Today we published an annual report of our activities from this past year as well as a look ahead at the initiatives and priorities we intend to focus on in 2015-2016. The report is 120 pages, so please do not try to read the whole thing. It was designed to be flipped through until you come to a topic of interest. We want to thank all of those individuals and organizations who have supported Economic Growth DC and the Foundation this past year. We look forward to continuing our relationship in the future.
Established in 2001 by the Center on Budget and Policy Priorities, the DC Fiscal Policy Institute plays an important role in the District of Columbia. It provides a voice in the budget and tax policy debate for low and moderate income District residents who are otherwise without representation on these issues.
Economic Growth DC has supported the Fiscal Policy Institute financially in the past and intends to do so again in the future. We support most of the proposals laid out in their initial analysis of the mayor’s budget.
However, their call to increase taxes “if necessary” less than a year after a major tax overhaul is tax policy schizophrenia that does real harm to what is an already fragile business climate by making it impossible to plan for investment and hiring for any period longer than a fiscal year.
Most businesses attempt to plan at least three to five years in advance. They attempt to predict a variety of different costs and risks.Tax rates are central to that planning process. If future tax rates are subject to change every year, that hugely complicates the planning process and leads business owners to be more cautious. Caution means less risk taking, and nothing is more risky than hiring a new employee.
One of Economic Growth DC’s Principles of Sound Tax Policy is reliability. “A high-quality tax system should be stable, providing certainty in taxation, revenue flows, and financial planning for individuals and businesses.”
Saying that a tax system is reliable is just another way of saying that it doesn’t change every five minutes.
FPI’s executive director, Ed Lazere, was a key member of the Tax Revision Commission which reached consensus on a new framework for the District’s tax system just last year. Calling for tax increases less than twelve months later renders the commission’s work obsolete.
The Council should make it clear, by rejecting any changes to the District’s new tax structure, that it understands the importance of a stable tax system.
By far the best way to increase tax receipts is to have an economy that grows faster. Tax reliability and predictability encourage risk taking and are key to faster growth.
Slow/no growth hits low income District residents much harder than anyone else in the form of a dearth of good jobs and wage stagnation. There are several ways to help, such as improved job training, but a better performing economy has to come first.
We’re also disappointed in the way FPI has rationalized the regressive nature of a sales tax increase.
As the chart below indicates, the sales tax has a huge impact on District residents at the lowest end of the income distribution, and almost no effect on high-income earners.
To claim, as it does in its analysis, that low income District residents will suffer no ill effects from a sales tax increase because they will have an offsetting income tax cut misses the point of tax reform.
The point was to provide tax relief to low and moderate income residents. The idea was to put more money in their pocket. Under the mayor’s FPI approved proposal, you’re simply putting money in one pocket of a low income resident and taking it out of the other. It defeats the purpose of the reform.
The council should find savings in other parts of the budget and leave this imperfect, but newly reformed tax system alone.
The Economic Growth DC Foundation, our charitable organization, focuses on education and workforce development programming in the District. Code4Life is an after-school program created in partnership with Accenture that teaches basic computer programming skills to middle-school (and eventually high-school) students in DCPS and the charter system.
As the story below indicates, the program is fun for the students, but it is also designed to open a door to a high-wage occupation that doesn’t necessarily require a four-year college degree. In that sense, it’s as much a workforce development program as it is an educational one.
The District aspires to be the Silicon Valley of the east coast. We’re a long way from there, and the number one thing our tech scene needs is a large quantity of the people who staff and create startups. We need what is quite literally an army of coders. This means we’ll have to convince the people with that set of skills to move here from around the country, or we’ve got to build the coders from scratch. Convincing successful, well-compensated professionals to move here from an area with great weather and a great lifestyle is a difficult business.
Thanks to Leon Harris for making us part of Harris’ Heroes and thanks to producer Robin Gould for a great story. The expansion of Code4Life to additional schools in the fall hinges on our ability to fund that expansion. Consider donating at the Economic Growth DC Foundation website. All contributions to the Economic Growth DC Foundation are fully tax-deductible as a charitable gift.
WASHINGTON (WJLA) – Fifth and sixth graders at D.C.’s KIPP Northeast Academy are learning HTML and CSS. This week, the lesson is on how to change text and background colors.
