Gray defends vision of D.C. tech hub

In the face of steep federal spending cuts, D.C. Mayor Vincent C. Gray on Monday called on city lawmakers to pass a tax incentives bill for tech companies to diversify the nongovernment economy in the nation’s capital and keep 21st-century innovators from fleeing the city with their coveted jobs.

Mr. Gray, a Democrat, struck a defiant tone in defending his vision of the District as a potential tech hub that builds on the success of companies such as daily-deal-giver LivingSocial. He said tax incentives for the businesses — and the wealthy investors who underwrite their startup costs — are essential in the competitive jobs market and to shirk the District’s reputation as a jurisdiction that is propped up by the federal government.

Plans to drastically reduce federal spending as of January, known as sequestration, will cut into local incomes and contracting businesses that rely on the federal government, making the push for financial independence all the more urgent, he said.

Yet organizations such as the D.C. Fiscal Policy Institute say the tax cuts place wealthy investors’ portfolios over city residents who rely on tax revenues for public programs. The 3 percent tax rate for investors, it said, is “lower than tax rates paid by working District residents.”

“These cuts will lead to fewer resources for education, health care, and other necessary services, and there is no evidence that such tax breaks provide any economic benefit,” the group said.

D.C. Council Chairman Phil Mendelson, a Democrat, said he is “still looking at issues on both sides,” but the section of the bill that reduces taxes for investors may become problematic when the bill hits the dais for a vote during the council’s legislative meeting Wednesday.

Mr. Gray said opponents of the bill are missing the point — either offer tax cuts to tech-based entrepreneurs and investors, or get nothing while these companies flee across the Potomac to Virginia or the opposite coast in Silicon Valley. He said individual investors, and not banks or other financial backers, are the lifeblood of tech companies.

“You’ve got to put money on the table to make money,” he said Monday at a press event designed to correct “misinformation” about the proposal.

The mayor made his pitch at Fortify, a tech business incubator — they prefer the term “tech accelerator” — on K Street, where visitors step off the elevator into blue light more easily associated with a nightclub than an office. Inside, young people in jeans and T-shirts pursue their high-tech visions in cubicle space and conference rooms referred to as “mentor pods.”

Mr. Gray’s bill, the Technology Sector Enhancement Act of 2012, would provide tax exemptions of up to $15 million over five years for qualified high-tech companies that set up shop within the District. It would also reduce the tax on capital gain from the sale of stock in a high-tech company to 3 percent if the investor has held the share for at least 24 months.

The bill is the second part of a legislative package aimed at attracting and retaining tech-sector businesses. City lawmakers passed an earlier bill, the Social E-Commerce Job Creation Tax Incentive Act of 2012, unanimously in July with the aim of providing the city’s “flagship” tech company, LivingSocial, with more than $30 million in tax breaks as long as it stays in the District and hires city residents.

In his State of the District address in February, Mr. Gray mentioned businesses such as Fortify and LivingSocial in calling for a tech hub in the District that serves as a rival to Silicon Valley. He pointed to land at the St. Elizabeths campus in Ward 8 as an ideal location for such a hub and said the “new economy for the District of Columbia must be far less reliant on the federal government.”

Mr. Gray declined to mention the Fiscal Policy Institute by name in his public remarks Monday, but whispers in the audience made it clear to anyone who did not know his target.

“I support the bill 100 percent,” council member Jack Evans, Ward 2 Democrat and chairman of the Committee on Finance and Revenue, said.

Mr. Evans, however, said it might be advisable to remove the controversial section on lowering the capital gains tax on stock sales to 3 percent. Instead, he said, the city could let the D.C. Tax Revision Commission, led by former Mayor Anthony A. Williams, take a close look at the proposal and make its recommendations.

The mayor rejected the idea, asking, “How much analysis does it take on this one?”

Yet Mr. Mendelson said up to six of his colleagues may not support the bill because of the investor provision and reiterated that the council has already supported tech incentives.

“I’m mystified,” he said of the latest bill, “because we already did that.”