Over the past two years a diverse coalition of Seattle’s business and civic leaders came together to hammer out a modest proposal for the City of Seattle to support new business creation. This initiative, dubbed Startup Seattle, was strongly endorsed by the Mayor’s office, the Office of Economic Development and a clear majority of City Councilmembers, culminating in that body’s decision two weeks ago to fund the program in the City’s 2014 budget.
Councilmember Nick Licata was in the minority on that vote, opposing the $151,000 allocation on the grounds that the initiative hadn’t been sufficiently researched or justified. Yesterday, in an apparent fit of pique at being on the losing end of the debate, he launched a public attack on the Council funding decision here on Crosscut.
Licata’s editorial piece, echoing his flurry of procedural blocking efforts in Council, were framed as public-spirited efforts to demand accountability for the use of $151,000 of public money. In his attack, he described the initiative as having “no measurable public benefits”, and went on to assert that when it comes to startups “Seattle is already a success”.
As one of dozens of community volunteers who worked with the City over many months to understand the needs of our local entrepreneurial community, to benchmark our civic efforts against those of other leading cities, and to develop the very modest program that has now been funded, I am utterly mystified by Councilmember Licata’s stance on this topic.
Helpfully, Councilmember Licata’s editorial has already clarified his fundamental agreement with the bedrock principle of of the startup initiative: that the City of Seattle has a critical role to play in promoting the economic health of the region. In his own words:
“While the city has a proper role to play in supporting and encouraging economic development, it has to be done in a way that demands public benefits in exchange for public assistance.”
With that out of the way, it’s safe to move on to the logical heart of his concern: whether the $151,000 a year in public funds allocated to this effort will produce a return on the City’s investment. Happily, this is familiar ground for Startup Seattle supporters: creating economic value is what startups and the entrepreneurs who found them do for a living.
According to the City’s Office of Economic Development, each million dollars of annual revenue generated by a private company located within city limits produces $3,000 in direct B&O tax proceeds to the city (not accounting for associated utility, sales and property taxes paid by the company). At an individual level, each incremental employee earning $100,000 adds another $1,400 to the City’s coffers each year via personal sales, property and use taxes. And most importantly to a city that cares deeply about social justice and broad prosperity, each high-wage job has a multiplier effect in the local services economy. According to UC Berkeley economist Enrico Moretti, “for each new high tech job in a city, five additional jobs are created outside high tech in that city” in local services occupations like education, health care, construction and retail. These workers also produce direct revenue for the city.
For Councilmember Licata’s most basic objections to be satisfied, the $151,000 allotted to the Startup Seattle initiative must be shown to result in at least an equivalent benefit to the City. Let’s assume that a startup company with $1 million in annual revenue employs 10 high-wage workers, supporting an additional 50 services jobs by the multiplier effect described above. Under these conservative assumptions, each new company that hits $1 million in revenue results in an incremental $80,000 in cash receipts to the City each year.
In other words, the City’s efforts to support entrepreneurs will turn a profit for the city if it leads to the successful creation of just two incremental million-dollar companies a year. As those companies grow, their contributions to the city’s coffers will grow with them, paying back the city many times over.
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