Volunteers work with students in the Code4Life program. (WJLA photo)
It’s part of a program called Code4Life, designed to teach basic computer programming skills by making it fun. The nonprofit Economic Growth D.C. Foundation created the program for middle school students with a specific goal.
Executive Director Dave Oberting says that goal is to “get them on a pathway to a potentially high-wage occupation.”
Instructors and assistants are all professional software developers who volunteer their time to mentor the students.
“It’s very fulfilling to see them start off with nothing and not really knowing a lot about computers to be able to program their own web pages,” said volunteer Erika Del Valle.
As the students experience success, they gain confidence.
“In the beginning it was hard, but now that I’m learning more and more about it, it’s not that hard,” said 11-year-old Kwencie Stewart.
“The most fun thing is to see that your creation never stops, and, like, there’s no limit to your imagination when you create websites,” 11-year-old Isaiah Jackson said.
Oberting says the skills they gain will help them for life.
“Not all of these kids will end up in a computer science field, but a lot of them will and the others will benefit from having the experience,” he said.
By the end of the semester, students will have created their own websites using the same tools and techniques that professional web developers use. Currently, 60 students at four locations participate in Code4Life.
Next year, the goal is to teach the students Java Script, and the Economic Growth DC Foundation hopes to expand the curriculum each year to follow the students through the end of high school.
The chart above illustrates the District’s economy in real chained dollars. That’s economist speak for dollars that have been adjusted for inflation. The chart reflects the fact that the District’s economy has contracted from $106.48 billion in 2011 to $105.47 billion in 2013. The numbers are less important than the trend. What does this really mean for the average DC resident?
Many fewer good jobs
Less affordable housing
Less housing, period
Fewer new restaurants
Fewer new retail stores
Fewer new companies created in the District
Fewer companies moving to the District
A less dynamic District
More income inequality
Less economic inclusion
Less tax revenue
A corresponding reduction in social services
Less upward mobility
Less opportunity for promotion and advancement
Less of the Streetcar project
Fewer improvements to Metro
Fewer new bus routes
Bye bye budget surpluses
More violent crime
Fewer new parks and green space
Fewer small retail businesses
Slower population growth or contraction
Lower graduation rates
As Jimmy Carter would say, a general malaise
There are sure to be more. Let us know what we’ve missed at firstname.lastname@example.org
So you have what is technically a two-year recession. How do we turn it around? It’s false to think it’s not within our control. The District doesn’t control the business cycle, but it does control the way it regulates and taxes, and the way it enforces its rules.
“The District’s economy needs to grow at a significantly faster rate in order to create the number and kinds of jobs we’ll need over the next generation. Faster growth is required to increase the incomes of District residents, and we need it to produce the amount of tax revenue we’ll need to do the things the District says it wants to do in areas like affordable housing, homelessness and Medicaid. The research, programs, and initiatives we undertake are short, medium, and long term efforts to facilitate faster economic growth and the job creation that comes with it.” — Dave Oberting, Executive Director
Our current priorities are:
Economic Growth DC
Regulatory Reform – Reducing the cost and increasing the ease of doing business in the District of Columbia are two of Economic Growth DC’s primary goals. Both the cost and the ease of doing business are products primarily of the regulatory process. Reducing the complexity of our regulatory system and reducing the cost of compliance would provide an immediate boost to economic growth. We will take advantage of every opportunity to move towards a simpler, smarter regulatory architecture.
Regulatory Review & Amendment Act – This bill, as proposed by Economic Growth DC, would require the District government to calculate and weigh the costs and benefits of all regulations expected to have an economic impact in excess of a certain amount. It will add much needed transparency to the regulatory process as many regulations act as a hidden tax on consumers who ultimately bear the burden of those regulations.
Tax Reform — A Tax Revision Commission organized by Mayor Vincent Gray and led by former Mayor Anthony Williams conducted a comprehensive review of the District’s tax framework over the past 18 months. They recommended a number of changes to the tax code that were subsequently adopted into legislation championed by Council Chairman Phil Mendelson. The most important of these changes lowered income tax rates on moderate to middle income DC residents. We believe this should be the beginning of the tax revision process, not the end. Our basic tax philosophy is we should incentivize work by lowering the tax on it. We will advocate in the coming year for more progress on our tax code.
