Three Years In, A Look At D.C.’S Sector-Based Economic Development Strategy

Written by Amanda Maher

In 2012, Washington, D.C. decided it was time to give up its ad hoc approach to economic development. Under the leadership of then-Mayor Vincent C. Gray, the city released the Five-Year Economic Development Strategy for the District of Columbia. For the first time in the District’s history, the roadmap offered a sector-based approach to economic development.

The plan highlights six key visions: (1) Create the most business-friendly economy in the nation; (2) Grow the largest technology center on the East Coast; (3) Be the nation’s destination of choice; (4) End retail leakage; (5) Develop a best-in-class global medical center; and (6) Become the top North American destination for foreign investors, businesses and tourists.

Each of the six transformative visions is tied to a number of specific initiatives. Of the visions, at least three are decidedly sector-focused, with an emphasis on growing the District’s tech, retail and medical sectors.

Three years and a new Mayor later, we look at the progress that has been made in growing these sectors.

Technology

In 2013, the District invested $380,000 in a new co-working and incubator space, 1776. The following year, the city launched “Digital DC,” a broad-based effort to grow the tech cluster, which included the establishment of a designated tech corridor and a city-sponsored venture fund that invests between $25,000 and $200,000 in District-based startups – without requiring an equity stake. Some have criticized the tech corridor for boundaries that exclude many of the District’s existing incubators, accelerators, co-working locations and seed or venture capital funds – especially because companies must be located in the tech corridor to be eligible for Digital DC’s venture funding. Still, the establishment of an innovation district may help to create the “bump factor” that many startup companies look for when choosing where to locate.

Another bold move was lowering the capital gains tax rate for technology businesses. In the final days of his administration, Mayor Gray signed legislation that lowered the rate from 8.95 percent to 3 percent for tech-related companies as an incentive to encourage businesses to locate and grow within the District.

Though the District’s 5-year economic development strategy called for the transformation of St. Elizabeths East, a city-owned parcel, into an innovation hub, efforts on this end have been slower. Aside from the opening of the R.I.S.E. demonstration center, an $8.3 million community and tech center, the campus has been slow to see investment. Microsoft has pledged to open an Innovation Centerthere, but because of procurement issues, its opening is delayed until at least 2017.

Just days before leaving office, Mayor Gray selected a master developer to lead the redevelopment of the 1.6 million square foot St. Elizabeth’s site. This fall, the master developer released its vision for Phase I of the redevelopment, which focused development on just 15 of the site’s 183 acres.

Retail

Since the plan was released, city officials have aggressively promoted D.C. as a place for retail growth. As a result, the District’s retail sector has exploded. A surge in new restaurants, bars, movie theaters, gyms and big box stores has contributed to tremendous retail job growth. For example, the region netted 6,300 jobs in retail between Q2 2014 and Q2 2015, growth nearly double that of the same period the previous year. In D.C. alone, retail jobs increased by 5.7 percent in early 2015.

Despite these successes, the District is still heavily focused on attracting more retail. The challenge now, though, is bringing retail to underserved neighborhoods.

“Our organization has pivoted, shifted into emerging neighborhoods,” says Keith Sellars, president and chief executive of the Washington D.C. Economic Partnership. “We still focus on the entire city but we want to make sure people are aware of opportunities in emerging neighborhoods.” Emerging, no doubt, includes D.C.’s inner city neighborhoods—an opportunity often overlooked.

Medical

One of the highest profile projects named in the 2012 economic development strategy was the transformation of the former McMillan Reservoir into a medical hub “rivaling the impact of the hospital cluster in Houston.” Doing so would support an additional 5,000 new jobs over the five-year plan period.

Redevelopment of the 25-acre former sand filtration site has proven difficult.Neighborhood residents are divided over the project, and opponents have appealed zoning and historic preservation approvals, hoping to reclaim the land for open space.

Vision McMillan Partners (VMP), the joint venture selected to lead the reservoir’s redevelopment, has proposed more than 1 million square feet of office space, most of which would be used for medical offices. Another 925,000 square feet of residential and 125,000 square feet of retail are planned. Yet to date, the project remains in the negotiation stage.

Just this month, one of the VMP partners earned initial approval from the Zoning Commission to build a seven-story mixed-use building on the McMillan site. The approval includes 236 apartments and retail space.

None of the medical space VMP envisioned appears to be in the pipeline just yet.

Moving Forward

One of the challenges of multi-year economic development plans is their comprehensiveness. While some of these initiatives have seen early success, others may take longer to come to fruition.

Another challenge is that multi-year strategies often straddle administrations. In the coming weeks, the District’s new mayor is expected to give a State of the District speech in which she will likely shed light on what her focus will be in the coming year and whether the plan will emphasize the growth of specific clusters.