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How Alexandria Stole the National Science Foundation from Arlington

Financial incentives are increasingly being used to attract federal agencies.

Courtesy of Alexandria City Government

Standing outside the National Science Foundation in the heart of Ballston, it's easy to see why Arlington and Alexandria have been fighting over the federal agency. Thousands and thousands of high-income workers stream out into the neighborhood for lunch, boosting the local economy and attracting national prestige. On one recent sunny afternoon, the talk on the sidewalk was about how the foundation will be leaving Arlington and headed to Alexandria.

"I'm personally disappointed," said Dale Bell, deputy director of the Division of Institution and Award Support. "I live in Maryland, so it's going to add at least another 30 minutes on my trip, which is unfortunate."

Although Bell is disappointed, officials at Alexandria City Hall are overjoyed at landing the government agency. They were able to seal the deal by offering a lower tax rate, projected to provide a $23 million tax break to the property owner over the 15-year lease. City leaders say the foundation's move will bring $50 million in new tax revenue to the city, even after the incentive. But here on the sidewalk outside Ballston, many people are skeptical.

"I'm torn about that whole tax credit thing because it's just pitting jurisdictions against each other, and they are losing money ostensibly to make it up later and that's not always the case," said Jordan Engel, who was on his way to lunch. "Of course there's a little bit of Peter to pay Paul because they are losing money here, and you can't prove that people wouldn't move if there weren't that kind of incentive game going on."

LOCAL GOVERNMENTS have a long history of offering tax incentives to private companies for years in an effort to attract major corporations or factories to set up shop and boost local economies. But recent years have seen a new trend in the Metropolitan Washington area — jurisdictions have started offering tax breaks and a host of economic incentives for government agencies. Leaders at Alexandria say they are not the first to offer such incentives, and they certainly won't be the last.

"Increasingly we are seeing people realize that their office buildings and their development plans aren't going to automatically happen if they just sit and wait for growth of the federal government to arrive," said Deputy City Manager Mark Jinks. "If we are going to grow, the new normal is looking at how we do economic development differently."

Rockville, Md., offered $40 million in tax abatement to the Department of Health and Human Services to win out in a competition against Prince George's County. Then there was the $10 million in state funds put up to make sure the Defense Advance Research Project Administration, known as DARPA, stayed in Arlington. And municipal governments across the region are offering all kinds of incentives to land the new headquarters for the Federal Bureau of Investigation. Arlington officials say they can't say what kind of incentives — if any — the county offered to the National Science Foundation because it was part of the negotiation.

"Arlington still truly believes that keeping NSF in Ballston is the best choice for the agency," said Cara O'Donnell, public relations manager at Arlington Economic Development, in an emailed response to questions. "Not only is a stay-in-place option the highest value and lowest cost option, but NSF’s status as the hub of Ballston’s science and technology cluster is vital to the mission of that agency, as well as the missions of neighboring agencies, private businesses, and the universities who chose the area specifically because of collaboration efforts with NSF."

ARLINGTON LEADERS are hoping to derail the move and persuade federal authorities to "continue negotiations." After the General Services Administration announced the move, Arlington County Manager Barbara Donnellan sent a letter to Dan Tangherlini, acting administrator of the General Services Administration, arguing that Arlington is a "scientific center of excellence." Perhaps more to the point, however, she made the case staying on Wilson Boulevard would be the best deal for taxpayers.

"The owner of these properties has submitted a very competitive bid, below the prospectus rate, and as much as $10 per square foot below market rents, to keep NSF in place for the new 15-year lease term," wrote Donnellan.

The General Services Administration announced the new lease agreement on June 7, adding that the agreement will save the federal government $65 million over the 15-year term of the lease and another $35 million in relocation costs provided by the developer, a unit of Hoffman Development. Under the new lease agreement, the National Science Foundation will occupy 660,848 square feet of space at the Hoffman Town Center complex in 2017 at a rental rate that is more than 30 percent below the market rate. Leaders in Alexandria say as far as they are concerned, negotiations have ended.

"We've heard from a neighboring jurisdiction a bit of sour grapes in the claim that what the city is doing is extradordinary and unprecedented," said Councilman Tim Lovain. "But that's not the case."

ALEXANDRIA LEADERS call the incentive package city officials offered to the National Science Foundation "the new normal," an indication that jurisdictions across the Washington metropolitan region will be negating in an increasingly bare-knuckled competition for landing federal agencies. In the case of the foundation, for example, the major consideration was whether or not the location was within a half mile of a Metro station. That would mean that a site on Wiehle Avenue Avenue in Reston, which is a half mile of the new Silver Line, would have been able to offer a competitive bid. So Alexandria leaders crafted a tax abatement package that was a deal too good to pass up.

"This is not a lump sum, so it's not like the National Science Foundation will get this money all at once," said Mayor Bill Euille. "It's over the period of the lease, and the city will benefit from this."