District of Columbia National Disaster Insurance Protection Act – If passed, this federal legislation would empower the District to compete with off-shore jurisdictions to keep insurance company catastrophe reserves in the U.S. by providing tax incentives for such funds to be maintained in the District of Columbia. This legislation would open the door to the creation of thousands of high-paying jobs in the region and billions of dollars in new economic activity.
Economic Fact Sheet – Many business owners and managers have made it clear to Economic Growth DC that they often feel misunderstood and unappreciated by the DC government and residents alike. We believe this is because the business community at-large has not done a good job of articulating the contribution that it makes to the the well-being of District residents. Economic Growth DC created an economic fact sheet for the District that details the contributions that are made annually by the District’s 21,592 private businesses. Click here to view: DC Economic Fact Sheet
Economic Impact Analysis – Chairman Phil Mendelson included in the council rules a provision for the conduct of an economic impact analysis on pending legislation. It is to be performed by the Council’s budget office. This is an excellent first step, but this analysis should be codified into law for both legislation and regulations. Having a better understanding of what individual laws and regulations cost the economy in terms of lost economic activity and slower job growth is the foundation of a good legislative and rule making procerss. We have proposed a Regulatory Review Act that would require the Chief Financial Officer to conduct an economic analysis on any proposed regulation over a certain dollar value that would calculate the cost that a particular regulation would impose on the private economy. It would also allow for a retrospective review and amendment process for older regulations. This law could easily be expanded to include legislation.
Labor Law Changes — The District’s labor laws contain perverse incentives that encourage District businesses to relocate to the suburbs upon reaching a certain size and a certain number of employees. We’d like to work with the Council to reform our labor law system to make it more competitive with Virginia and other parts of the country. These reforms will be especially important as the technology start-ups the District has invested so much in begin to mature and start hiring serious numbers of people. These changes can be made at very little cost to the District and without sacrificing important employee protections.
Land Transfers — The District should seek out more opportunities to acquire unproductive federal lands, develop them, and reap the tax benefits of increased economic activity.
Improving Access to Super Fast Internet – Google has said it will provide fiber optic speed internet access to any jurisdiction that deregulates access to fiber. Making the appropriate changes is likely to jumpstart the installation and adoption of fiber optic speed internet access. Higher speed internet access increases employee productivity. Increased productivity is a prerequisite for faster growth.
Fostering Micro-Manufacturing — The District has historically been locked out of the manufacturing industry due to high real estate costs and lack of space. There is a new industry taking shape that would allow the District to become a specialty manufacturing center in its own right. Micro-manufacturing, using 3D printers, is the fastest growing form of manufacturing in the country. They are largely small businesses who’ve used this amazing technology to make a wide variety of products. We’d like to propose legislation that would clear out some of the regulatory and zoning barriers that would enable this industry to take root and prosper in the District. 3D printer technicians do not need a college degree and the jobs generally pay $15-20 per hour. We should be moving quickly to establish a legal and a streamlined regulatory framework for fostering the growth of this industry.
Science and Engineering Campus – The District intends to become the premier technology center on the east coast. If you look at the other tech hotbeds around the country — Silicon Valley, Boston, and Austin — the one thing they all have in common is a massive research institution like Stanford, MIT, and the University of Texas. These institutions produce not just the technology graduates that start companies, but the technology itself that can be commercialized. The City of New York and Cornell University have partnered to build a massive technology campus on Roosevelt Island in NYC. Mayor Michael Bloomberg called it easily the best tool NY will have for accelerating future economic growth. A smaller version of idea has been proposed for St. Elizabeth’s, but the District should think bigger. It should involve a name-brand research partner like Stanford, Carnegie-Mellon or Georgia Tech.
Crowdfunding — This technology provides important access to capital for District start-ups and small businesses. The District has proposed rules to govern crowdsourcing transactions. We’ll work to see these rules implemented as quickly as possible.
Attract Venture Capital Firms — Increasing the amount of venture capital funding that flows into the District is key to our long-term growth. The District is actively fostering early stage technology firms with investments in things like 1776. Our startup community is moving towards a critical mass of invest-able companies, but we won’t attract significantly more venture funding if the people who make those investments are not physically in the District. We’ll be proposing an incentive package to entice the largest venture firms like Kleiner Perkins, Andresssen Horiwitz, Sequoia and Graylock to set up shop in the District proper.
