Fast-Track Companies Flee the City

Taxes, rent, traffic and crime have driven Fast 50 firms out of Washington

P> Only one Fast 50 company calls Washington, D.C., home. And it plans to leave when its lease runs out.

"It costs you 10 percent of your profit to work in D.C. .... I don't think there is anything to keep me from moving out" in 1998, said Artis Isaac, president of Mnemonic Systems Inc. (No. 48).

The company, which is part of the Small Business Administration's 8(a) program, earned $19.4 million in 1995, up 471 percent from its 1994 revenues.

In 1995, Mnemonic Systems generated most of its revenues from classified integration and software development contracts for the FBI and the Defense Intelligence Agency. The FBI work produced law enforcement tools such as Drugfire, a software program that allows police officers to record the unique marks left on bullet cartridges by particular guns. Drugfire has helped police officers catch killers found with guns that had been used in previous murders, Isaac said.

The company also has helped develop personnel systems for the Coast Guard, document management systems for the DIA and client/server applications for NASA's mainframe computers.

The main advantage of a D.C. location for Mnemonic Systems is proximity to clients, said Isaac. Government program managers and concerned customers are only a few minutes away -- far less than a 40-minute commute from Reston, Va., he said.

But there's a price for such convenience -- high taxes, high rent and a fear of crime.

D.C. companies pay 25 percent to 50 percent higher rental costs than businesses in Virginia or Maryland, said Isaac.

Washington's franchise tax also lops 10 percent off company profits -- a great concern to Isaac, who owns all of Mnemonic's shares. It is a "double whammy" for Isaac, who also lives in Maryland, allowing the state to tax Mnemonic's profits as Isaac's income. These taxes -- plus federal and county taxes -- consume 52 percent of the company's profits, he said.

Fear of crime also has deterred prospective employees from signing up, he said. "That happens frequently," he said.

These reasons explain why Isaac has decided to move the company headquarters and the bulk of its 209-person staff to the suburbs as soon as the company's lease expires. The marketing staff and some critical technical employees will remain in D.C. to be close to the customers, he said.

Another D.C. company -- K&M Engineering and Consulting Corp. -- placed 74 in Washington Technology's annual listing of the area's fastest growing companies. Its 1995 revenues reached $14 million, up 216 percent from 1994.

Spokeswoman Terry Creech said, "The prestigious address of Washington, D.C., is helpful" in winning contracts from international development agencies such as the World Bank. But senior company executives may decide to move the company out of the city once it becomes more established, she said. "They don't like the taxes, they don't like the difficult commute [and] they don't like the parking rates," which deter prospective employees from joining the company.

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