Posts about Economic Development

Land deals aren't just a giveaway

The Tuesday headline was "Million-Dollar Properties, $1 Deals." The lede talks about 5 projects that went to Donatelli Development and Blue Skye Construction. "The appraised value of all this public land, according to city records: $17.5 million. The price paid by the developers to the city, a little more than a parking ticket: $88."

Sounds like a massive handout! Where can I get a few acres for a buck? But later, Madden explains that it's not quite so simple. The deals come with big strings. In particular, they often have to build affordable housing.

Certainly there's some profit in these deals, and if that profit goes to the biggest donors, that's a big problem. However, Donatelli's profit isn't anywhere close to the $17,499,912 that the intro might lead people to believe.

Madden gives a table of the top 5 land deals:

Project	Payment to DC	Value of land	Contributions by dev. team
Hine Jr. HS	$21,800,000.00	$44,700,000.00	$194,045.00
West End (Library & Fire Station)	$18,000,000.00	$30,018,000.00	$127,295.00
The Wharf	$1.00	$95,000,000.00	$126,732.81
Capital Fire Station	$15,000,000.00	$40,300,000.00	$123,646.00
Minnesota-Benning (Phase 2)	$10.00	$13,176,000.00	$122,076.00

This table isn't really, complete, however, without factoring in what the development teams have to spend on the public amenities that go into the buildings.

Project	Pmt. to DC	Value of land	Public amenities
Hine Jr. HS	$21,800,000.00	$44,700,000.00	20% affordable housing C Street & plaza
West End	$18,000,000.00	$30,018,000.00	New library, fire station
The Wharf	$1.00	$95,000,000.00	15% affordable housing
Capital Fire Station	$15,000,000.00	$40,300,000.00	(can't find this)
Minnesota-Benning	$10.00	$13,176,000.00	100% affordable housing

What makes a good deal?

Figuring out how much those public amenities are worth, however, is the tricky part, and whether the government is getting a good deal. People often disagree about how much affordable housing is fair. In the West End, DC is giving Eastbanc two parcels, which now contain a library and fire station. Eastbanc can build housing, but has to also build a new library and fire station.

Eastbanc is also building 52 units of affordable housing with an additional $7 million subsidy from the city. DC's zoning commission then let Eastbanc out of the Inclusionary Zoning affordable housing requirement on one of the two parcels, after the developer and officials argued that the value the city is getting from the new library and fire station uses up all the value of the property.

Cheryl Cort thinks that despite the IZ exception, this is probably the best deal we can get. A library advocacy group Ralph Nader founded, the DC Library Renaissance Project is suing to stop the project, arguing that DC should have held out for more affordable housing. Many neighbors want the library, already and think the Nader group is going too far. There's no definitive way to know who's right.

Under the current leadership of DMPED's Victor Hoskins, the city has been seeking less affordable housing from its public land deals, and more direct revenues.

Sometimes public officials don't push for important amenities

DC economic development officials are often quite eager to get a deal done, even at the cost of important amenities. At Minnesota Avenue and Benning Road, a DDOT plan for the area recommended a new road connection to expand the grid around Minnesota Avenue Metro and a highly congested intersection.

One of the two bidders included the connection, while the winner, Donatelli, did not. Representatives of Mayor Fenty's Deputy Mayor for Planning and Economic Development (DMPED) then joined Donatelli in lobbying against the concept or even reserving the right of way for a future street. Maybe it was too expensive or difficult, or maybe it was an important amenity that officials just didn't bother to push for.

Madden and Patel discusses some other problems with public land development deals like this. A law requires the developers to hire small and minority-owned businesses. Sometimes they don't. (Other times, those companies are just shells that give a payout to owners while a larger firm actually does the work.)

Patel writes,

A WAMU investigation of 110 D.C. developments that received $1.7 billion in subsidies found:

• Flaws with benefits pledged for about half
  
• A third missed requirements on hiring local businesses, or the city didn't have paperwork for them
  
• Another 15 percent downsized or delayed benefits, costing the city millions in lost revenue and others arguably didn't need the subsidy in the first place
  
• Less than 5 percent of the subsidies approved were for the city's poorest areas, wards 7 and 8.

The series has an overarching thesis that much of this comes about because the developers are dishing out campaign cash. That certainly may be part of it, but it's not the only reason. Plus, Aaron Wiener plotted donations against the size of deals and found only a weak correlation.

Cash probably does have an effect. So do other factors. Sometimes economic development officials or politicians just want to get the deal done because a ribbon-cutting is appealing while a project sitting unfinished is a hassle.

