Businesses have become reluctant to invest in the nation’s capital as their tax and regulatory concerns have grown since the COVID-19 pandemic, according to a survey released Monday.
The nonpartisan D.C. Policy Center surveyed 411 established D.C.-area businesses in April. Among them, 58% described tax rates as “somewhat” or “much” more important to their investing decisions than pre-pandemic, while 54% said the same of the city’s regulatory climate.
The survey also found that 45% of businesses were either “unlikely” or “very unlikely” to invest in the metro area over the next six months as recently passed tax hikes start kicking in. Another 28% said they were “unsure” and only 27% said they planned to invest.
“D.C. policymakers think they can keep raising taxes without consequences, but there’s a point where that no longer holds true,” Yesim Sayin, executive director of the D.C. Policy Center, told The Washington Times. “Interest in investing in D.C. is now down from before the pandemic because of the property taxes.”
The think tank said small businesses that were at least 10 years old made up a substantial portion of the survey sample, which represented about 1% of the city’s 41,000 registered corporate entities.
The findings come as D.C. lawmakers have passed tax hikes to offset an unprecedented $700 million budget deficit in fiscal year 2025, which starts Oct. 1.
City officials have blamed the shortfall on fewer people shopping, dining or working downtown on weekdays as telework keeps former commuters home in Virginia and Maryland.
Other problems include pandemic relief funding drying up this year, crime-plagued retailers pulling out of depopulated streets, plunging commercial real estate values, mass transit ridership declining and struggling restaurants closing.
In a June 12 legislative meeting, the D.C. Council unanimously approved a $21 billion fiscal 2025 budget that will raise revenues by hiking the sales tax, the property tax rate on most homes worth over $2.5 million and utility taxes for residents and businesses.
The budget rejects billions of dollars in cuts to the social safety net and school programs that Mayor Muriel Bowser, a Democrat, proposed earlier this year.
“The budget the mayor proposed was criticized as less about shared sacrifice and more about cutting programs that help the last, the lost and the least,” council Chairman Phil Mendelson, at-large Democrat, said at the meeting . “The council, collectively, has reworked this and our budget resets the District on the path to fight poverty and promote social justice.”
The mayor warned that city lawmakers ignored that the District is now spending more money than it is making.
“Without a dramatic change in our revenue growth, many of the programs the Council is championing this year will be on the chopping block in a few short months,” Ms. Bowser said in a letter to Mr. Mendelson before the vote, according to WTOP.
According to the D.C. Policy Center, the District must do more to support local businesses if lawmakers want to overcome the deficit.
In a summary of the findings released Monday, the center urged city officials to limit unnecessary or duplicate business regulations. It also recommended increased investments in city services to clean up commercial corridors.
At least 7 in 10 local businesses participating in the survey said they considered walkability, the absence of blight or vacancy and quality roads and sidewalks to be “somewhat” or “very” important to their choice of locations.
Ms. Sayin said tax hikes alone will not erase the District’s budget deficit. In a phone call, she pointed out that the city must spend $2.3 billion from its reserves over the next four years to cover the council’s spending commitments.
“This is not sustainable,” Ms. Sayin added. “We’re seeing that increasing taxes in this risky economic environment is not going to attract new workers, businesses or people to the city.”
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