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Leadership, Tax Issues Hamper Growth

Washington has an enviable niche in the competition among cities for money and talent. It will never go out of business.

By D’Vera Cohn
Washington Post Staff Writer

(Thanks to Greg Manter- Director, Eastern Shore of Virginia Economic Development Commission for passing this along.- Russ)

While most cities have to scratch and scheme to attract out-of-town talent, the nation’s capital is among a handful of magnet cities that many brainy young people feel they simply must experience. They come to D.C. to play a role in public policy creation and its implementation, the way they go to New York for the finance industry or the arts, or to Los Angeles for moviemaking.

The giant federal job bank ensures that Washington will not go the way of such cities as Baltimore, whose employment base crumbled when major industries left or declined. And much of the capital’s good life — the modern transit system, acres of green space and renowned museums — is heavily subsidized by Uncle Sam.

"It is one of the few central cities in the United States that is economically necessary," said Edward W. Hill, a professor at Cleveland State University’s Levin College of Urban Affairs. "In Youngstown, Ohio, the economy could move to the exit ramps. Who cares? In D.C., New York, possibly Chicago, it’s in the national interest to keep it alive."

But staying alive, and taking its place with Seattle, Austin and San Francisco on the list of hot U.S. cities propelled by the talent and creativity of their population, are two quite different things.

Urban experts marvel at the natural advantages Washington enjoys in the winner-take-all competition for ambitious and talented young people. But they also describe the city’s potential as in many ways unfulfilled, the result of anemic leadership as well as the unique problems it faces as a federal city.

A magnet for talent since the vast expansion of government in the World War II era, Washington has a higher share of residents with graduate degrees than any other large U.S. city. In fact, there are more D.C. residents with graduate degrees than there are with "only" an undergraduate education. The city’s black, Asian and Latino residents, although less likely than whites to hold college degrees, are more educated than minorities nationwide.

The capital’s main product always has been ideas, be they hatched in government agencies, think tanks or the offices of federal contractors. It has both a resident billionaire and enormous research university wrapped up in one entity, the federal government.

A Census Bureau report released last week documents the District’s attraction to bright young people, but also shows that the city is a revolving door. About 25,000 young single college graduates moved into the city during the late 1990s, but the same number in that demographic group moved out.

Half the married and single young college graduates who left the District during those years went to Maryland, Virginia, California or New York, according to University of Michigan demographer William H. Frey. That shows, he said, that the city loses young people to its own suburbs, but also exchanges them with other creative capitals.

That revolving door might have begun to slow down. A Census survey released over the summer suggested that since 2000 Washington has found ways both to attract and to keep the smart young people that urban experts say are essential to rapid economic growth.

From 2000 to 2002, the city had a net gain of more than 5,000 people in the 25- to-34-year-old age group, a crucial element that had declined over the previous decade. The new numbers also show the city continuing to gain upper-income households and people with graduate degrees.

Younger people are filling up Logan Circle’s Victorian mansions, apartment buildings surrounding up-to-the-minute U Street and converted condos in Columbia Heights. A racially diverse mix of young couples and singles is renovating rowhouses in neighborhoods such as Bloomingdale and LeDroit Park. The eastern edge of downtown is awash with luxury buildings within walking distance of restaurants and stores.

The turnaround coincides with the city’s success in halting what was widely perceived as a meltdown in city services, and its first credible broad-based effort at economic development. It also suggested that the long-term damage done to the city’s reputation during Marion Barry’s last tumultuous years as mayor had finally begun to dissipate.

"The irony [of the city’s comeback] is that it took so long," said Bruce Katz, director of the Center on Urban and Metropolitan Policy at the Brookings Institution. "It’s hard to find a city in a robust region that isn’t doing well."
Competing With Its Suburbs

Although the region has put on a marketing campaign since the mid-1990s to sell the virtues of the Washington area as a whole, the robust suburbs are actually the city’s toughest competition for good jobs and well-heeled residents. The city remains the largest single employment center in the region. But for many years, Washington did little to market itself to prospective employers or differentiate itself from the suburbs.

