DC Council Testimony on Bill 24-301, the “Business and Entrepreneurship Support to Thrive (BEST) Act of 2021”

0

My name is Yesim Sayin Taylor, and I am the Executive Director of the DC Policy Center, an independent, nonpartisan think tank that offers policies for a strong, competitive, and vibrant economy in the District of Columbia.

Bill 24-301 will greatly simplify the steps businesses will need to take to obtain the necessary licenses to operate a business in the District of Columbia. This reform is essential. According to the district’s Department of Consumer and Regulatory Affairs, there are 11 broad categories of business licenses with 65 different subcategories of business licenses, in addition to a separate category of regulated businesses.[1] But that image doesn’t reflect all of the requirements built into the official DC code or the city’s bylaws. There are many other categories still on the books, with less than 20 licensees, which could be reinstated at any time.[2]

There are costs to this complicated system with no discernible public benefit.

Compared to surrounding jurisdictions, a small portion of commercial applications turn into real businesses within a year.

Data from the U.S. Census Bureau shows that while business apps in DC have grown during the pandemic, only about 4.4% of those apps are growing into real paid businesses in four quarters. This share is much higher in surrounding jurisdictions: for example, in Virginia, more than 7% of business candidates can turn into real businesses within a year, and in Maryland, this share is more than 5% (see figure 1 in appendix).

Importantly, in Virginia and Maryland, even more entrepreneurs are able to turn their apps into real businesses within two years: 10% of all apps turn into real businesses within two years in Virginia and 8% in Maryland – in both cases, greater than the one-year share. In contrast, the two-year business start-to-apply rate is lower than the one-year rate in DC (2.5%), suggesting that a significant number of new businesses close within a few quarters of opening. .[3]

Business thrives in the absence of a regulatory thicket.

Although there are many reasons why commercial applications do not turn into real paid businesses, the inability to understand the system and the inability to pay the costs are certainly among the important factors that affect the ability entrepreneurs to start a business. Research shows that business creation is stronger in places where the administrative process to start a business is the easiest.[4] By simplifying the licensing process and reducing the costs of licensing applications, Bill 24-301 will go a long way to breaking down barriers to starting businesses in DC.

There are other barriers to starting a business that the Council can remove.

In addition to enacting the provisions of Bill 24-301, the Council should consider other reforms that could further streamline the application process for businesses and remove barriers.

First, the Council could consider a system where a one-year temporary basic business license is automatically issued when someone registers a business. This will allow the applicant to start implementing their business plan without having to bother with heavy licensing requirements.

Second, the Council should consider raising the Clean Hands test limit from $100 to a much higher level. The city requires business license applicants to sign an affidavit (known as Clean Hands) stating that they do not hold more than $100 in fines, fees, or arrears to the city. In practice, the city does not check claims against amounts owed to the city (other than taxes). But the requirement to sign such a declaration could deter residents who hold more than $100 in traffic fines, court costs, environmental fines or other charges. These charges hit low-income residents and residents of color more heavily, and the threat of clean hands is more likely to deter businesses of color from applying for a business license.[5] There is already legislation being considered by the Council that would increase the clean hands threshold to $5,000.[6] We encourage the Council to adopt this legislative proposal.

Third, the district should double its investments in information infrastructure across the city. By far, online retail is the fastest growing component of new businesses and new business applications. On this front, the pandemic has acted as a leveler, as it has reduced retail’s reliance on access to high-value storefronts. The success of these remote businesses depends on access to reliable, high-capacity internet access, and we watched how the digital divide amplified racial inequalities as schools moved to online learning in the spring of 2020.[7] Making high-quality, high-capacity Internet available for free or at low cost to every district resident who otherwise would not be able to pay for such access can greatly help start-up businesses, especially in poorer neighborhoods. less endowed in the city.

Fourth, the district should find other means of support to transform online businesses into physical businesses. With the increase in vacancies in the city’s main employment centers, there is an opportunity to provide cheaper office and commercial space to a more diverse set of businesses. The district could offer incentives to new businesses to take up space in vacant office buildings or encourage landlords to provide such space. This could be in the form of rent subsidies, tax incentives, or even a program whereby the city contributes a portion of the rent to startups that commit to staying in the city.

The economic future of the District of Columbia depends on the return of strong demand for urban amenities. Increased entrepreneurial activity combined with the need to fill empty office buildings provides the District with a unique opportunity to create economic dynamism with a more diverse business base. The district can either ride this current entrepreneurial wave by removing its restrictive regulatory regimes, or watch it crumble as more residents find it harder to survive in the city.

Annex figure

Endnotes

[1] Information collected from DCRA’s website, available at https://dcra.dc.gov/service/get-business-license.

[2] Evidence from Brook Fallon, Institute of Justice, presented at the DCRA Oversight Hearing held by the Committee of the Whole on February 6, 2019. Available at http://district.works/wp-content/uploads/2019/02/IJ-Testimony-Appendices-for-COW-DCRA-Hearing-2.6.19-Final.pdf.

[3] The numbers here compare business creation to business applications for the previous eight quarters, presented as a 12-month moving average.

[4] See, for example, Simeon Djankov and Eva (Yiwen) Zhang, Startups boom in the United States during COVID-19, Peterson Institute for International Economics, accessed 7 February 2021. Available at https://www.piie.com/blogs/realtime-economic-issues-watch/startups-boom-united-states-during-covid-19.

[5] Zickuhr, Kathryn (2019). Applying a Racial Equity Lens to Fines and Fees in the District of Columbia, DC Policy Center. Available at https://www.dcpolicycenter.org/publications/racial-equity-fines-fees/

[6] B24-0237 – Clean Hands Certification Equity Amendment Act of 2021, submitted by Council Member McDuffie on May 3, 2021.

[7] DC Policy Center (2021) State of DC Schools 2019-20, available at https://www.dcpolicycenter.org/publications/state-of-dc-schools-19-20/

Share.

Comments are closed.