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In Columbia Heights, a Hope for Help

To Some Business Owners, D.C. Economic Plan's Tax Breaks Could Make a Big Difference

Behind the counter at the Chat & Chew Restaurant she owns on 14th Street NW, Grace Breedlove is in perpetual motion, serving sandwiches, ringing up sales and garnishing her service with a few kind words.

A seven-days-a-week proprietor, she says she could use some help from the D.C. economic plan approved by congressional negotiators this week. And she, along with other residents and small businesses in the District's struggling Columbia Heights section, may get it.

A package of tax breaks for home buyers, businesses and investors in lower-income D.C. neighborhoods like Columbia Heights could be worth $1.16 billion over 10 years, or about $100 million a year, said Martin Sullivan, an economist with Tax Analysts of Arlington, citing congressional estimates. That's not much for a $34 billion D.C. economy, but it could be a big deal to individual businesses and home buyers, he said.

For example, the plan would give Breedlove and similar proprietors a federal tax credit of as much as $3,000 annually for each D.C. resident they hire from a lower-income part of the city.

"Everything I've made has been put right back into my business," said Breedlove, a tenant in the two-year-old Nehemiah shopping center on 14th Street, a bootstrap economic development effort by community groups in Columbia Heights.

"It's been very difficult. Tax cuts would help," she said. "That would give me greater incentives to hire more employees."

Other business owners are similarly hopeful that the plan will pump some income into their enterprises and neighborhood.

Middle-income home buyers would receive a $5,000 tax break for first-home purchases in the District. This provision takes effect as soon as President Clinton signs the bill and lasts until 2001, administration officials said.

That should be a plus for developers of a cluster of condominiums being planned next to the Nehemiah shopping plaza. They hope to begin construction this fall on the units, priced at $125,000 to $145,000, which would be built atop ground-floor retail space.

"Our ability to attract and hold middle-income families is really important ," said Robert L. Moore, president of the Community Development Corp. of Columbia Heights, which is sponsoring the project. Just 20 percent of the neighborhood's residents are homeowners, according to census data.

The third potentially important benefit is a feature wiping out the federal capital gains tax on new business investment in selected lower-income areas, which would include Columbia Heights, administration officials said.

It would have helped Joseph Pearson and Henry Gibson, who two years ago headed a venture that raised more than $30,000 from Columbia Heights residents, selling shares at $100 each to open a laundromat in the Nehemiah plaza.

"We used to sit on the porch on Belmont Street, watching people carrying the laundry bags up and down the street," said Pearson, 50, who has lived in the neighborhood nearly half his life. "Gibson got the idea of a laundromat."

The laundromat, Big Wash Inc., is doing well, Pearson said, and has paid several dividends to investors.

Under the D.C. plan, new investments in stock, partnerships or equipment made after Jan. 1, 1998, and held for at least five years could be sold with no capital gains tax liability. That would have made the original investments and subsequent financing for Big Wash more attractive.

Mossadaq Farhan, a District businessman who plans to open a convenience grocery store, Shop Express, in the Nehemiah plaza in September, said he had already planned on investing in Columbia Heights, but that tax incentives might encourage him to look for more opportunities to invest in the District, especially in "underserved areas" often abandoned by larger retailers.

Columbia Heights' woes make it eligible for the special features of the D.C. plan, which places large parts of the District under the federal Enterprise Zone program, qualifying residents and businesses for tax assistance, according to administration and congressional accounts of the plan.

A neighborhood of 22,800 residents tucked between Meridian Hill on 16th Street and Howard University in Northwest Washington, Columbia Heights has an average household income of just half that of the District's overall average.

In most of the neighborhood's census tracts, more than 20 percent of the residents have incomes below the federal poverty level, a key factor in qualifying for the assistance. The tax credit for hiring D.C. workers is available in census tracts with a 20 percent poverty level while the capital gains tax break applies in tracts with a 10 percent poverty level, based on the 1990 federal census.

About one-third of the District's census tracts would qualify under the 20 percent poverty standard and two-thirds meet the lower, 10 percent, poverty test.

Columbia Heights' special burden has been a two-year-long construction project to extend Metro's subway system up 14th Street. It has turned the neighborhood into a no-man's land of deep trenches running down streets and wired enclosures blocking sidewalks, infuriating area business owners.

Dust from the project smothered the roses and carnations that Gail Oliver had displayed outside her flower and gift shop in Columbia Heights. Some businesses, like a delicatessen owned by Oliver next door to her flower shop, went out of business. Others, such as Sahr Bockai's pharmacy, are struggling to stay open.

Although some streets have reopened, it will be another year before the Metro line is completed. But community leaders and business owners hope the tax provisions will help attract large retailers and businesses to the city-owned sites next to the Metro.

But tax incentives are just one part of the mix of issues businesses face in deciding whether to locate or expand in the District's at-risk neighborhoods, merchants note.

Some say they have banged heads for years against District officials whose indifference or opposition to permit requests and other regulatory issues created an anti-business climate.

The legislation seeks to improve government-business relations by directing the D.C. financial control board to eliminate regulations it finds to be "anti-competitive, anti-business or unnecessarily complicated."

But any regulatory changes will come too late for Cornell Brace, who owned and operated the Tivoli beauty salon on 14th Street for 35 years. Metro construction -- compounded by what he calls the indifference of city officials -- killed his business, he said. "It was a horrible situation. I had to refinance some property to stay afloat."

Earlier this year, he moved his beauty salon to the Langley Park Shopping Center in Prince George's County.

Brace, who still lives in Southeast, said he has no plans to reopen his beauty salon in the District, even after the subway stop is completed.

"I just don't have a taste for doing business in the city anymore."

It has been about a year and a half since Oliver had to throw away the dust-encrusted bouquets outside her shop, and she looks forward to the day the air clears enough for her to display flowers outside again.

And just maybe, the tax plan would help, she said. "I don't see how it can be bad."

HELP ON THE WAY

Effective dates for provisions of the federal economic aid plan for the District:

Tax credit for employers in lower-income areas: Jan. 1, 1998, through Dec. 31, 2002.

Tax credit for middle-income first-time home buyers: Date of enactment through Jan. 1, 2001.

Capital gains tax break for businesses operating in lower-income areas: Assets acquired after Dec. 31, 1997, and before Jan. 1, 2007.

SOURCE: Treasury Department

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