Winchester's CyberStreet Starts a Trend

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Winchester's CyberStreet Starts a Trend

The city pushed a bill granting tax incentives and regulatory relief to companies in local technology zones

By Tania Anderson
Staff Writer

Economic developers in Winchester, Va., started a trend when their city, 75 miles west of Washington, established CyberStreet two years ago.

Economic developers in both Arlington County and the city of Fairfax are now studying similar schemes to further the growth of technology.

The idea of technology zones was officially launched last December when Virginia's General Assembly passed a bill that allows cities, counties and towns to establish one or more technology zones where companies get tax incentives and regulatory flexibility. The bill was pushed by the Northern Virginia Technology Council and Winchester's Economic Development Commission.

The current bill allows any city, county or town to establish one or more technology zones of up to 125 acres of real property. However, lawmakers offered an amendment to the bill Jan. 15 that would strike that 125-acre limit. The amendment was referred to the General Assembly's finance committee.

"If you have a technology zone established, you have an advantage over another area that does not [offer tax incentives to start-ups]," said Earl Berner, director of economic development for the city of Fairfax. "And for start-ups, every nickel counts."

Berner said Fairfax city officials are gearing up to propose the idea of establishing several zones to the City Council. He thinks the amendment on the land restriction will be passed by the General Assembly. The bill already states that planners can establish as many zones as they want, said Berner.

His office is organizing proposals to establish technology zones along the entire corridor of Lee Highway and in the downtown section of the city of Fairfax. He said the decision to establish such zones will be made by the city manager's office. He added that the first one could be in place this spring or summer.

"Small companies are growing the fastest and they're adding employees," said Berner. "Larger companies are looking at downsizing."

Taking a cue from Winchester officials, Arlington County staffers have started an analysis of growth in their county. According to Terry Holzheimer, a representative of Arlington County Economic Development, officials have not made any proposals to county officials.

"The big issue for a local community is the tax incentive," said Holzheimer. "There is a craft in utilizing a zone that adds to economic development without degrading the tax zone."

According to the bill, governing bodies have flexibility in the kinds of tax incentives they offer and what regulatory breaks occupants receive. However, incentives are limited to a 10-year period. For example, high-tech companies in Winchester's technology zone receive a rebate on local telephone, electric and cable television services. Qualified businesses also are exempt from a percentage of the business, professional and occupational license taxes and fees. The first year, occupants are fully exempt from utility services and business taxes. Each year the exemption drops 20 percent of the total tax. Under Virginia's technology zone bill, exemption can last for 10 years.

Companies seeking inclusion in Winchester's technology zone must have a minimum of three employees and have made an investment of at least $10,000. Qualified occupants must generate the majority of their sales from computer hardware, software or telecommunications services.

Establishing technology zones throughout Virginia sounds promising to other economic development leaders such as April Young, director of the Potomac KnowledgeWay, a nonprofit organization that organizes business development programs for Internet-based entrepreneurs.

"Every place ought to be a technology zone," said Young. "None of us can create life, but we can certainly take it away. In business, you have to create an environment for growth."

However, Steven Fuller, an economic forecaster and public policy professor at George Mason University in Fairfax, Va., is skeptical about the concept.

"Companies are coming to Virginia regardless of tax incentives," said Fuller. "Most technology companies have specific criteria of where they want to locate. There are much bigger factors than tax amenities." Companies consider proximity to customers and competitors, as well as international airports. High-tech companies, in particular, also have specific space requirements and local resources like universities.

In Winchester's case, high-tech growth began about two years ago. In 1995, the Winchester-Frederick County Economic Commission established the Winchester-Frederick County Integrated Community Network, a business-based network that includes Internet access at local-call cost. The commission also built a business network for communication among existing companies and CyberStreet. Winchester is also home to the Shenandoah Valley Telecommuting Center, part of a federal program to provide a circle of telecommuting centers around the borders of Washington. The center, established in 1993, allows workers to log into their own networks.

There are 58 small, high-tech companies already in Winchester that have generated more than 100 infotech jobs, said Dan Malone, a project executive for Virginia's Center for Innovative Technology in Herndon, Va., and a former research analyst with the Winchester-Frederick County Economic Development Commission.

TeleGrafix was the first company to establish its headquarters in Winchester's technology zone. According to Pat Clawson, president and chief executive of the Internet software company, executives moved the company from Orange County, Calif., to Winchester in April 1996.

"We think the most serious Internet business is taking place in Northern Virginia, not Silicon Valley," said Clawson, who said that the technology zone in Winchester is currently lacking venture capital providers. "In California, you've got the toy makers and in the Netplex, you've got the business makers."

Clawson said he expects Winchester to shadow Multimedia Gulch, San Francisco's concentration of small, high-tech companies on the city's famous Market Street.

City planners' objective is to establish Winchester as a mecca of telecom companies. Economic development officials are also trying to attract Internet service providers, systems integrators and software companies. Moving to the zone later this year is Carper's Internet Services, an Internet site developer that currently resides in Winchester a few blocks from the zone. It plans to move in May or June.

"If you concentrate bandwidth and people with similar talent, you will generate higher economic activity," said Malone.

"In business, you have to create an environment for growth," said April Young, director of the Potomac KnowledgeWay.


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