Commentary: Bills would add accountability on D.C. tax incentives for businesses

By Manny Hidalgo
Monday, June 14, 2010

The District needs to develop a comprehensive economic development strategy -- and urgently. At a time when city revenues are declining, sound public policies governing economic development dollars could go a long way in maximizing the economic impact of investments supported by local tax dollars.

It took a diverse coalition of D.C. nonprofits, small-business leaders and activists to halt the proposed $25 million tax abatement to relocate the headquarters of global security firm Northrop Grumman to the District of Columbia. Now is the time for the District to take concrete steps in a new direction to better track the money spent on economic development, including tax breaks, and to better measure the benefits in return. Only when these steps are taken will D.C. residents stand to make a more informed argument as to whether smart investments are being made in our communities.

Two pieces of legislation pending before the D.C. Council would be good first steps toward a balanced approach to economic development. The Exemptions and Abatements Information Requirements Act would require analysis when a tax break is under consideration to assess whether the subsidy is necessary for the new development to occur. It also would mandate reporting of the economic benefits to the District as a result of the subsidy. The second bill, the Unified Economic Development Budget Transparency and Accountability Act, would require any institution receiving economic incentives in excess of $75,000 to report on specific performance measures, including job growth, purchasing of local goods and services, and business retention and expansion.

Both proposals stand to be improved by better defining what the District would receive in return for these incentives, such as the number of jobs created for D.C. residents, whether jobs created were part-time or full time and the benefits associated with these jobs.

Armed with this knowledge, D.C.'s economic development strategy would hopefully shift from big subsidies for a favored few to strengthening small locally owned businesses -- the backbone of our economy. According to the U.S. Small Business Administration, D.C. businesses with fewer than 500 employees created almost 13,000 jobs in 2005 and 2006, while larger D.C. businesses cut more than 6,000 positions. Two of five jobs were created by businesses with under 20 employees. These new local jobs mean more foot traffic at locally owned businesses that also rely on other local businesses, creating an economic multiplier that is two to four times greater than money spent at non-local businesses.

If we know what the city is spending and what it is getting in return, this will support D.C.'s downtown area as well as its neighborhoods. This kind of balanced approach -- a real comprehensive economic-development strategy -- would generate tax revenue, create jobs for D.C. residents and meet retail needs toward a vibrant local economy.

Manny Hidalgo is executive director of the D.C.-based Latino Economic Development Corp.

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