D.C. Council backs controversial tax breaks to lure 2 firms

By Lisa Rein
Washington Post Staff Writer
Wednesday, December 16, 2009

The D.C. Council voted Tuesday to give millions of dollars in property tax breaks to a financially strapped developer and a Bethesda high-tech company that the Fenty administration hopes to lure to the city.

Supporters hailed both tax abatements -- worth $7 million to CoStar Group over 10 years and $13 million over 20 years to Donatelli Development -- as economic tools to help revive the city's struggling office and residential markets.

Opponents called them giveaways to private companies that set bad precedents.

A second vote on both measures, scheduled for next month, is needed for them to become law.

CoStar, a growing leader in research and marketing of commercial real estate data, is seeking new corporate headquarters for about 350 employees when the company's lease in Bethesda runs out next year. Pushing the deal was Mayor Adrian M. Fenty (D), who pledged to CoStar chief executive Andrew C. Florance that he would support a tax break to overcome the relatively high taxes in the District, compared with Virginia and Maryland, Florance said.

He said the company, which employs 1,400 researchers, marketers and other real estate experts, hopes to hire 500 more workers in the next decade, drawing in part from the District.

Supporters said CoStar's move to the District would be a coup for a city that has attracted just a handful of publicly traded high-tech firms.

"If we're going to lure businesses into the city, we're going to have to pay for it," said council member Jack Evans (D-Ward 2), a key supporter of the bill.

The $700,000 annual abatement would last 10 years, and the company would be eligible for $2.5 million more in annual corporate income tax breaks for five years under an existing law benefiting high-tech firms, according to city economic development officials.

"If you're headquartered in D.C., you're going to draw on the large, unemployed population in D.C.," Florance said, estimating CoStar's total corporate tax contribution at $30 million to $50 million over the next decade.

Florance said early Tuesday that CoStar is looking to lease office space in the downtown business district, where the bill would allow the company to qualify for the tax break. But to pass the bill, supporters amended it at the last minute to exclude the central business district. "They made it as challenging as you could make it," Florance said.

Opponents, including small businesses and the D.C. Fiscal Policy Institute, a think thank that researches budget and tax issues, questioned why a profitable company deserves a subsidy in a city with one of country's lowest office vacancy rates, even in the recession. They said moving a company does not guarantee new jobs or give hiring preference to District residents if new workers are hired.

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