Public land deals, though often bungled, are still necessary

Madden says, "Activists and even some council members have asked why the city just doesn't hold a public auction for these properties and award them to the highest bidder." That's an option, but then there would be no amenities. Where would the new library go? Making it part of a larger mixed-use project is probably the best way to use the land, since a library doesn't need to take up an entire building. Wouldn't we be better off with a broader mix of uses that maximize the value of this site?

DC could just rent space in an office building for a library, perhaps, but is that space going to be well-suited for a library and in the right location? Plus, that would mean library rent goes up as neighborhoods become more desirable, creating a risk that future budget cuts imperil libraries entirely instead of just shortening their hours. Meanwhile, there's definitely no spec building out there that can fit a fire station.

Others, like Parisa Norouzi of Empower DC, feel that public land should never go to private uses. She'd like DC to keep all of the publicly-owned land for schools, libraries, and so on. Many other activists also view any public-private partnership deals with suspicion, and don't want a private company building a library.

These public-private deals, imperfect as they are, seem to be a compromise between these two views. The public gets something for its land, but the land can also accommodate housing and offices when the public doesn't need every square foot for public use.

Still, it's important that public officials push to get the best deal for the city, and ensure that winning bidders keep the promises that helped them win bids in the first place. When officials don't, sometimes it's because of campaign cash, but there can be many other reasons as well, which are just as important to combat.

Through fits and starts, more than 5 years after President Obama spoke nearby on his way to becoming the first black President (although widely reported as being in Anacostia, Obama spoke at THEARC, a short walk from the Southern Avenue Metro), Ward 8's Anacostia remains on the periphery of the city's economic renewal.

Will the neighborhood, more than 2 decades after its own Metro station opened, finally begin to attract sustained investment this year?

Can new retail take root?

What happens to the former Anacostia Warehouse Supermarket at 14th and Good Hope Road SE will demonstrate if the neighborhood economy can move from government-subsidized service delivery, such as a dialysis center and childcare, to support places of commerce such as a restaurant, bookstore, hardware store and grocery.

The former Yes! Organic Market, now the Fairlawn Market, over on Pennsylvania Avenue SE in Ward 7, has endured many struggles, perpetuating the perception of the area as being a difficult market for retail. (Chipotle turned down free rent in 2010 to serve as the anchor tenant on the ground floor of The Grays, where the Fairlawn Market is.)

Ground zero in historic Anacostia remains Good Hope Road and Martin Luther King, Jr. Avenue SE, the same corner where John Wilkes Booth met Davy Herold on his escape to southern Maryland. In the summer of 2011, renderings were released that teased at the intersection's potential. Since that time, despite the backing of Victor Hoskins, Deputy Mayor for Planning and Economic Development, and other city agency heads, no development of note has happened at the corner.

A public art installation has been planned for nearly a year; it would replace an art installation that was previously torn down. The waiting game continues.

Stanley Jackson, now head of the Anacostia Economic Development Corporation, predicted in 2005 when he was Mayor Williams' Deputy Mayor for Planning and Economic Development that Anacostia would be "one of the hottest markets in the city" by now. Not yet.

In 2008 the Department of Housing and Community Development, whose signs adorn dozens of vacant properties in the neighborhood, moved into the $18 million Anacostia Gateway development at the northeast corner of Good Hope Road and Martin Luther King Jr. Avenue SE. Initial plans were to relocate the city's Department of Transportation here but that did not materialize.

Across the street from Anacostia Gateway, the iconic "ANACOSTIA" neon sign continues to light up a corner that at night is an economic dead zone.

Anacostia's Business Improvement District is slowly coming to life; the pop-up arts festival LUMEN8Anacostia will return this June and storefront renovations are planned to begin in the coming months. In December of this year will Anacostia's BID have more members than it does now?

1300 block of Valley Place SE; preservation and demolition by neglect

To walk the residential streets of the city's first sub-division is to see up close and personal a shining example of preservation and regeneration next-door to an eyesore of demolition by neglect and neighborhood decay. On the 1300 block of Valley Place SE five homes remain that were developed in the mid-1880s by real estate investor and president of the local streetcar line, Henry A. Griswold.

Over the past few weeks the exterior of 1328 Valley Place SE has been fully renovated, in part through a popular grant program coordinated by the Office of Planning that targets 14 Historic Districts citywide. Next door, 1326 Valley Place SE, is one of the properties DHCD owns. The crumbling building is literally going to seed, as nature attempts to reclaim what's left.

According to tax records, 1326 was sold in 2005 at a foreclosure auction for a throw over $2,000. Local residents provided documents in 2011 from the Department of Consumer and Regulatory Affairs indicating that Darwin Trust Properties, LLC acquired the property at that time.

