looks like it was because of a compromise between two heavyweights:
"First, it’s worth remembering that Washington, D.C. was not always the capital. George Washington first took office in New York City, and then the capital was moved to Philadelphia, where it remained for a decade. Washington, D.C. was founded as the capital in 1790 as a result of a compromise between Alexander Hamilton and northern states, and Thomas Jefferson and southern states. Hamilton’s economic policies consolidated power in the bankers and financiers who primarily lived in the North, so the compromise moved the capital physically more South, to appease Jefferson and southern leaders who feared northern control of the nation.
But the lack of statehood for the capital is enshrined in the Constitution. Article 1, Section 8, Clause 17 of the document reads, “The Congress shall have Power To …exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States.”
There was more, including commentary from Madison.
For what it's worth, I wouldn't mind removing Congress from the city's legislative business