Anacostia River — We support the efforts of the United for a Healthy Anacostia River Coalition — Lack of development on the banks of the Anacostia is the most visible effect of the deadly chemicals that have been poured into the Anacostia for decades. We consider the cleanup of the Anacostia to be an important economic initiative. We will help the Coalition wherever we can.
Economic Growth DC Foundation
Code4Life — Is an after-school program created in partnership with technology giant Accenture that teaches DCPS and charter school middle-school students basic computer programming. The program is designed to put District students on a pathway to a high-wage occupation that does not necessarily require a college degree. The program launched successfully at KIPP NE Academy this fall. We are currently planning our expansion to three additional schools in February.
Re-entry Job Placement Program — The Foundation is working on the development and implementation of an ex-offender job placement program similar to one that was originally developed in Newark, NJ through a partnership between Mayor Corey Boooker and the Manhattan Institute. The Newark program has experienced real success with its rapid attachment to work job placement model designed to get returning citizens into the workforce quickly. They have experienced a much higher employment and retention rate than typical ex-offender efforts, as well as lower rates of recidivism. At his point, it looks like the program will require substantial private funding.
Decriminalization – The District decriminalized marijuana in 2014. That action should be the beginning of a sustained campaign to reduce the over-criminalization of DC’s civil society. We will advocate for the formation of a commission which will be responsible for making recommendations for the reduction of certain felonies to misdemeanors, and misdemeanors to civil infractions. Over-criminalization is not unique to the District. At the federal level, there are over 3,000 criminal offenses, and over 300,000 regulations that carry criminal penalties. This is a phenomenon at both the local and national levels that should be rolled back.
Modern Entrepreneurship Program – This program is essentially a venture capital fund for minority micro-entrepreneurs. The twist is experienced business professionals associated with two U.S. AID contractors with considerable development experience overseas will embed with these entrepreneurs for up to a year. The intensive management assistance is designed to lower the risk profile of these investments. This program also requires private funding.
Leadership Development Training Class — In partnership with the DC Leadership Development Council, the Foundation seeks to launch a high-school level leadership development training class for high-potential students at DCPS high schools. This class is scheduled to begin in the fall of 2014. The Foundation will administer and underwrite the program. The DC Leadership Devel0pment Council will assemble the curriculum and and provide the instructors.
Job Placement Coordinator Training – The District provides the bulk of its job training and youth development programs through non-profit social service providers. Each of those providers has at least one person that is responsible for placing their program’s graduates into jobs upon completion of that training. The Foundation uses its private sector job placement expertise to offer free instruction to any of these placement coordinators interested in professional development. This training helps placement coordinators become more effective at what they do, thereby increasing the number of people who are placed into jobs at the conclusion of their training.
Research – We are currently seeking a Director of Education Policy. This individual will be responsible for organizing and analyzing education policy research that is of interest to EGDCF, as well as conducting original research focused on blended learning and improving educational outcomes. If you would be interested in being considered, please forward your resume to email@example.com.
Apprenticeships – The Foundation is working with several partners, including organized labor, to implement a much broader use of apprenticeships. Germany is an excellent example of how to use apprenticeships aggressively to provide higher levels of skill. Apprenticeships are not just for the construction trades. There are dozens of professions ripe for the use of apprenticeships.
Office of Military Preparedness — The military is an excellent career opportunity for District youth. We will be encouraging DCPS to open an Office of Military Preparedness to coordinate the efforts of the various junior ROTC programs, as well as with the various military recruiting commands. The military should be given greater access to students and guidance counselors.
In an otherwise excellent article in the Washington City Paper about the District’s homelessness crisis, Aaron Wiener perpetuated a noxious myth. He wrote:
“There are things the city can do to manage the front door [entry into the city’s homelessness system], but there are also factors out of its control, primarily the lack of affordable housing, and of decent-paying jobs for residents without a college degree.”
We should disavow District policymakers of the notion that the creation of large numbers of middle-skill, middle-income jobs is outside of their control.
The truth is the lack of decent-paying jobs for residents without a college degree stems from a set of policy choices the District has made over the past decade that have been very much under its control and that remain under its control to this day.
