Photo by Sweeter Alternative on Flickr.

DC has grown its private sector by investing in urban amenities that attract a 21st century workforce.  Other states simply give companies direct subsidies to attract them instead, providing little external benefit.  But the DC Council is about to do exactly that, by giving LivingSocial a $32.5 million location subsidy with few strings attached.

DC’s sizable, hard-fought investments to create a livable, walkable city that attract top tier workers have benefited few firms as much as LivingSocial.  Talented young people want to live in DC, and LivingSocial has been a major beneficiary, as have dozens of tech start-ups across the city.

The proposed LivingSocial deal, however, is not an investment in attracting a workforce. It’s just a location subsidy.  That means they don’t have to grow, they just have to stay here. DC could use this money to invest in more development that attracts “creative class” workers like better retail, arts, transportation, and the actual growth of tech companies.

DC tech firms benefit from DC’s investments in the creative class

The District didn’t just suddenly become an attractive place for talented young people to live.  That transformation took years of investments, often at the expense of other priorities. DC is still making these investments, and needs to keep funding them.

Buying more Circulator buses and streetcars and operating them on more routes is costly.  Building more cycle tracks and multimodal streets requires money.  Renovating more schools, extending library hours, and investing in mixed-use development projects like St. Elizabeths and Walter Reed is expensive but critical to attracting and retaining a world-class workforce of knowledge workers.

The payoff from these investments is that DC has experienced the largest domestic population growth of any state, and the fastest growth of creative class jobs of any large metropolitan area.  Creative class workers are the knowledge workers in demand by many of the fastest-growing companies, including tech companies like LivingSocial.

That’s why just over half of LivingSocial’s employees already live in DC, whereas 30% of employees at other DC employers live in DC.  LivingSocial isn’t hiring them for charity, they’re hiring because DC residents are excellent employees. This is a fact that’s widely recognized, every DC tech company I know hires DC residents in at least half their positions.

One investment that would grow our workforce of knowledge workers to have LivingSocial grow further.  DC could invest in LivingSocial’s growth, but is instead offering $32.5 million for LivingSocial to simply stay in DC.  They don’t have to actually add any new positions to get this money.

That approach to attracting and retaining companies, known as location subsidies, is practiced by states who can’t offer a 21st century workforce because they haven’t invested in one.

Richard Florida, whose book The Rise of the Creative Class has shaped urban development strategies for a decade, opposes a location subsidy for LivingSocial for the same reason:

I am fan of high-tech companies and very much like what LivingSocial does. But they are already leveraging the enormous historic investments made in DC over decades to become an attractive city with extraordinary quality of place that attracts highly skilled creative class workers.  They don’t need the subsidy and our cities and states need to put a stake in the ground and stop this corporate welfare. I doubt they’ll leave the region anyway. Where would they go?

The DC Council should demonstrate the same faith in DC’s ability to attract companies for the right reasons — our 21st century workforce — as Florida does.  They should require LivingSocial to add jobs, particularly product development jobs that attract creative class workers, in order to receive a subsidy.

Chicago required job growth in return for Groupon subsidy

Groupon, LivingSocial’s primary competitor, did not a get location subsidy from Chicago.  Instead, Chicago offered Groupon $3.5 million on the condition that Groupon add 250 new jobs.

If the LivingSocial subsidy were similarly structured, DC would see 2,321 new jobs at LivingSocial in return for its $32.5 million subsidy.

Furthermore, Chicago’s subsidy to Groupon is in the form of income tax and training credits.  That ensures that Chicago doesn’t subsidize a company that is losing money and perhaps about to go bankrupt.

$15 million of the proposed LivingSocial subsidy is in the form of property tax credits, which it receives whether it makes money or not and could receive right before a bankruptcy.

Why should the DC Council give LivingSocial a far better deal than Chicago gave to Groupon?  The DC Council should only provide income tax credits to LivingSocial, or at least limit an annual property tax credit to the size of its income tax credit.

Let the DC Council know that we can’t afford location subsidies at the expense of crucial investments to build a city that attracts a 21st century workforce.  LivingSocial should have to add jobs, particularly product development jobs, in order to receive a subsidy — just like Groupon did.  This will ensure the continual contribution of LivingSocial’s growth to DC’s rise as a creative class hub.