LivingSocial, the online daily deal company, wants its own good deal from the District of Columbia. The Gray administration has proposed giving LivingSocial $32.5 million in tax breaks to keep the company in DC. The deal, which in legislation is known as the “Social E-Commerce Job Creation Tax Incentive Act of 2012,” is now before the DC Council for approval.
The legislation would give LivingSocial up to $17.5 million in corporate income tax breaks over five years and $15 million in property tax breaks over ten years. In exchange, LivingSocial would agree to lease or buy at least 200,000 square feet of office space in the District, hire at least 50 new employees a year and maintain at least 1,000 employees in the District.
So should the District buy this deal?
Yes’if the bill is strengthened so that the transaction is mutually beneficial to both LivingSocial and the residents of DC. Right now, the tax package lacks the safeguards that guarantee the expenditure of all these taxpayer dollars will benefit the District. But the DC Council can strengthen the bill ‘ by guaranteeing job growth and hiring of DC residents, by requiring LivingSocial to stay in DC for the long-term, and by truly being a high-tech catalyst for the city by maintaining its product development headquarters here and by agreeing to create tech-training pipelines for DC residents. These additions will make it a good deal for both the company and DC.
LivingSocial has expanded quickly from an idea among four friends to a DC-based company of 5,000 employees ‘ with over 1,000 of them right here in DC ‘ in just a few years. Yet the company’s core business is volatile and largely untested. The Gray Administration moved in the right direction by structuring the tax incentives down the road to see if the company remains in business and is profitable.
But in order to make this mutually beneficial relationship pay dividends for the District, DC officials should amend the LivingSocial legislation in the following ways:
- Guarantee job growth and hiring of DC residents
As LivingSocial expands, the number of DC resident employees should expand as well. Currently in the legislation, LivingSocial can meet hiring targets simply through turnover. - Require LivingSocial to Provide Good Wages and Benefits
At a minimum, LivingSocial should have to maintain its current level of wages and benefits. - Limit LivingSocial’s Eligibility for Other Subsidy Programs
Because the $32.5 million targeted tax break for Living Social is substantial’it is more than double the cap on subsidies the Gray Administration has proposed for other high-tech firms’the company should not be eligible for additional high-tech tax breaks. - Require LivingSocial to Maintain Its Product Development Headquarters in DC
If the intent of the subsidy is to build a high-technology hub in DC, it needs to be guaranteed that LivingSocial will keep its engineers and developers in the city. - Require LivingSocial to Repay the Subsidy If It Fails to Meet Key Deal Provisions
A clawback provision should be included in the legislation obligating LivingSocial to maintain the terms of the tax break package through fiscal year 2025. - Obligate Any Potential Buyer of LivingSocial to Abide by the Legislation
The legislation should include a clause that would require any future buyer of the LivingSocial to abide by the terms of the deal or pay back the District if it does not uphold the targets set forth in the legislation. - Strengthen Community Benefits
The legislation should include specific benchmarks for each of the commitments LivingSocial will make: hiring students from the Summer Youth Employment Program, developing deals with local DC businesses in distressed corridors, and training DC residents in software development and social media.
LivingSocial says it wants to stay in DC, it wants to grow in DC, and wants to hire DC residents. Unfortunately, the legislation before the Council would give the company $32.5 million without requiring it to promise to follow through on what they plan to do. In order to maximize the city’s benefits and minimize its risks, the legislation should tie the tax breaks to concrete promises and not just hopes.
