D.C. Incentive Package May Give Company $7 Million to Move A Few Miles Down the Road

December 29, 2009

This last weekend I walked the 1.5 miles from Bethesda, Maryland to Washington, DC. It’s a very pretty walk down Wisconsin Avenue, particularly then with snow on the ground and Christmas lights decorating the houses.

I covered the distance for free, but District of Columbia politicians may decide to give one company a $7 million tax incentive package to go the 1.5 miles:

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.

“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.

I’m pleased to hear that Mayor Fenty and much of the D.C. council (the vote was 7 to 5) recognize that D.C.’s taxes are high and keep businesses away. But rather than fix that problem for everyone, they are instead choosing to grant one exemption to a politically connected business in a sweetheart deal. (The $7 million is separate from $12.5 million the company may get in special tax breaks that high-tech firms but no one else are eligible for.)

The Council will vote again on the package in January, along with another proposal to waive property taxes for 10 years for a new apartment project in Columbia Heights. That’s an area that has already seen tons of new housing go up recently without such tax breaks.

Given that CoStar will be relocating only a couple miles, they probably aren’t going to get rid of their Maryland employees and hire a bunch of D.C. residents. If they’re planning on hiring a bunch of new people in Bethesda, D.C. will benefit as it’s just a Metro ride away. In any event, it’s an open secret that such location decisions are made in advance of feeling out mayors and governors for incentive packages.

All in all, the deal makes as much economic sense as if D.C. paid a business to move from one side of the street to the other. Michigan and Ohio have long tried this economic growth strategy of politicians picking winners and losers and offering sweetheart exemptions from an otherwise terrible tax system, and it doesn’t work.

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