Prestige vs. dollars and cents calculations on economic impact

The number of employees working during the day in DC (Census of Daytime Population) was estimated at 671,000 in 2005. That's a number greater than the city's total residential population.

The stated number of DC residents working in DC is about 30% of jobs located in the city. That means that 70% of the jobs are held by non-DC residents.

While this isn't a surprise, I don't think that DC has ever done a study on firms, their percentage of employees based in DC, and how to improve that percentage.

The reason that this matters concerns incentives for job recruitment. For example, Northrup Grumman has announced they will be moving their headquarters to the Washington region ("Defense titan Northrop Grumman to leave Los Angeles for D.C. area" and "D.C. area jurisdictions vie to become new home of Northrop Grumman headquarters" from the Post). They have announced that this will mean 300 jobs. And yes, most of the jobs will be high paying.

But if we can figure that only 30% (30) to 40% (120) of the jobs will end up being held by DC residents, generating certain amounts of income, sales, and property taxes as residents, and the business will generate property tax revenue and maybe some income and sales tax revenue, how much is it really worth to provide in incentives to try to attract this business to DC?

Note that the calculation becomes different for nonprofit organizations, which generally are exempt from DC property and sales taxes, further reducing the revenue stream generated by the organization were it located in DC.

From the second Post article:

Economic development officials in the District are pitching the city's urban hipness and proximity to Capitol Hill power brokers. Maryland is touting its abundance of federal facilities and highly educated workforce. And Virginia is marketing itself as a place whose relatively low taxes have helped draw such corporate titans as Hilton, Volkswagen and CSC.

The battle for Northrop Grumman is on.

The District, Maryland and Virginia -- as well as numerous counties -- are vying to host the new headquarters of the defense contractor, which last week announced plans to relocate from Los Angeles to the Washington region. Though only 300 employees are expected to take up offices here, such a relocation would bring to the winner some extra payroll tax revenue from high-income executive jobs, another tenant for vacant office space, a boost to local philanthropies and prestige. ...

D.C. Council member Jack Evans (D-Ward 2), chairman of the Committee on Finance and Revenue, said he is almost certain the city will pitch general property tax abatements and other incentives. "We'll tell them, 'We want you even more than the other jurisdictions want you.' "

On one hand, you never want to concede. On the other hand, it's really about economics not prestige and trying to get an economically positive return on investment.

This is the kind of issue that I wish the federal government would step in to, passing legislation limiting the amount of incentives that can be provided to recruit businesses (or paying for sports teams stadiums and arenas) because the ability to play jurisdictions off of each other leads to poor economic returns for citizens.
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DC is paying incentives for CoStar to relocate to DC, with some hiring requirements, which is a little stronger than normal. However, I don't know if the agreement has clawbacks if the business relocates to another jurisdiction after the tax abatement period expires. See "D.C. Council OKs $6.1M in tax breaks for CoStar Group" from the Washington Business Journal. From the article:

CoStar currently has 1,400 employees, including about 350 in its Bethesda office, Radecki said. He said the company is looking for about 70,000 or 80,000 square feet to begin with, but plans to grow in coming years to over 100,000 square feet. ...

The final deal requires that before receiving any tax benefits, CoStar hire 100 D.C. residents, contract 35 percent of an estimated $10 million build out to D.C.-based small businesses and hire D.C. residents for at least half of the positions it fills during the 10 years of the abatement.

Generally the industry uses a figure that one employee uses 250 square feet of space, which means that this is a deal for 280 to 400 workers over the life of the deal.

For example, the employee-owned Bureau of National Affairs information products firmed received a major property tax abatement from DC, and immediately moved to Northern Virginia after the abatement expired, providing little overall benefit to DC for providing the incentives in the first place. From a press release for the Crystal City Business Improvement District:

BNA, a wholly employee owned news and information publisher, today announced that it will move its headquarters to Arlington, Virginia in the spring of 2007.

At a press conference led by Virginia Governor Mark Warner, BNA’s President and CEO Paul N. Wojcik confirmed that the company has reached an agreement in principle with Charles E. Smith Commercial Realty, a division of Vornado Realty Trust, for the purchase of the 290,000 square foot office building at 1801 S. Bell Street in Crystal City. The building will be fully renovated for BNA.

"The positive work environment that BNA has created for its employees and the company’s solid business reputation make it an excellent fit for Virginia," said Governor Warner. "BNA’s move to the Commonwealth reinforces one of many Virginia advantages: the ability to offer firms in this region a competitive cost of doing business."

In Crystal City, BNA will consolidate more than 1000 reporters, editors, and attorneys, as well as technical, marketing, sales and support professionals, under one roof. BNA’s Washington operations are now spread across the company’s three buildings at 1227, 1229, and 1231 25th Streets, N.W., as well as in leased space at 1250 23rd Street, N.W. The Crystal City building also will afford the company space for future growth. ...

BNA’s new headquarters in Crystal City is 4.5 miles from its D.C. offices.

What the press release doesn't mention is how tax abatements impacted BNA's decision-making.

Tax incentives for business recruitment is very touchy. As long as you build in the payment structure as a kind of refund, based on achievement goals on various criteria (investment, jobs created and filled, property and income taxes paid), at least there is some protection for the local jurisdiction.

From "Perdue defends business-recruitment incentives" from WRAL-TV (Raleigh, NC):

A day after Dell Inc. announced plans to close its computer manufacturing plant in Forsyth County and lay off all 905 workers, Gov. Beverly Perdue defended the state recruiting incentives that helped lure the company to North Carolina.

Dell opened the $100 million plant four years ago after state and local officials promised about $279 million in tax breaks and other incentives to attract the Texas-based company.

Much of the incentive money was tied to certain hiring and investment goals, and state Department of Commerce spokeswoman Kathy Neal said Thursday that the state has paid the company about $8.5 million to date in grant money, tax credits and work force training credits. State lawmakers passed a computer manufacturing credit in 2004 to help lure Dell, and it was expected to account for the bulk of the incentives, Neal said. So far, it has generated only $100,000 for the company, she said.

Dell is the 12th company not to fulfill its obligations under a Job Development Incentive Grant from the state. Five others withdrew from the program, three declined the grant once it was offered and three had their grants terminated.

Under JDIG grants, the state refunds a portion of the payroll tax paid by the company on its new employees. The grants can last for up to 12 years, but a company much meet pre-determined hiring goals each year to get its annual refund.

Note the protections in hand for the State of North Carolina. While a package of $279 million was promised, Dell had only earned $8.5 million thus far and that is all that had been paid...