingSocial subsidy is in the form of property tax credits, which it receives whether it makes money or not and could receive right before a bankruptcy.
Why should the DC Council give LivingSocial a far better deal than Chicago gave to Groupon? The DC Council should only provide income tax credits to LivingSocial, or at least limit an annual property tax credit to the size of its income tax credit.
Let the DC Council know that we can't afford location subsidies at the expense of crucial investments to build a city that attracts a 21st century workforce. LivingSocial should have to add jobs, particularly product development jobs, in order to receive a subsidyTake action
Ken Archer is CTO of a software firm in Tysons Corner. He commutes to Tysons by bus from his home in Georgetown, where he lives with his wife and son. Ken completed a Masters degree in Philosophy from The Catholic University of America. 
Comments
@ggwash
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You also seem to be mixing and matching facts to support your thesis.
For example.
“The District didn't just suddenly become an attractive place for talented young people to live”
Yes actually, it did. DC had a world class (ok, I am giggling matching world class and “metro” but on paper it is) transportation system for 25 years before the young started moving to town.
DC has had a the same world class universities for 50-100 years or more and yet it wasn’t until ten years ago that fewer people started leaving the District for VA or MD than staying.
And lastly, we can’t discount the “Obama effect”. I don’t know how many articles I’ve read, news reports I’ve watched claiming that President Obama made public service “cool” again, nor can I count the number of young 20 something’s that I’ve met in the past 4 years who moved here to work in government because of it.
“The payoff from these investments is that DC has experienced the largest domestic population growth of any state”
No, it didn’t. DC’s population growth between 2000-2010, while impressive in a local sense because it was the first time the District had actually added population rather than shed it for the first time in ~40 years, but for that decade we ranked 34th in the nation. DC did take the cake in one year growth from 2010-2011, but that had absolutely nothing to do with young people flocking to DC because of metro, inclusionary zoning or our streetcar program. It had everything to do with DC being immune to the recession and the jobs mecca of the nation.
"Location subsidies, is practiced by states who can't offer a 21st century workforce because they haven't invested in one"
Really? I had no idea VA and MD offered so many successful subsidies is because their workforces are subpar uneducated backwater hillbillies.
The truth of the matter is this. Subsidies crafted in certain ways and for select businesses pay off in massive dividends. VA and MD have been proving that at the Districts expense for decades. The District, with it’s 50th ranked public schools, its drastically higher office lease rates, and higher corporate and income tax rates has to try even harder to convince companies to come to DC rather than our suburban neighbors.
This subsidy for LivingSocial is ill crafted and useless (and can we stop calling it a “tech” company, I get daily grocery deals emailed to me from Giant, that doesn’t make them a tech company), but that doesn’t mean we shouldn’t compete for the same business MD and VA get.
by Subsidy on Jun 21, 2012 12:22 pm • link • report
True. It's just that Washingtonians do not want talented young people to live amongst themselves in DC. At least, not as long they're in college. Then they need to be horded up on campus, preferably behind a fence.
by Jasper on Jun 21, 2012 12:31 pm • link • report
by martin on Jun 21, 2012 12:57 pm • link • report
Don't the higher office rents demonstrate that companies, at least some of them, do want to be in DC?
by Ben Ross on Jun 21, 2012 1:03 pm • link • report
It was offered by the chair at the request of the Mayor, as all the Mayor's proposals are.
It was passed by the Committee on Finance and Revenue (chaired by CM Evans) with no revisions, and comes before the full Council next Tuesday.
by Ken Archer on Jun 21, 2012 1:11 pm • link • report
The Districts commercial office rents have always been higher, substantially higher than the neighboring burbs, even through the late 80's and 90's when District vacancy rates were higher than those in the burbs. Traditionally had more to do with the cost of land than the vacancy.
As it stands, DC’s vacancy rate for commercial office is 12.5%. In FFX it is slightly higher at 14%. DC’s has jumped from 10 to 12.5 in the past year while FFX’s only jumped 1% even though they had twice the new inventory come out of the pipeline meaning their absorbsion rate is far greater than the Districts. Translated…more companies have been choosing to set up shop in VA the past year (past decades really) than the District.
Yes, there are businesses, and ancillary federal contractors (who charge the taxpayer for the privilege) who purposely choose to be in the District and accept the additional cost of business to do so, but there are many, many more who don’t.
That mixed in with corporate taxation, the worst schools in the nation etc make DC a very hard sell which is why DC has to be far more targeted and serious about who it tries to lure to town.
by Subsidy on Jun 21, 2012 1:36 pm • link • report
"Chair" Kwame (R - Councilman turned criminal) Brown ?
or
Chair Mendelson crowned last week? Doesn't seem like it could have gone from Mayor Vincent (C - campaign still under criminal investigation) Gray and given Mendo's usually thorough, painfully slow nitpicky (but much appreciated) review and then gone through the Finance committee in the same week. But perhaps Mendo has stepped up the pace of things.
by martin on Jun 21, 2012 3:03 pm • link • report
Chairman Brown. But it's not an indication of Brown's views on the legislation. The only indications we have now of CMs views are the members of the Finance & Rev Committee, particularly cmte chair Evans.
by Ken Archer on Jun 21, 2012 3:08 pm • link • report
Or if they're white moving into a previously black neighborhood.
by Bloomingdale on Jun 21, 2012 3:17 pm • link • report
Oh yeah. Forgot about that. And let's not discriminate against Asians and forget that they are unwanted in certain neighborhoods. Unless they provide health care, that is.
Yeah, Washingtonians are a welcoming bunch.
by Jasper on Jun 21, 2012 4:02 pm • link • report
by cminus on Jun 21, 2012 4:36 pm • link • report
Then why have prices not gone down in DC? Is the market not free?
by Jasper on Jun 21, 2012 8:22 pm • link • report
by Todd on Jun 22, 2012 1:00 am • link • report
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Please only approve the LivingSocial tax break if it:
1) Requires LivingSocial to add new jobs (not just churn existing ones) in software development or similar fields that will grow DC's skilled workforce.
2) Is in a form (such as income tax and training credits)that ensures DC doesn't subsidize a company that is losing money and perhaps about to go bankrupt.
by Arnold on Jun 22, 2012 12:18 pm • link • report
Mendelson supports the $34 million tax abatement/break for Living Social. Will recommend council approval tomorrow. Says it will create jobs
by TwitterHitter on Jun 25, 2012 9:32 am • link • report
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