Photo by thinkpanama.

Next year will be tough for many DC residents, companies, and agencies. But it could be a good year to be a “high technology commercial real estate database and service provider.”

Under a new bill introduced in the DC Council, these businesses, and only these businesses, would get up to $700,000 in annual property tax breaks for 10 years — a $7 million subsidy. Why these companies? Or, more accurately, why this one company?

The criteria for eligible recipients of the proposed tax abatement are very specific. No companies are named in the legislation, but a representative from the Deputy Mayor for Planning and Economic Development testified at the DC Council hearing that they are actively recruiting one company, which they didn’t name, but which the WBJ has identified as CoStar, currently located in downtown Bethesda.

The Deputy Mayor’s office said that these subsidies were important because office vacancy rates are high in the District. Yet, despite an increase over the past year, DC’s office vacancy rate is still the second lowest in the nation. And DC’s vacancy rate is much lower than our suburban counterparts in Maryland and Virginia, indicating that DC is still a more attractive place to be for many companies.

The Deputy Mayor’s office also talked about DC’s unemployment rate being very high, which is true. But CoStar would simply relocate 400 employees at first, with hopes but no commitment to expand to 1,000. Their headquarters are already on Metro, in Bethesda. Relocating jobs from a transit-accessible location near DC is not creating new jobs for DC residents.

CoStar already qualifies for broader incentives. According to DMPED’s testimony, they will likely also receive tax breaks under the Net 2000 legislation. They are eligible to get up to $250,000 a year for just moving their employees to DC, up to $1 million a year if they can get enough of their employees to move their residence to DC, plus potential reductions to franchise, personal property, sales and use and capital gains taxes.

Most of all, luring one single company to DC won’t substantially change vacancy rates or unemployment. This is why ad hoc tax policy like this doesn’t work. Giving a large tax advantage to one business that other businesses do not get — including those that have already chosen to be in DC — just distorts the playing field.

DC already faces a potential $300 million budget shortfall next year due to weak tax collections. The city should not make its fiscal crunch even worse by giving out questionable tax breaks to individual companies.