logo
    • Magazine
    • Membership
    • Donate
  • Racial Justice
  • Economic Justice
  • Climate Justice
  • Health Justice
  • Leadership
  • CONTENT TYPES
  • Subscribe
  • Webinars
    • Free Webinars
    • Premium On-Demand Webinars
  • Membership
  • Submissions

City Auditor Issues Scathing Report Regarding DC Tech Firm Incentive Program

Steve Dubb
December 4, 2018
Share
Tweet
Share
Email
Print

December 3, 2018; WAMU (public radio)

In 2017, Washington, DC spent $57 million on tax incentives, most of which ($45.2 million) are supposed to support high-tech employment in the city. But a report from the city’s Office of the Chief Financial Officer suggests that much of that money has been poorly spent, reducing funds available to support other city needed services, such as education or affordable housing.

The incentives in question are generous. The program has been in effect since 2000 and cost the city an estimated $185 million between 2001 and 2015, but costs have gone up of late. In the program’s first decade, city costs averaged less than $6 million a year. By 2015, the program cost the District $27.7 million. By 2017, the cost had risen to $45.2 million. The report details just how generously “Qualified High Technology Companies” (QHTCs) are treated:

A qualified company considering moving to DC would not pay any corporate income taxes for the first five years it has income tax liability and would have a permanently lower rate of six percent thereafter. In addition, tax credits for existing and new employees would allow the company to offset a portion of taxes owed after it begins paying the six percent tax rate…. Any part of the credit not used because tax liability is not high enough that year may be carried forward for 10 years and used later against tax liability. Further, the value of the company’s property for tax purposes would not increase for the first five years—representing a tax abatement of any taxes owed on the assessment increase, and it would not pay any personal property taxes for 10 years. All sales the company makes in DC would be exempt from the District sales tax, and purchases it makes of qualified technology equipment would also be sales tax free.

Sign up for our free newsletter

Subscribe to the NPQ newsletter to have our top stories delivered directly to your inbox.

By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.

The auditor’s report notes that, “The QHTC tax incentives may have induced some companies to make new investments in DC’s economy, yet they also amount to tax breaks for existing companies with no subsequent new investments.” The report adds that, “The untargeted design of the QHTC provisions make it difficult if not impossible to answer the ‘but for’ question of whether these gains would have happened without the incentive. It is possible existing technology firms that already met the eligibility requirements can claim QHTC credits without making new investments, such as relocating or expanding their business in the District.”

As WAMU reporter Ally Schweitzer explains, “The main problem with DC’s tax incentives for tech employers, the audit shows, is that most of its benefits are going to a few large companies, and no firms that receive the incentives have to prove they’ve created new jobs or generated a lot of spending in order to get them.… That means DC may be giving breaks to companies that would have done business here anyway, and there’s no way to know whether the incentives are driving new growth.”

The audit, Schweitzer adds, “also shows many large companies that receive benefits aren’t based in the city. A number of QHTCs are headquartered in Virginia, for example, but that doesn’t disqualify them from receiving DC incentives. Between 2007 and 2015, the report shows, most QHTC incentives went to large companies based in the suburbs.”

To fix the program, the city audit makes six recommendations:

  1. Target incentives by requiring firms to engage in new economic activity to receive tax benefits.
  2. Cap the total amount of benefits a single company may receive to a set amount, such as $250,000.
  3. Implement a claw back provision that would require a firm to pay back some credits received if it leaves the District within a certain number of years.
  4. Require all QHTCs to be audited after five years.
  5. Develop a verifiable standard to use for determining company eligibility “to ensure that firms that do not meet the legal criteria are not wrongly taking the incentives.”
  6. Improve the transparency of the incentives by allowing company names and credit amounts received to be public.

Despite the negative audit findings, Schweitzer reports that a spokesperson for the District’s Office of the Deputy Mayor for Planning and Economic Development (DMPED) persists in calling the QHTC program a “vital tool” in attracting, retaining and growing DC’s tech industry.—Steve Dubb

Share
Tweet
Share
Email
Print
ABOUT THE AUTHOR
Steve Dubb

Steve Dubb is a senior editor at NPQ, where he directs NPQ’s economic justice program, including NPQ’s Economy Remix column. Steve has worked with cooperatives and nonprofits for over two decades, including twelve years at The Democracy Collaborative and three years as executive director of NASCO (North American Students of Cooperation). In his work, Steve has authored, co-authored and edited numerous reports; participated in and facilitated learning cohorts; designed community building strategies; and helped build the field of community wealth building. Steve is the lead author of Building Wealth: The Asset-Based Approach to Solving Social and Economic Problems (Aspen 2005) and coauthor (with Rita Hodges) of The Road Half Traveled: University Engagement at a Crossroads, published by MSU Press in 2012. In 2016, Steve curated and authored Conversations on Community Wealth Building, a collection of interviews of community builders that Steve had conducted over the previous decade.

More about: tech industryauditscorporate tax incentivesNonprofit NewsPolicy

Become a member

Support independent journalism and knowledge creation for civil society. Become a member of Nonprofit Quarterly.

Members receive unlimited access to our archived and upcoming digital content. NPQ is the leading journal in the nonprofit sector written by social change experts. Gain access to our exclusive library of online courses led by thought leaders and educators providing contextualized information to help nonprofit practitioners make sense of changing conditions and improve infra-structure in their organizations.

Join Today
logo logo logo logo logo
See comments

You might also like
Edgar Cahn’s Second Act: Time Banking and the Return of Mutual Aid
Steve Dubb
We Owe You Nothing: The Movement to Cancel Student Debt Gains Ground
Rithika Ramamurthy
Charitable Tax Reform: Why Half Measures Won’t Curb Plutocracy
Alan Davis
Green New Deal or Stale Old Tax-Break Scam? Getting Electric Vehicle Incentives Right
Greg LeRoy
Goodbye “Race Neutrality”—The Case for Race-Conscious Economic Policy
Dedrick Asante-Muhammad
Graduate Student Workers Are in the Frontline of the Growing Labor Movement
Rithika Ramamurthy

NPQ_Summer_2022

Upcoming Webinars

June 23rd, 2 pm ET

Compensation Equity

A Values-Based Framework & Implementation Guide

Register Now
You might also like
Edgar Cahn’s Second Act: Time Banking and the Return of...
Steve Dubb
We Owe You Nothing: The Movement to Cancel Student Debt...
Rithika Ramamurthy
Charitable Tax Reform: Why Half Measures Won’t Curb...
Alan Davis

Like what you see?

Subscribe to the NPQ newsletter to have our top stories delivered directly to your inbox.

See our newsletters

By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.

Independent & in your mailbox.

Subscribe today and get a full year of NPQ for just $59.

subscribe
  • About
  • Contact
  • Advertise
  • Copyright
  • Careers

We are using cookies to give you the best experience on our website.

 

Non Profit News | Nonprofit Quarterly
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.