DCFPI on the $46 Million Adams Morgan Hotel Tax Abatement

December 16th, 2010 | by Ed Lazere

Should the District provide a $46 million property tax break over the next 20 years to support the development of a 5-star hotel operated by Marriott? It is a burning issue in Adams Morgan, where the proposed hotel would be located. But how and when we use tax abatements is an important issue for the entire city. Tax abatements are becoming increasingly common in DC, even though the city faces huge budget problems and has deeply cut services for its neediest residents.

A DC Fiscal Policy Institute analysis concludes that that the case for the hotel tax abatement is unproven. It is not clear whether the hotel should be a priority for the city. And it is not clear whether the project offers meaningful benefits to outweigh the lost tax collections. The analysis looks at four key questions:  

Is the project an economic development priority for the District? The answer is unclear: The hotel project has not been featured in the city’s economic development plans, and representatives from the Mayor’s office have not publicly expressed support for the project. Supporters of the project, including Adams Morgan Main Street, argue that the hotel will increase daytime economic activity in an area that relies heavily on night life.   

Is the Subsidy Needed?  Surprisingly, this is the easiest question to answer: Yes. The developer cannot attract enough private investment, based on expected hotel room rates and occupancy levels.  The District’s Chief Financial Officer (CFO) says the project cannot move forward at this time without a subsidy.

What Are the Costs? DC’s CFO says that the abatement will result in a $2.6 million revenue loss in 2015 and $46 million cumulatively by 2027.  Though the official fiscal impact states the bill will have no fiscal effect over the next four years — the official period for measuring the costs of proposed legislation — that is only because the tax break would start five years from now. Some supporters have used this to incorrectly say the tax break has no negative fiscal impact. 

What are the benefits of the project? If the hotel is able to generate a large number of jobs and other community benefits for DC residents, it may mitigate the costs. But the number of jobs that will be created, the wages and benefits of those jobs, and other community benefits are not clearly outlined in the legislation or in written materials provided by the developer.

The developer has agreed to comply with DC’s First Source law, which requires making an effort to hire more than half of new employees from the District.  But the bill does not specify whether the requirement includes the hotel’s permanent jobs, in addition to construction-phase jobs. Moreover, most businesses subject to First Source do not actually meet the 51 percent target. Finally, it is not clear whether the hotel will train neighborhood DC residents to take the jobs created. 

Any community benefits tied to a tax abatement should be spelled out clearly and in detail in the legislation. Given the legislation lacks specific hiring targets and goals, the community benefits in the Adams Morgan hotel tax abatement appear to be minimal.

DCFPI’s complete analysis can be read here.

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