"There was an assumption that as long as the federal government was here, Washington, D.C., was fine economically," said Marc Weiss, a former city economic development adviser.

Meanwhile, the Northern Virginia and Maryland suburbs were fattening with federal contractors as the government farmed out an increasing share of work. A high-tech belt grew up in Northern Virginia, nurtured by local leadership, on the highways leading from the Pentagon. A cluster of biotechnology firms emerged in Maryland, helped along by state and local officials, near the National Institutes of Health.

Virtually every U.S. city finds itself threatened by surrounding suburbs, but Washington has little political clout with which to do battle against Virginia and Maryland. There is no state legislature where it can exercise its influence the way Baltimore can in Maryland, and it has no voting representation in Congress, which has the final word on the city’s budget and laws.

"We don’t have many champions in Congress," said Dorn C. McGrath Jr., the retired chairman of George Washington University’s geography department. "You need somebody to decide to make the city important, and most members of Congress are not elected to do that."

The federal government can close Pennsylvania Avenue in front of the White House for security reasons, and local Washington is left to deal with the traffic problems. A recent study by the General Accounting Office said that the city’s cost of providing services significantly exceeds its taxing ability, a shortfall of at least $470 million in its $5.6 billion budget. (The GAO also said that the city could save tens of millions of dollars by more efficient governing and that the city’s significant poor population adds to its fiscal burdens.)

The federal government stepped in during the 1990s to establish a financial control board to help the city recover after years of mismanagement. And it assumed some long-standing city liabilities, such as unfunded pensions. But there is little incentive for federal officials to solve the structural fiscal problem, a major cause of which is the District’s inability to tax 500,000 nonresidents who work in the city, or 40 percent of the land within its limits.

Despite the shortcomings caused by the federal presence, federal employees remain the bedrock of the city’s economy.

"Everyone was saying during the tech boom that D.C. was out of date," said Jeffrey R. Henig, a former George Washington University political scientist who teaches at Columbia University. "The story right now shows that the federal government is a more reliable workhorse for the economy."

The number of government jobs in the city has grown in the past three years even as private-sector employment dropped. More than one-fourth of the jobs in the city are with the federal government. Federal employment is forecast to be the second-largest share of new jobs in the city over the coming decade, after service employment. (Regionally, it will be seventh). Federal employment will grow in the region in that time period, even while it declines elsewhere, and the District is forecast to get two-thirds of the area’s new federal jobs, according to recent city employment projections. That is a reversal of past trends, when the city lost more than its share of federal jobs when the government downsized in the 1990s.

At the same time, the nature of federal employment has changed. Fewer lower-level jobs, such as secretary and shipping clerk, are available, and there are more high-level occupations, such as lawyers and administrators.

This fits with the city’s increasingly thought-based economy: Half of Washington’s jobs are in management, professional and related occupations, compared with a third nationally. And the recent city report projected that two-thirds of Washington’s employment growth through 2010 would be in professional or management occupations such as software engineers, lawyers and information systems administrators.

The share of newly created jobs in the city that require a graduate education will be triple the national average and, tellingly, twice the regional average, the report said.
‘Build on Your Strengths’

In the eyes of many experts, the city already has the type of industry network that many areas hunger for. "Build on your strengths is always the best guideline," said regional economist Stephen S. Fuller of George Mason University, "and the District hasn’t done that."

Even now that Washington has begun to market itself to private employers, Fuller said the city does little to sell itself to companies that do business with the government, a growing sector in the region. Nor, he said, does it exert much effort to give technical assistance to help city-based companies grow, as suburban governments do.

In the past, Weiss said, "people thought that real estate development was private development." Washington did little to market itself to prospective employers or to recruit the kinds of businesses that would want to be part of a communications and media hub.

