Getting the Most Out of Economic Development: Gray’s Budget Takes Steps to Improve Effectiveness of Business Tax Subsidies

April 14th, 2011 | by Ed Lazere

A 15-year property abatement for a proposed 5-star hotel in Adams Morgan. A $2 million tax subsidy to build a CVS near the Georgia Avenue-Petworth Metro station.  A property tax exemption to bring a Whole Foods to the ballpark area. 

Are these subsidies — the first two have passed and the third has been proposed — a good use of DC economic development funds?  The answer to this most basic question actually is hard to come by, because the District lacks a process to assess the costs and benefits of business tax breaks. 

Until now.  Mayor Gray’s budget includes a provision to require a thorough analysis of all proposed property tax breaks in the future.   It is called the “Exemptions and Abatements Information Requirements Act,” and it is based on legislation that was first introduced two years ago by Councilmember Michael Brown but not adopted.  

It would require the District’s Chief Financial Officer to conduct a financial analysis of any proposed tax break to assess whether the subsidy is critical for a project to move forward.  That way we could find out if Whole Foods really would not be able to make it near the ballbark without special tax treatment from the city.  The new provision also would require the CFO to compile information on the full costs of the tax subsidy and of the benefits to the city, such as jobs and affordable housing.  And it would require that this information be available before a tax break is considered. 

What would this all mean?  A lot, in fact. 

It would help dispel legitimate concerns that the city is lavishing tax breaks on favored developers or companies, by making clear when a worthwhile project really does need help to get moving. 

And it would help policymakers and the public make judgments about the best use of tax subsidies.  A $5 million tax break for a company that would create 20 minimum-wage jobs would not look so good compared with a $2 million subsidy for a project that would create 50 living- wage jobs, for example. 

Take the subsidies mentioned above.  CVS wasn’t asked to do anything in return for its tax break, and so far neither has Whole Foods.  The Adams Morgan hotel deal started off that way but ended up with some fairly sizable community benefits, including training for area residents and promises of jobs during construction and in the completed hotel – with a “clawback” to take away the tax break if these are not met.  It still may not be a great deal for the city — at a cost of $46 million — but it highlights the importance of understanding the benefits of a tax break before considering it. 

The Exemptions and Abatements Information Requirements Act holds great potential for bringing more accountability to the practice of offering tax breaks for business development.  We hope it survives review by the Committee on Finance and Revenue and the full DC Council this spring.

One Response to “Getting the Most Out of Economic Development: Gray’s Budget Takes Steps to Improve Effectiveness of Business Tax Subsidies”

  1. Dan Maceda says:

    Sure hope it passes . Would very much like to see an analysis of the property tax exemptions for non profits with specific emphasis on properties not used for the non profit mission purposes.