In DC, it’s a closed-arm approach to business that prevails
By Cheryl K. Chumley

(A version of this On Point Memo appeared in the February 10th, 2009 edition of the DC Examiner)

In December, the Small Business & Entrepreneurship Council released its latest rankings of the best and worst places in America to locate and grow a business, based on 34 different government-related factors.

The Small Business Survival Index of 2008 considered everything from personal, sales, corporate and capital gains tax rates to health care mandates, electricity costs, crime statistics and property rights. Dead last in this study of 50 states plus the District of Columbia was the nation’s capital.

But this can come hardly as a shock. The District has held that No. 51 slot in this annual study since the mid-1990s -- and what’s even more dismal is an asterick notation on the ranking page that the city was not included in the comparative analysis of eminent domain, highway expenditures and state liabilities, so its “last place score actually should be even worse.”

That’s pretty bad news for business when a government is found to be so intrusive and regulatory that it merits, in effect, the creation of a new category of last-place. But as chief economist and report author Raymond Keating finds: “While most politicians rhetorically embrace entrepreneurship and small business, the public policies they support too frequently raise costs, create uncertainty and diminish incentives for starting up, investing in and building a business.”

So what’s going on with DC? According to Keating and the SBE Council, “the negatives for the city are many.” They include high corporate taxes, high capital gains taxes, high electricity costs, high crime – the list goes on, and it’s basically a voice of doom for any business upstart considering location within the nation’s capital. But it’s not as if others haven’t raised the same issues and brought forth the same concerns.

As far back as 1997, Congress had tasked the District’s Financial Responsibility and Management Assistance Authority to analyze “the extent to which such regulations unnecessarily and inappropriately impair economic development in the District,” and report its findings to the Mayor, the City Council and the federal government, according to the text of the 1998 appropriations bill for DC. And as recently as October, 2008, the Business Regulatory Reform Commission – a 12-member body of public officials who represent the wishes of the business community to the city powers-that-be – was researching the same. It ultimately presented a 10-page list of recommendations for easing the burdensome regulatory atmosphere in the District.

Some of the commission’s suggestions were common-sense: “Do not postpone previously scheduled cases to facilitate Board of Zoning Appeals-expedited hearings,” for example. After all, what’s the logic in expediting a hearing only to postpone it?

Some would result in quick and substantial revenues. Creating, for example, a “General Business License” classification for the estimated 10,000 businesses in the District that are not currently categorized “could generate approximately $2 million revenue,” read another.

And some could go far toward promoting an atmosphere of good will between DC government and those of entrepreneurial mind with a welcome mat provision that allows the use of “self-certification programs … to modify the burden of regulation with respect to as many businesses as possible,” a third suggestion reads.

The point is this: In the 1990s, the District’s government had a reputation as problematic and overly bureaucratic to business. More than a decade later, that reputation hasn’t changed – even while other states have managed to improve.

“New Mexico used to rank very poorly,” Keating wrote, in a summary of his 2008 report. “This year, it ranks 29th. That improvement mainly came from a dramatic reduction in personal income and individual capital gains taxes … Ohio also used to rank quite poor, but now comes in at 18. Part of the reason was a big rollback in tax rates.”

But in DC, it’s the status quo.

Here’s another mark of times that aren’t a-changing in the District: Spending. Once again, the District’s government has topped the list of per capita spending, according to 2006 Census Bureau statistics, the latest period for which these numbers are available. The average per person outlay nationwide for that fiscal year was $8,433; in the District, it was $17,286, the Census Bureau reports. Moreover, DC didn’t surpass the next state-in-line by just a few dollars but rather by $1,000-plus. Alaska – known equally as well for its polar bears as for its pork barrel ways -- was the second to spend the highest per person, at $16,020.

With so much spending, it should seem natural that the District’s government might want to adopt policies that welcome rather than stall or prevent economic development. As the Competitive Enterprise Institute’s Clyde Wayne Crews reports in his annual policy study, Ten Thousand Commandments, “regulations should be accounted for like federal spending.”

A system of government that taxes the highest, regulates the most, yet spends freely on the social welfare of each citizen cannot sustain itself without steady streams of revenue, the most profitable of which stems from business. The District, in its current bureaucratic and regulatory state, is either on a path to crumble and implode or -- and this is the more likely scenario to occur -- require the influx of even greater amount of federal tax dollars to survive.

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Cheryl Chumley, a journalism fellow with The Phillips Foundation, is also on the board of scholars for DC Progress. 

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