Government: 'Gotcha!' DC Ranked Worst Place for Small Business in 2010

At Capitol Hill Bikes in Washington, D.C., store-owner Denise D’Amour, 56, wanted her customers to be able to fuel up with healthy snacks like energy bars while perusing the shop. When D’Amour was slapped with a $2,000 fine from the city for selling food items without an official food license, she said she was disappointed, but not surprised.

“It seems the city has a ‘Gotcha’ mentality, instead of trying to help small businesses,” D’Amour said. “Had I known, if they had come to me and told me, that would have been one thing. It’s been the biggest challenge for me.”

The frustrations D’Amour feels as a small business owner are echoed in  this year’s Small Business & Entrepreneurship Council’s “Small Business Survival Index 2010,” which ranked the District of Columbia as the least-friendly policy environment for entrepreneurs to launch their businesses. The index ranks locations by measuring their costs and burdens of government on small businesses, as well as policies that either enable or deter growth. The factors included in the index are: taxes, regulatory costs, government spending, property rights, health-care policies and energy costs, among others. The council also throughout the year releases a Health Care Policy Cost Index, Business Tax Index and Energy Cost Index, all of which spin off of the Survival Index.

Much of the activity that has occurred at the state level affecting D.C. small businesses and their owners in 2010 has not been in their favor, according to Raymond Keating, the SBE Council’s chief economist and study author.

“The policies were just not pro-small business,” Keating said. “State legislatures raised taxes to deal with their debt… so much happened at the state level, and unfortunately most of it was negative.”

Although the nation's capital city is not technically a state, Keating said it functions effectively as both a state and local government.

"That makes it different from other cities, and more like the states," he said.

It was not included in the studies on state tort costs, eminent domain legislation and highway cost efficiency, so its score and last place ranking could have been even lower. It was the only city included in the study.

To open up her business in D.C., D’Amour said she made more than ten trips to the permitting agency to obtain a certificate of occupancy. Finally, she said was granted her permit after tireless persistence.

“Someone had mercy on me,” D’Amour said. “They were playing hide the ball, and not trying to help. It strikes me as a systemic feeling in the government of the District that business is not good, or that the owners are trying to get away with something.”

SBE Council’s Keating said Washington, D.C. does nearly everything wrong, in terms of incentivizing small business owners. With taxes on everything from personal income to capital gains, he said its ranking as worst location to open up shop is rightly deserved.

“They put an added tax on S-corporations, the crime rate is very high, minimum wage is higher than the federal minimum wage,” Keating said. “They have the highest level of state and government spending. It is just so different from South Dakota,” which ranked no. 1 in the Index this year.

Those looking to create a new business in the D.C-area should seek the help of a permit expediter, D’Amour said, to guide them through the process of starting up.

“They have permit expediters, and now I know why,” she said. “The permitting process is fraught.”

When the recession kicked in, D’Amour said she went from grossing nearly $2 million for the year in 2007, to her annual gross today of $1 million. She first started her business in 2000. She said during the recession she cut her workforce in half, from 20 to 10 employees, though she said some cuts were due to seasonal changes.

But specialty-shop business owners in the city can have some advantages to their locale, D’Amour said. While the recession did affect her high-end bike sales; the market here for the sometimes-seasonal product bounced back quickly once the economy stabilized.

“Owning a bike shop in D.C., it’s pretty much a year-round trade,” she said. “That is a huge advantage to being in this area—we don’t feel the ups and downs that a lot of other communities do.”