The District has opted for a highly and clumsily regulated slow/no growth economy. That’s why it doesn’t create the number and kinds of jobs we need.
We complain a lot about Congressional interference, and indeed, most of it is unwarranted, but Congress has deferred to the District on matters of local taxation and regulation. We own that. Local policy also defines the business climate. We own that too.
Job creation is the most helpful byproduct of economic growth. When there is no growth, there are no jobs. When growth is robust, jobs at all skill levels become plentiful.
The overly colorful chart below tells the story of the last eight years. Real GDP is adjusted for inflation. In 2012 and again in 2013, the District’s economy shrunk by about 0.5%.
It is no coincidence this contraction coincides exactly with the the two-year spike in family homelessness. Homelessness is a symptom of a stagnant economy.
It would be interesting to know how many of the District’s homeless residents work full-time. We would venture to guess it’s close to zero. Ending homelessness requires a faster growing economy and a workforce more skilled and ready the jobs of the 21st century.
Our homelessness crisis will not end with the economy on its current path.
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Our executive director Dave Oberting sat down recently for an interview with Alex Vidales from Pilot Waves. The interview starts at 3:35 and covers a range of topics. Leave us your feedback in the comments section. If you are a Windows Explorer user you must have a Microsoft MP3 player properly installed on your computer. If you use Chrome, it seems the recording does not stop properly once it starts. If you have difficulty with the embedded version, click on the link below to stream the interview from SoundCloud.
Incentives will get most of the attention in the competition to land the Marriott headquarters and the 2,000 jobs that come with it. And it will cost millions. It’s an unfortunate reality of corporate relocations. But the incentive packages will be roughly the same from all three jurisdictions and so the decision will hinge on something else — the business climate.
Clearly Marriott’s CEO, Arne Sorenson, was telegraphing that he wants to be in the District when he said, “I think it’s essential we be accessible to Metro and that limits the options. I think as with many other things our younger folks are more inclined to be Metro-accessible and more urban. That doesn’t necessarily mean we will move to downtown Washington, but we will move someplace.”
The only thing that will keep him out of the District has nothing to do with incentives, and everything to do with the cost of doing business in DC.
We would like to see the District government signal that it is intent on making the District a better, easier, and less expensive place to do business. It can do this with a much more aggressive effort at regulatory reform. It can continue the efforts that were started by the tax revision commission. It can show that it’s capable of doing some of the hard things that are required to improve the business climate.
Every business and every resident would benefit if the District does the things that will make it impossible for Marriott to locate anywhere else.
Why the District government should focus on the reform of its regulatory system is straightforward: as a famous economist recently said, “Regulatory burdens do not exist in isolation. Someone must eventually bear the cost, either through reduced wages, lower profits, or higher prices for every consumer.”
Where to start reform is the simple part. The specifics on how you go about it are not so simple. The underlying goal must be to change the incentives that require regulators to write ever more regulations in order to justify their existence.
The classic quip, “regulators regulate” is classic because it’s true. The job of a regulator is to write rules and enforce them. That’s how they’re paid. That’s how they’re measured. That’s how they’re evaluated.
With the current set of incentives, a regulator must be in perpetual motion — constantly writing new rules and revising/expanding older ones. Constantly looking for new problems that can be solved with a clever rule.
But what if we changed the way regulators are compensated, measured and reviewed?
Another way of looking at the financial crisis is that we had too many regulators at the SEC, the Federal Reserve and the Treasury writing new rules and not enough of them enforcing the rules already written. The mortgage crisis was a massive regulatory failure, but it wasn’t because there weren’t enough rules.
On the contrary, there were too many rules that were so complex as to make them easy for smart lawyers to pervert, evade or exploit.
What if we transitioned some regulatory personnel from promulgating new rules to the enforcement of a radically revised, reshaped and simplified regulatory scheme?
Instead of being compensated for every new rule you write, what if you were compensated for every piece of red tape you cut, the number of rules you reform and how you reduce the costs of compliance without jeopardizing consumer protections.
We hope you’ll read this seminal article on the fatal flaws of hyper-regulation. There is a smart middle-ground between the Wild West and insanely burdensome regulatory overreach. We’ve got to find it fast.