Downtown DC’s Recovery: the District Government Hopes Incentives Will Help

Foot traffic in the downtown DC area has not yet recovered 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 high water mark for office occupancy, at 41.56% of pre-pandemic levels; it is slightly less currently.

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

Additionally, the District Government anticipates employing certain incentives to push growth in DC. The Bowser administration announced last month the Small Medium Business Growth Fund - a $5.4 million grant program specifically designed to provide a helping hand to small businesses looking to open or expand their operations in the District. The fund is accepting applications now through 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 investments projects, and technology advancements. Applicants can only apply for one category per application:

• • Retail

Awards up to $50K to support capital improvements, purchase of large equipment, and retail expansion.

• • Local Manufacturing

Awards up to $100K grant to support capital improvements, purchase of large equipment on commercial property with a designated industrial use.

• • Small Business Investments Projects

Awards up to $600K grant to support innovative projects that elevate the development of distressed and emerging neighborhoods throughout the District.

• • Technology Advancement

Awards up to $200K grant to support technology advancements such as automation, AI, Machine Learning, VR, Robotic Process Automations, Augmented Reality and systems and processes that allow businesses to scale.

Tax abatement is also under consideration, as part of the FY2023 budget. The “Tax Abatements for Housing In Downtown Act of 2022” (Title II, Subtitle II(E) of the “Fiscal Year 2023 Budget Support Act of 2022”) is designed to spur residential development in the Central Business District, where currently, only 8% of the buildings are devoted to residential use. By way of 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 offer $2.5 million annually in tax abatements, with a 3% annual increase. The abatements would begin in FY2024 and last for 20 years. The total amount of money available for the program is $70 million. The goal is to bring in 800 residential units, with 60 of them designated as affordable to households making 8% - 60% of the median family income.

Another proposal designed to entice businesses back to the city is an amendment to the Vitality Fund (Title II, Subtitle II(F) of the “Fiscal Year 2023 Budget Support Act of 2022”) which would provide grants to businesses that:

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

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