Darwin Trust's CEO was incarcerated while the city pursued legal action against the company under the demolition by neglect statute. Through the litigation, the city was able to get a court order to let DCRA abate the property. After half a decade of further deterioration, the city finally bought the property in a November 2011 foreclosure sale for just under $12,000. According to a 2013 preliminary tax assessment, the land is worth $116,410 and the total value of the property is $118,520.

Based on the valuations alone, the city got a steal, purchasing the property for less than 10 percent of its assessed value. But the time to take advantage of this bargain is running short. The 2013 assessment is down nearly 15% from the 2011 value of $135,900, as the building continues to crumble.

Given the home's historic character, we can hope the city finds a way to restore what's left and continue to rejuvenate this old street in Historic Anacostia.

Abandominiums abide

Keeping a watchful eye on the vacant properties around her youth center, Hannah Hawkins has seen hundreds of squatters come and go in and out of the surrounding abandominiums over the 2 decades she and her volunteers have supported the community from 2263 Mount View Place SE. On a recent morning Hawkins caught a woman going into the Southeast Neighborhood House. Hawkins asked what she was doing. "I'm looking for artifacts," the trespasser announced before Hawkins chased her off.

The portfolio of abondominiums in the neighborhood is well-known both throughout circles of the city's chronic homeless as well as real estate agents, developers and city officials. While housing prices continue to rise across the city, in Anacostia they have remained flat. Abondominiums shelter the homeless and criminal class for free while suppressing property values and property tax revenues for the city.

After demolishing 2228 Martin Luther King Jr. Avenue SE last year, DHCD selected a developer for the Big K site. According to a press release, plans are to "construct a new office building that features commercial and retail space, as well as restore the existing historic houses on the site." Time will tell when this block, first developed by coach painter James Beall in the early 1880s, finally comes back to life.

The real estate site DC Curbed recently featured listings for 8 condos, townhouses and single family homes in the neighborhood and nearby. Asking prices topped out at $229,000 with a low of $43,000 for a condo in Barry Farm.

On the fringes of each end of the Anacostia Historic District are multi-unit residential complexes, the Bruxton Condos and a cluster of 3 vacant apartments on High Sreet SE, whose development has been too long in coming. While most eyes are focused on Anacostia's exterior, its commercial strip, the interior, the integrity of its housing stock, continues to be endangered.

Based on responses the city received at a handful of Ward 8 summits and town halls in recent years, cleaning up existing vacant residential and commercial properties is a top concern of citizens, taking precedent over new development. Multiple reports released over the years by city government and think tanks list strategies to deal with the area's blight, but if there's been any implementation of these methods, the blight largely remains. A 2004 study noted, "The area's combination of natural beauty, waterfront access, transportation resources and cultural heritage is unrivaled in the city, however, it is important as well to note challenges in existing conditions."

Now that the days of old Anacostia's farm vehicles are bygone, can the neighborhood move beyond the limitations of its past and attract new residential and commercial investment?

On retail, for example, the report says that "Most interviewees stated that the District has great potential to become a model for the future: a vibrant and walkable city. The majority said traffic congestion will become less relevant to the retail sector in the future." (page 78)

This is a refreshing change from the tired trope from the economic development transition team, which we still hear today from some business groups, who say that one of the most important steps they want DC to take is to time all of the traffic lights to make streets high-speed for cars into the District in the morning and out at night.

Plan is sector-specific

Some jurisdictions try to build jobs by indiscriminately throwing money at any company in any sector that is willing to come into town for a tax break. It's far more effective to develop clusters of related companies. That makes the city a generally attractive place for someone in that field, and the strong supply of labor in the field then attracts employers in a mutually-reinforcing cycle.

This plan seriously analyses key clusters that DC can reasonably hope to developed: technology, hospitality and retail, professional services and government contracting, real estate and construction, higher education, and health care. It lays out strategies for each that consider the particular needs of that sector. We commended Gray's emphasis on sector-specific economic development in an article earlier this year.

For example, this plan envisions a world-class medical center at the McMillan Sand Filtration Site, which is right next to a cluster of hospitals. The job growth in health care and higher education has exceeded all other sectors in DC in the past decade.

Here are some of the many recommendations which jumped out:

Build a tech hub at Saint Elizabeths. The plan calls for creating a technology center at the Saint Elizabet's campus. It also recommends finding ways to offer tech startups lower-cost office space and connecting tech entrepreneurs with established leaders in their sector. These are all recommendations from the letter from tech executives, which we organized with InTheCapital.

Strategically relax height restrictions. While Mayor Gray emphasized at today's press conference that he's not counting on any changes to federal law, the plan contemplates raising height limits near the Anacostia River. This is similar to Paris's approach to their height limit, and is a good compromise between the economic value of more growth and federal aesthetic concerns.

