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Posted at 04:10 PM ET, 06/26/2012

D.C. Council approves LivingSocial tax breaks

The D.C. Council gave tentative approval Tuesday for nearly $33 million in tax breaks for LivingSocial to keep the growing company in the District after members deemed it essential to city efforts to brand itself as a hub for start-up and technology companies.

In a unanimous vote, the deal will save the five-year-old company about $32.5 million in taxes over a five-year period beginning in 2015. In exchange, the company will agree to mentor D.C. students interested in careers in science and technology, hire city youths to internships and offer support to businesses affected by ongoing street construction projects.

Council member Jack Evans (D-Ward 2), chairman of the Committee on Finance and Revenue, said the tax breaks were needed to keep the company and its 1,000 area employees from relocating to the Virginia or Maryland suburbs.

“It’s a very important bill for our city,” Evans said. “Now that we have some homegrown companies in the city, we want to make sure they stay here, and we are providing these incentives to do that.”

LivingSocial, which was started by young entrepreneurs, is headquartered in the city and specializes in online marketing and sales but continues to branch out into technology ventures.

The company, which has yet to turn a profit, has been snatching up storefront office space and has become a magnet for young, well-educated professionals. As part of the deal, at least half of LivingSocial’s new hires will be required to live in the District through the life of the agreement.

Mayor Vincent C. Gray (D) proposed the incentives in April after LivingSocial co-founder and Chief Executive Tim O’Shaughnessy expressed concern about the company’s growing operating costs in the District. O’Shaughnessy, 30, is the son-in-law of Washington Post Co. Chairman Donald E. Graham.

During a brief council debate, a few council members questioned whether the deal would set a precedent for all start-ups. But council member David A. Catania (I-At Large) noted that the District government has been offering tax incentives for decades, and he fears that Virginia will act if the District does not.

“It would be easy for (Virginia Gov. Robert F. McDonnell) to show up with a million dollars and take another stellar” business, Catania said. “Let’s not lose sight of the fact that we are in a competitive environment.”

Some progressive advocates oppose the deal, questioning whether District officials extracted enough promises from the company in exchange for its tax savings.

“While the District has an interest in encouraging LivingSocial to remain in the city, the terms of the deal are not strong enough to guarantee a return on the city’s investment, and it needs to be modified to better protect the city’s interests,” Kwame Boadi wrote in an analysis published by the D.C. Fiscal Policy Institute.

Council member Tommy Wells (D-Ward 6) counters that it’s too soon to assume recent population growth, and redevelopment can be sustained without offering incentives to companies such as LivingSocial.

“Because of investments we have made, D.C. is becoming an attractive place for businesses like Living Social,” Wells said. “But … at some point, we do have to take another look and say, ‘How much more incentives do they need?’ ”

A final vote on the legislation will be held July 10.

By  |  04:10 PM ET, 06/26/2012

 
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