What Businesses Should Be Doing for Their Communities

Doing more to help fund urban needs is good for their workers and their profitability. Some communities are insisting that they step up.
July 16, 2018
Google headquarters
The Google headquarters in Mountain View, Calif. (Shutterstock)
By Steven Pedigo  |  Contributor
Director of the NYU Schack Institute of Real Estate Urban Lab
By Aria Bendix  |  Contributor
A writer for the NYU Schack Institute of Real Estate Urban Lab

Today's businesses have become increasingly aware of their role in the local community. Whether it's a new construction project, a job-training program or a diversity initiative, a number of major companies such as Bank of America, Citigroup and Prudential have integrated a degree of social responsibility into their corporate ethos. This serves not only to bolster their relationship with local residents, but also to magnify their own productivity and profit. And yet, in an era of "venture philanthropy," businesses should be doing more to fund essential community needs such as transportation and affordable housing.

In the absence of concrete ways to finance these services, some cities have developed a more tactical strategy for holding businesses accountable. In Seattle, for instance, the presence of Amazon has been linked to the city's rising homeless population, which is now one of the largest in the country. After years of criticism, the Seattle city council recently passed a "head tax" requiring large businesses (those earning more than $20 million annually) to pay a yearly sum of $275 per full-time employee for five years. The tax would have produced revenues of $45 million to $49 million for affordable housing, as well as for shelters and other services for the homeless. Though it was unanimously approved by the council, it incited a lofty conflict between the city and Amazon. The company responded by threatening to halt construction on an office tower that would bring around 7,000 new jobs to the area, forcing the council to repeal the tax. Nevertheless, Seattle sent a clear message to the internet retail giant about its future expectations.

As that conflict played out, many cities were finding greater success with a similar playbook. In May, for example, Alexandria, Va., raised its tax on restaurant meals by one percentage point, to 5 percent. The tax increase is expected to generate an additional $4.75 million each year, with the ultimate goal of building and preserving 2,000 affordable housing units by 2025. The following month, Philadelphia's city council imposed a 1 percent construction tax on new residential, commercial and industrial projects -- a move that will directly impact the city's developers. City policymakers estimate that the tax will produce at least $20 million annually for affordable housing, including down payments and closing costs for qualified homebuyers.

Most recently, the Mountain View, Calif., city council passed legislation to allow voters to impose a hefty business tax hike on companies with more than 50 employees. If voters approve the measure in November, the Silicon Valley city's largest employer, Google, would pay about $3.3 million a year to help fund housing and transportation needs. Although some have criticized the tax as being "anti-job," Google has stayed fairly mum on the subject, which some interpret as a a willingness to accept the new hike.

Indeed, not all businesses should feel antagonistic about paying a local tax. As with any strong legislation, there must be compromise and advantage on both sides. In the case of Alexandria's restaurant tax, the cost to individual consumers is unobtrusive: A meal that once cost $33 with tax will now cost $33.30. Taxing meals also allows Alexandria to capitalize on its budding tourism sector, which supplies many of the customers for its restaurants. This makes it unlikely that businesses will be forced to slash jobs or shutter their doors as a result of the new legislation. In fact, there is reason to believe that restaurants will benefit from the tax increase: By siphoning off $4.75 million a year from diners for affordable housing, the city can provide homes for low-income restaurant employees who may otherwise find it difficult to live near their jobs.

Whether voluntary or through taxation, this investment in communities can pay dividends for employers. As research by MIT's Zeynep Ton has demonstrated, a "good jobs strategy" produces higher-quality service, reduced employee turnover and more significant levels of engagement and innovation -- a recipe for increased profitability. On a larger scale, business taxes place the city in the driver's seat when it comes to effecting local change. Many fear that this will encourage companies to relocate to areas with more lenient tax policies -- a risk that should not be taken lightly by local policymakers. But at a time when federal and state governments are slow to address issues of access and inequality, local governments serve as the most effective guarantors of their residents' needs.

Just as some businesses recognize the economic value in community engagement, they must also recognize the impact of public services like housing and transportation on their own bottom lines. With their local governments and businesses operating on the same page, communities can reap the full benefits of economic expansion.