Change zoning to allow retail in more areas. Commercial space in most parts of the District is very limited. This makes retail space more expensive and contributes to "retail leakage" to the suburbs, which is where many residents leave the District to spend their shopping dollars.

The plan calls for expanding the supply of low-cost retail space while respecting residential impacts and allowing residents to walk for as many of their shopping needs as possible. In particular, it suggests making retail more continuous along commercial corridors. When there are gaps of residential zoning, especially at prominent corners, it stops many shoppers from continuing along the street.

Promote hospitality and tourism. The proposal for the hospitality sector is particularly thoughtful and detailed. The plan envisions "delivering the highest standards in hospitality and service," creating a Hospitality Program at DC Community College, setting up a culinary incubator, and expanding tourism. These will all grow service sector jobs, and good service sector jobs are one of the best paths to the middle class in today's economy.

On the other hand, a few elements of the plan miss the mark or could go farther.

No new workforce development initiatives. Who will fill these 100,000 new jobs? Only 27% of DC jobs go to by DC residents, so adding more jobs won't address the unemployment rate east of the Anacostia river, which is one of the plan's stated goals. There isn't much in the way of new workforce programs beyond the administration's existing initiatives, One City One Hire and the Workforce Intermediary.

The only new initiative in the plan is to post new university and health care jobs on the DOES web site. What the District needs to do is use data-driven methods to steer the $100 million that DC spends on job training where it will do the most good, at training providers that produce validated results.

Tech tax incentives still lack focus. The report continues to promote Gray's plan for broad tax breaks for tech investment. An incentive for new angel investors in technology is a good idea, but any tax break needs to specifically target the District's goals of building a strong base of tech firms that actually create new technology and workers with software development and other skills.

DMPED could work with all stakeholders to properly design this tax break, but instead is choosing to shut out discussions of how to best tailor it. On LivingSocial's $32 million tax break, DMPED and LivingSocial mutually agreed not to negotiate on any terms ahead of time, the Washington City Paper learned.

The mayor wants to pass a tax break for tech investors, which the Council removed from a recent bill. DMPED refused to negotiate with opponents on that bill as well. That left the tax break's primary Council advocate, David Catania, bewildered that there was no discussion of a smaller reduction, which he would have gladly agreed to.

If DMPED can seriously think about what it needs to achieve and tailor the break to those goals with a spirit of collaboration, instead of letting tech executives and investors design their own tax cuts, it should be able to devise something that can win broad support.

Hospitality job growth significantly underestimated. Hospitality jobs are the 2nd fastest growing job segment in the District, having grown at a 28% clip and added 14,200 new jobs in the past 10 years. But they are only a small fragment of the 100,000 new jobs projected in the plan, which forecasts only an 8% growth in hospitality jobs from 2008 to 2018.

That disconnect resulted from the misuse of DOES labor market data by the report's authors, according to DOES Chief Economist Dr James Moore. The labor market data and projections used by the report's authors are not meant for economic development analysis, as they fail to factor many drivers of job growth and thus understate job growth.

This plan includes some of the best initiatives for improving hospitality jobs and workforce readiness in the nation, but it must be grounded in accurate data on job growth in the sector and its sub-sectors.

There's much more in the 116-page document. It shows that, as with the sustainability strategy, one legacy of the Gray administration will be a set of excellent plans that can guide the District through the rest of his mayoralty and beyond.

These goals seem lofty, and it's good to set aggressive goals. At companies I've worked, employees and managers regularly set and reviewed goals for each employee and division. The better places pushed everyone to set "stretch goals," ones which take some extra effort to meet. Managers shouldn't expect employees to achieve every piece of every goal; if they do, the goals are probably too conservative. But if they meet none, the goals are too tough or the employee not performing.

With education, no kids should fall short of proficiency or drop out, and almost everyone needs a college degree or vocational certification to get jobs in the modern economy. But we know that not everyone will. Nevertheless, it's critical that leaders aim high and push hard to get there.

The report cites a study by IFF on improving schools, which many, including Steve Glazerman, have criticized as fatally flawed. District education officials can give parents and potential parents the greatest confidence in the schools' future by moving beyond that study soon and finding better metrics for judging the performance of schools.

Transportation

The transportation section lays out some meaningful priorities but also sets a much lower bar. Its objectives:

• 84 new Capital Bikeshare stations in 2012
  
• 5 new miles of bike lanes by 2014
  
• Opening the first streetcar line in 2013

These are all extremely important priorities, but they just recite what DDOT is already doing in the short term, not stretch for the future.