City officials moved fast two years ago when the Freedom Forum made an attractive offer to move the Newseum into the District from Arlington. They made available a prime piece of Pennsylvania Avenue real estate that housed the Department of Employment Services, and accelerated the usual timetable to close the deal in six months. A museum complex that also includes retail space, offices, condominiums and a restaurant is under construction.

A city-private coalition is promoting a neighborhood north of Massachusetts Avenue near North Capitol Street, dubbed "NoMa," as a center of media, technology and the arts. Although there still are patches of weedy vacant land amid the shiny new buildings, a Metro station is coming, as is the new headquarters of the Bureau of Alcohol, Tobacco, Firearms and Explosives. Five years ago, XM Satellite Radio moved into a former warehouse that was renovated into showpiece studios and offices.

The company’s chief executive, Hugh Panero, said he studied other regions and local suburbs when XM was looking to replace its temporary start-up office in Foggy Bottom. Ultimately, he said, he was sold by city tax incentives, a well-educated labor force, the transit system and central location.

Some employees have bought homes in the city so they can be close to work. And Panero, who grew up in New York, was willing to overlook the bullets he found on the roof of his new headquarters building during a scouting visit.

"The [D.C.] Council and mayor helped push this through," he said. "The linchpin of us moving here was the economic development targeted for NoMa."

Rewind to the early 1990s, though, when the city had another willing media company, but lost it for lack of effort. WETA was eager to consolidate its scattered public broadcasting operations into a headquarters building with 250 employees.

The company proposed one site on Seventh Street NW; it was rejected for not meeting a new requirement that downtown developers include downtown housing in their proposals. A second site, near George Washington University, was shot down by neighborhood residents.

Francine Z. Trachtenberg, WETA’s liaison with the city, said top D.C. officials voiced support for the headquarters idea but left it up to the broadcaster to look for sites and navigate government bureaucracy. During the five-year process under two mayors, she recalled, WETA dealt with four directors of economic development. In 1995, WETA gave up and secured a site in Arlington in 29 days.

"I don’t think there was anybody in city government who took a leadership position," Trachtenberg said. "Nobody seemed interested."
New Residents and New Tensions

City leaders also were unable to stem the city’s decades-long loss of population to the suburbs. In this, it resembled many central cities, but trends can change: Atlanta, Chicago and Denver grew again in the 1990s after declining. The District first lost many in the white middle class, then the black middle class and later less well-off African Americans.

Although many left because they preferred a suburban lifestyle, others fled in the 1990s because of a dysfunctional city government and crime-racked streets.

Meanwhile, Washington’s poverty rate rose in the 1990s, a gloomy development that ran counter to national trends for cities. Its 7.2 percent June unemployment rate ranked squarely in the middle of the nation’s 50 largest cities. Persistent poverty is a drag on the city’s ambitions, and experts say one cause has been neglect of economic development in less well-off neighborhoods. Another is that low-skilled jobs have disappeared even as well-paid ones have grown.

The rise of poverty and the gentrification that is pushing longtime residents from newly hip neighborhoods have fueled racial tensions. Many of the new affluent residents in the majority-black city are white.

In another city, these strains would be labeled class issues, said former D.C. planning director James O. Gibson, but "the District of Columbia has such a small white working class that a lot of fissures that are class issues tend to be labeled as race."

But the problem of poorer people being squeezed by rising housing costs, Gibson said, is widely shared among urban centers. "I don’t know that there is a city that provides a model yet for addressing the affordability question," said Gibson, an urban issues consultant.

In trying to expand its population, the District only recently began a serious challenge to local suburban dominance in the housing market. The number of housing units built in the city declined in the 1990s, hitting zero in 1996 before beginning to rise again. Now, 3,000 high-end apartments are going up in downtown alone, according to one analysis.

Mayor Anthony A. Williams has set a goal of adding over the next decade 100,000 people to the city’s population, which was 572,000 in the 2000 Census. He borrowed the idea from Alice Rivlin, the former federal financial control board chairman who is now with the Brookings Institution.

