DC Downtown Recovery: District Government Hopes Incentives Will Help | Seyfarth Shaw LLP

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[co-author: Susan Ryan]

Foot traffic in downtown DC has yet to recover to February 2020 levels. According to Data from the Downtown Business Improvement District Corporation, released in March 2022, most office workers are still working remotely. March 15, 2022 marked the peak of office occupancy, at 41.56% of pre-pandemic levels; it is a little less now.

The good news for downtown businesses is that the federal government (a big source of foot traffic in the city) is also starting to recall their workforce. The Labor Department, located near Justice Square, has now officially reopened.

Additionally, the district government plans to use certain incentives to stimulate growth in DC. The Bowser administration last month announced the Small and Medium Business Growth Fund — a $5.4 million grant program specifically designed to help small businesses looking to open or expand operations in the district. The fund is accepting applications until Friday, May 27, 2022.

The mayor’s office describes the program This way:

The fund consists of four different categories: retail, local manufacturing, small business investment projects, and technology advancements. Candidates can only apply for one category per application:

Awards up to $50,000 to support capital improvements, major equipment purchases and retail expansion.

Awards up to $100,000 in grants to support capital improvements, purchase of major equipment on designated industrial use commercial property.

Awards up to $600,000 in grants to support innovative projects that elevate the development of struggling and emerging neighborhoods throughout the district.

  • Technological advancement

Awards up to $200,000 in grants to support technology advancements such as automation, AI, machine learning, virtual reality, robotic process automation, augmented reality, and systems and processes that enable businesses to grow.

A tax allowance is also under study, as part of the budget for the 2023 financial year.Inner City Housing Tax Abatements Act 2022(Title II, Subtitle II(E) of the “Budget Support Act for the Fiscal Year 2023 to 2022”) is designed to stimulate residential development in the central business district, where currently only 8% of buildings are dedicated to residential use. For comparison, 72% of the Capitol Riverfront is residential. The theory is that more housing in the area would mean more people and more foot traffic.

the program would provide $2.5 million per year in tax abatements, with an annual increase of 3%. The reductions would begin in fiscal year 2024 and last for 20 years. The total amount of funds available for the program is $70 million. The goal is to bring 800 residential units, with 60 designated as affordable for households earning 8-60% of the median family income.

Another proposal to entice businesses back into the city is an amendment to the Vitality Fund (Title II, Subtitle II(F) of the “Budget Support Law for the 2023 to 2022 financial year”) which would provide subsidies to companies that:

  1. Lease, own, or agree to lease or acquire a physical 7k SF office in the District (CBD preference);
  2. Commit to a lease of at least 5 years and 50% work on site; and
  3. Participate in workforce development OR commit to spending at least 5% of contracts with SBE-eligible companies.

The current program requires a commitment to lease 20,000 square feet of office space, requires a 10-year lease, and requires both workforce development participation and an SBE commitment. The changes would obviously open up the program to more applicants.

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