Opening the streetcar line is a "stretch goal" on its own for DDOT, since there's still a lot to do to open the line by 2013—especially if "opening" the line means having enough cars to run a reasonable headway. Many people, including Councilmember Tommy Wells, fear that they will end up starting up the line with only 3 cars, force riders to wait too long, and give the streetcar an early reputation for uselessness. It would be nice if this goal mentioned the headways.

The other goals are more conservative. The plan notes that there is already federal funding (likely CMAQ) for the 84 CaBi stations, and even counts 37 that DDOT has already put in, meaning there are 47 to go. This is great, and very important, but not news.

Growing bike lane miles from 56 to 61 is also welcome, but not very significant, especially since Gabe Klein's 2010 DDOT Action Agenda set a goal of 80 miles of bike lanes by 2012. The One City plan specifies putting in the L Street cycle track, but why not include its M Street companion, without which we'll only have a one-way cycle track?

The fact that bike lanes are one of 3 transportation goals in the plan shows that they're a priority, and we shouldn't discount the fact that even one mile or a single block can be a lot of work, but if this wants to be an ambitious vision, it needs to aim higher.

The transportation goals are also very short-term. Each looks no farther out than 2014. It would be great to include higher numbers of CaBi stations, bike lane miles, cycletrack miles in particular, and streetcar lines a number of years out into the future. The education section and others set goals for dates like 2017; why not here?

The sutainability plan set a goal for 2032 of having 75% of trips use biking, walking and transit. It's now about half for commuting trips, and likely lower for other trips. To get there will require more aggressive progress on transportation than this plan sets out.

Economic Development

The mayor makes clear in this document his commitment to a technology innovation hub at St. Elizabeths, which we have discussed recently. That could be a real game changer for the District if it can succeed.

The plan isn't as clear on how to attract more technology jobs; it only cites recent efforts to give money to LivingSocial not to leave and to give a tax break to "tech companies." Ken Archer has argued that both miss the point, and won't create enough incentive for the really important jobs that innovate, create new value, and build "knock-on effects" for the long term.

Another good goal is one to reduce DC's dependence on government jobs. Today, 66% of jobs are in the private sector, and the plan targets 68% by 2013 and 70% by 2021. We should also think about what kind of private sector jobs those are. Government contractor jobs are okay, since if the federal government downsizes it will have to hire more contractors, but tracking and growing the percentage of jobs that aren't even in the government ecosystem, outside of defense contracting and lobbying and all of that, is even better.

The plan calls for a new task force to look at ways to streamline regulations and help businesses; this has the potential to do a lot of good if it gets good people who can think comprehensively about the biggest obstacles for businesses.

Housing

One of the relatively few disappointing pieces of the mayor's budget was the way it raided the Housing Production Trust Fund, which funds loans and other programs for building new affordable housing, to pay for Local Rent Supplement, another important program but one which just gives people money to offset rent. The plan reiterates this as if it were a good accomplishment.

A numerical goal calls for 900 new units of affordable housing by 2014, which DC needs. However, the plan also notes that 1,114 units are in the pipeline, which makes it sound like the goal is already probably in the bag, and if not, there's little the DC government can do at this point. This is another place that could use a stretch goal farther out into the future.

The plan calls for growing DC's population by 3%, about on par with the last year. We can compare this to the sustainability plan, which targets 250,000 new residents by 2032. 3% of our current population is about 18,000; add that number each year and we get 960,000, which beats the goal; with compounding, it's even more (1.09 million).

The question, though, is whether we can just add that many new residents each year without other policy changes. There is a lot of developable land in the pipeline, but it's finite. Without zoning changes to add housing opportunities, DC may have a harder time sustaining that growth.

And much more

There are many more goals in the plan, some excellent, some poor, some just vague. It's great that the Gray administration put together this plan, and set some ambitious goals in some very important areas. Just enumerating priorities matters as well, even when the goals are softer, but future plans would do well to set stretch goals and longer-term metrics for all areas.

At the recent DC Tech Meetup forum on government support for the DC technology sector, David Zipper from the Office of the Deputy Mayor for Planning and Economic Development, said that "the city sees this as mostly a semantic distinction". But how can we target precious dollars for a sector that we can't define?

Matthew Yglesias recently claimed that "there's no such thing as a 'tech' company and no such thing as a 'tech' sector" and makes a good defense of that claim. Is Amazon a tech company? Then why isn't Best Buy, the largest online electronics retailer?

Does Starbucks not appear to be a tech company? They just appointed a Chief Digital Officer to consolidate all of their digital technologies, "web, mobile, social media, digital marketing, Starbucks Card and loyalty, e-commerce, Wi-Fi, Starbucks Digital Network, and emerging in-store technologies".