The city is targeting a dozen neighborhoods with goals that include reducing blight, improving local shopping and working with big employers to jump-start revitalization. More than 10,000 housing units are being added in "new neighborhood" projects such as the Southeast Federal Center and Navy Yard.

A marketing campaign with the slogan "city living/dc style!" promotes Washington as a cool place to live, with good nightlife and culture. A housing expo for potential new residents drew thousands of young single people, empty nesters and others last month.

"The city is regaining an identity as a vibrant place in and of itself," city planning director Andrew Altman said.

Washington’s first efforts are aimed at people with children who will not be concerned about the yet-to-be-improved school system. That means single people and couples — gay or straight — without children at home.

Thomas Kim, 28, is the kind of person any city would be happy to have. He set his eyes early on a public policy career in Washington, moving to the area in the 1990s to take degrees from Johns Hopkins and Georgetown. He worked on Capitol Hill and then for the Clinton White House, and after the Democrats were defeated in 2000 he decided to take a chance on entrepreneurship.

He did well enough working out of his home that he began looking for real digs this year. In June, he moved his Web services company, SilverMethod, to an office in downtown Washington .

"This is perfect," he said. "I love being downtown. I don’t have to have meetings in Tysons Corner, where it can get congested. . . . D.C. has so much to offer."

But much as he loves the city, Kim and his wife, a federal government lawyer, draw the line at living there. They hope to have children, but since they believe the city schools are too troubled, they intend to keep their home address in Northern Virginia.

In this respect, he is like many of Washington’s young bright people, who are not artists but class presidents. "They don’t want to live downtown, to create buzz, to eat at Internet cafes," Frey said. "They want to go home and take care of their kids."

Washington possesses some key attributes of a winner city — a walkable downtown, well-rated restaurants and demographic diversity . It has a large and varied nightclub scene, and is a major stop for international disc jockeys and bands. And it remains the center of the region’s after-dark entertainment, drawing people from suburbs where not quite enough is happening. But the city is stuck with an image that is more stodgy than edgy.

"No reason to compare ourselves with New York or Paris," said Robert A. Peck, president of the Greater Washington Board of Trade, the region’s leading business group. "Only a couple of cities have that role in the world. On the other hand, this is a unique place. You can have a real life here."

Peck applauds the city’s recently hatched campaign to advertise eclectic neighborhoods such as Adams Morgan and U Street, which he hopes will get "people thinking of D.C. as a real city." But he concedes that his own Board of Trade Web site touts the region’s stable economy and brainy workforce before mentioning its museums. (The board did recently announce an initiative to build awareness of the area’s arts institutions by encouraging employers to take workers to a play, concert or other cultural event.)

"It’s kind of a fun city," he said, "but that’s not the way we play it up."

He tosses out a few notions for making it even better that may sound counter to what workaholic Washington is all about. One reason to bring a Major League baseball team to the city is so people can blow off work at 5 o’clock and go to a game.

Washington is in the top rank of American cities in its college student population, but Peck said it treats universities as "alien invaders" and neighborhood nuisances. Instead of putting limits on their enrollment and employment, city officials should welcome as many students as they can get, because young people bring life to the streets, he said.

Perhaps, Peck said, those same officials should tell people who move into condos next door to nightclubs to be more tolerant of loud music, because noise is part of the package of city life.

The city government may not be ready for this kind of thinking. And though urban experts say Washington is trying harder to attract new businesses, revive tattered neighborhoods and encourage a dynamic downtown, it still is a work in progress.

It is not a sure thing that Washington can persuade a critical mass of new companies and new residents to invest in its future, or persuade reluctant federal lawmakers from other places to lend a hand. Washington has shed its reputation as a troubled city, but has not yet grown a new one.

© 2003 The Washington Post Company

http://www.washingtonpost.com/ac2/wp-dyn/A20331-2003Nov9?language=printer

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