That's why Starbucks is 24th on Fast Company's list of the most innovative companies of 2012, right between Dropbox, Kiva, Genentech and LegalZoom. Should Starbucks qualify for tech tax incentives if they move their headquarters to DC?

It used to be that there were technology companies and companies with traditional business models, but now that innovation is becoming a necessity in all sectors, the line between a tech and non-tech company is becoming blurry. Any company that wants to survive in the future of their sector has to innovate.

Peter Corbett, head of the DC Tech Meetup, once responded to the question whether LivingSocial is a tech company by telling me that what really matters is not whether you sell a software product, but whether you innovate. And LivingSocial innovates.

I think Corbett is absolutely correct. Why is Tesla Motors in Silicon Valley and not Detroit? Tesla innovates. And innovation is what drives a tech sector.

What should DC do?

So what does this all mean for DC's strategy to target support for the tech sector? First, it means that the number of companies that we should target is much broader than it used to be. We should target companies that innovate.

Second, it means that the departments within those companies that we care about are likely to account for a small percentage of the company, like Starbucks' R&D Lab or Best Buy Online. And so incentives should (a) be structured to the size of those divisions, not the size of the entire company, and (b) be conditioned upon the location of those divisions in DC.

That's why it was so important for LivingSocial to commit to keeping its product development division in Washington, DC in return for $32.5 million in tax credits to stay in DC. Only 15-20% of their DC employees actually work in product development, and that's where the innovation is happening. Those are the employees who are likely to jump onto other innovative companies after LivingSocial.

DC can and should help the tech sector. When it does, officials need to first understand the actual benefits that will come to DC, and be careful to design incentives that attract those benefits and don't just throw money away indiscriminately.

Ken has argued that DC should take action to encourage a hub of technology companies in DC, but the deal DC worked out with LivingSocial doesn't ensure that the money pays for what DC needs. DC would benefit from attracting more highly skilled software engineering workers, who might work for LivingSocial now, and could then start their own companies in the future or staff ones that others start.

The tax break pays LivingSocial for hiring employees who live in DC, but doesn't distinguish between actual jobs creating technology, which help DC in the long run, and jobs answering phones for customer service, which don't. It also still gets credit if it hires people only to replace others who leave, generating no net growth in jobs.

DCFPI has pointed out that LivingSocial could move its product development operation out of DC and not have to pay back its subsidy. It could sell to another company outside DC and move, and not repay the benefits it's gotten. Or it could earn the benefits in a few years, then stop following through on its promises, and pay nothing back.

More jobs outside of government are absolutely in DC's best interest, especially in the long run. The panelists will discuss the LivingSocial deal, and what the District can and should do in the future to build up a tech community—not just react to whichever company comes hat in hand to officials first. What would you like them to talk about?

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—our 21st century workforce—as Florida does. They should require LivingSocial to add jobs, particularly product development jobs that attract creative class workers, in order to receive a subsidy.

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 subsidy—just like Groupon did. This will ensure the continual contribution of LivingSocial's growth to DC's rise as a creative class hub.

Ultimately, Gray's mayoralty will leave a lasting effect on the budget and city services, and residents, whether they voted for and endorsed Adrian Fenty (as I did) or Gray, should care a great deal about what the capable people in the administration, unconnected to the campaign or any campaign finance, are doing.

We've also yet to find out whether the mayor himself was part of any illegal activity or knew about it. Based on what we know thus far, it appears that Gray made some very poor choices about whom to trust early on. Since then, he's replaced most of these poor hires with better staff, who are better at sharing the administration's positive accomplishments, such as:

One City One Hire

The administration's program to help unemployed residents find jobs has now suc­cee­ded in getting employers to hire 3,000 unemployed District residents in the past year.

There are numerous obstacles to getting people into jobs, but employers' lack of trust in DC's jobless has been among the most intractable. One City One Hire officials work to restore this trust by personally vetting resumes of unemployed DC residents and asking employers to consider a couple of handpicked resumes for each opening.

Some feel that this is what the Department of Employment Services (DOES) was supposed to be doing all along. This is technically true. It's also true that DC Public Schools are supposed to be properly educating our children. We shouldn't withhold credit where credit is due when DCPS or DOES fulfills its mission.

Sector-specific economic development

Under previous administrations, the Deputy Mayor for Planning and Economic Development was concerned almost exclusively with real estate deals. Although targeted real estate deals are important, only Mayor Gray has really invested in developing other sectors that are strategically important to the city.

The Mayor's broader focus has produced new positions critical to the city's economy, even if the officers filling those positions often operate behind the scenes. For example, newly hired DMPED officials regularly meet with leaders of the technology, government contractor, and health care communities to align identify ways DC can support these strategically important sectors.

A newly reconstituted Workforce Investment Council, whose executive director Alison Gerber was recruited from the Aspen Institute, has made it clear that workforce development dollars must be targeted to high demand sectors. As a result, for the first time, workforce development in DC is no longer scattershot, with the Gray Administration targeting key sectors.

DOES has cut off funding to several training providers whose training wasn't aligned with these sectors. A new Workforce Intermediary will ensure that the needs of hospitality and construction employers are addressed by training providers.

Continued capital investments without raiding city's reserves

DC residents were aware of the many capital improvements made under former Mayor Fenty, but fewer were aware that Fenty drew down the "rainy day" fund of $700 million to pay for some of these improvements.

Mayor Gray has continued the pace of capital improvements, with renovations of Takoma Education Campus and Woodson, Cardozo and Anacostia High Schools. While maintaining the pace of the previous Administration, Mayor Gray has managed to replenish our reserve fund, bringing it up to $1.1 billion.

Sustainability plan

If you haven't seen the objectives Mayor Gray set for 2032 in his Sustainable DC plan, then you should take a look. These objectives should provide the basis for numerous DC government initiatives over the next two decades covering issues as diverse as our food supply and obesity, along with transportation, tree canopy, and waste.

For some these strategic plans and objectives may seem mere feel-good talk, but these objectives matter. Historically, DC government has looked to such comprehensive plans and small area plans in designing legislation and framing countless policy debates in subsequent years.

Cameras and parking

Study after study proves that traffic cameras save lives. Mayor Gray significantly expanded traffic cameras in this year's budget, a politically courageous move that will continue DC's trend of lower and lower traffic fatalities.

While the DC Council created visionary pilots in performance parking, the previous administration never made it much of a priority to adjust meter rates to manage curbside space effectively. The Gray administration has expanded performance parking and made it clear this is a priority.

Continued momentum in education reform, streetcars and bike lanes

Some predicted that education reform, the streetcar and bike lanes would stop under Mayor Gray. Let's be clear: that hasn't happened. Mayor Gray has increased the investment in streetcars, pledging $100 million in capital funds starting last year.

The pace of bike lane construction slowed a bit at first, but DDOT is now putting in bike lanes on many streets throughout the city, and is on track to build the L Street track this summer and M street soon after. He even vociferously defended Capital Bikeshare over Twitter to skeptical New York reporters.

Finally, Mayor Gray has continued the process of education reform, despite the fears of many DC residents. Teachers are still being evaluated and sometimes fired based on performance, not on seniority.

The Gray administration's education reforms have included important initiatives which haven't received the same attention and publicity accorded the teacher firings. The administration has already made strides toward improving our special education system and opened multiple Early Stages centers aimed at early identification of kids with special needs. These investments have reduced by 20% the number of children bused, at DC's expense, to non-public special education, saving significant money.

I'm not nominating Mayor Gray for sainthood, but residents need to reexamine the fairly widespread belief that the administration is not getting anything done. While Adrian Fenty was very good at getting press attention for his actions, this administration is acting more quietly.

We should condemn any illegal behavior from the campaign, but we must also give the mayor and his staff credit for the ways the administration is making DC greater for the long term.

First wave of subsidies reap healthy return

Most pre-recession subsidies were made through tax increment financing (TIFs), in which future gains in sales and/or property taxes from a development are used to repay bonds that finance a developer subsidy.

Each of these TIFs are repaying to the city well ahead of schedule, providing needed funds for schools, social services and other cash-strapped priorities in DC.

Many of these projects were harshly criticized at the time as corporate giveaways. So the speedy repayment of these subsidies lends credibility to the arguments of their proponents, such as Councilmember Jack Evans and former Mayor Williams, and to TIFs in general.

Project	Year	Subsidy	Performance
Spy Museum	2001	$6,900,000	Paid in 2007 instead of 2014
Gallery Place	2002	$73,650,000	Returned $15,175,861 to city above debt payments
Mandarin Oriental Hotel	2002	$46,000,000
Embassy Suites	2003	$11,000,000	Paid in 2011 instead of 2016
DC USA	2004	$40,000,000	Estimated to be paid in 2015 instead of 2026
Capitol Hill Towers	2006	$11,500,000	$2.4 remaining, matures in 2029

These TIFs were successful because they were designed in accordance with two principles of effective corporate subsidies. As will be seen below, present-day corporate subsidies haven't always followed one or the other of these two principles.

1) Focus on knock-on benefits: Advocates for corporate subsidies often appeal to the tax revenue that would be lost if a developer doesn't build a building or a company chooses not to locate in one's city. Successful subsidies, however, are more focused on knock-on benefits that are strategically important to a city's finances.

Granting subsidies so that a company's activities—developing a property, locating in one's city—will yield tax revenue only encourages rent seeking by all companies who develop a property or choose to locate in the city.

When the desired activity is to locate in one's city, a "race to the bottom" ensues between states which only hurts their collective ability to pay for education and social services.

That's why effective subsidies are designed to yield knock-on benefits that support a city's strategic goals, like developing a particular sector or a particular part of the city.

The first wave of TIFs were intended to steer the development of downtown away from office buildings and towards multi-use. As Councilmember Evans explained it, "The highest [revenue] use is an office building but then you end up with a Crystal City complex which I can't stand."

The knock-on activities—more downtown residents and more downtown shoppers—the downtown TIFs triggered are not only strengthening those investments, but also producing tax revenue from downtown in many other forms. That's what happens when knock-on benefits are the goal, not the direct tax revenues of an investment.

2) Narrowly target subsidy to yield knock-on benefits: There are always risks with corporate subsidies. The company could pick up and leave without it, or maybe they would have completed the project even without the subsidy.

That's why it's critical to limit a city's exposure. Subsidies are investments, and investments have risks. The DC CFO narrowly targeted the first wave of TIFs to be only as much as is needed to stimulate the intended knock-on benefits for the city.

For each TIF application, the CFO conducted a gap analysis. This analysis compares the amount of private financing that should be available for a development to the costs of the project. The CFO would only certify TIFs at that subsidy amount. The head of economic development finance for the DC CFO, John Ross, explained the process this way:

CFO had to do a certification, and that certification had to include a list of issues. One of them was whether the TIF would cover the debt service payments. One was whether the project would move forward without government support. One was the level of benefits of the TIF that would go to the community. Without that, the TIF could not even go to the Council.

While time-consuming, such a process ensures that subsidies are narrowly targeted to yield the benefits intended.

Present-day subsidies often veer from principles of early TIFs

If the District's first corporate subsidies have reaped such healthy returns, several present-day subsidies veer from the principles behind the successful subsidies.

Some recent large TIFs, like Southwest Waterfront and O Street Market, as well as the proposed LivingSocial tax break, don't follow these principles.

There has been no financial gap analysis for more recent TIFs. Without ensuring that any financing gap actually exists, DC doesn't know if development projects would have happened anyway and it risks overpaying.

The first wave of TIFs were granted under the TIF Authorization Act of 1998 which required a thorough financial analysis and certification by the CFO.

Though no longer empowered to certify TIFs, the CFO still provides financial assessments of TIF applications to the Council and Mayor. These assessments raised particular concerns about 2 TIFs: City Market at O Street and the Southwest Waterfront.

Project	Year	Subsidy
City Market at O Street	2008	$46,500,000
Southwest Waterfront	2014	$198,000,000

The CFO, in his assessment, complained that both the O Street and Southwest Waterfront TIFs were being granted with less information about the project than would be required to issue a complete financial evaluation. There were no final plans or cost estimates for either project.

In fact, neither application included a specific financial commitment from the private developer, making impossible any analysis of the necessary size of the subsidy. The O Street application said that the developer for the hotel hadn't even been identified yet, even though the hotel was supposed to provide 44% of the incremental tax revenues to repay the bond.

While the CFO's office was included in negotiations with the developers after raising concerns in their analyses, the process for granting these TIFs was clearly intended to increase speed at the expense of financial scrutiny.

More recently, the proposed LivingSocial subsidy of up to $32 million to remain and consolidate their operations in the District also veers from proven principles of corporate subsidies.

Proponents of this subsidy often appeal to the tax revenues from LivingSocial that will far exceed this subsidy. Paying for tax revenue, however, only rewards companies who threaten to leave while encouraging a race to the bottom between states competing for companies.

The LivingSocial proposed subsidy is intended to be targeted. The subsidy doesn't begin until 2015 and scales based on the number of DC residents employed, which must be at least half of LivingSocial employees.

But are these jobs that we should be paying for? They aren't strategically aligned with the needs of the city's unemployed, and most of the jobs won't contribute to building a tech sector.

According to a source, only 15% of LivingSocial jobs are in technology, IT, and product development. A subsidy that was targeted to generate knock-on benefits that are strategically important would thus focus on retaining that 15% of LivingSocial positions.

The debate around corporate subsidies is too often dominated by loud voices at the extremes. But experience shows that corporate subsidies can work, and they can also be a waste of precious dollars.

The next time you read of a proposed corporate subsidy, avoid these hyperbolic extremes and ask if the subsidy adheres to these two proven lessons for effective subsidies. If it does, defend the administration that proposes the subsidy, If it doesn't, as recent subsidies have not, then ask questions.