Starry-Eyed Deal: CoStar Tax Breaks Highlight Why We Need Abatement Reform

February 8th, 2011 | by Kwame Boadi

Imagine boisterous laughter. Belly-busting, exuberant laughter. Now imagine it coming from the executive suite of the CoStar Group, a real estate information company that moved into DC a year ago with large tax subsidies from DC.  Why the laughter?  CoStar just sold the building they bought here a year ago – for two and one-half times what they paid for it. 

This is the clearest proof to date that the city needs to reform the way tax abatements are awarded.

CoStar bought the building for $41 million and sold it last week for $101 million.  The Washington Post described it as “the most profitable flip of Washington commercial real estate from the recession to date.”  CoStar will stay in the building and lease space from the new owner.

DC taxpayers helped CoStar make this profit when the city approved a $6.1 million property tax abatement over 10 years, on top of about $19 million in estimated tax breaks CoStar will receive as a “high-technology business.”  The lucrative move confirms that it makes no sense for the city to provide tax breaks for businesses to move into downtown DC, one of the hottest real estate markets in the world.   

And what exactly did the city get in return for its money?  Our then-Council Chairman Vincent Gray summed up the ambiguity of the deal, stating “I have yet to be convinced of the benefits that will accrue to the District of Columbia.”  He was right. 

When then-Mayor Fenty proposed the tax break, no one asked whether or not this project represented an economic development priority for the city.  No one asked if the abatement was necessary to enable the project to move forward.  No one weighed these questions against the costs and benefits of the project. (Well, actually, we at DCFPI asked.) One year removed from the deal, it is hard to see how the city got its money’s worth.

CoStar ultimately agreed to hire 100 DC residents to get its tax break, but it met that in part by encouraging employees to move into the city, not training and hiring DC residents who need jobs.

The need for accountability and transparency in the process of awarding property tax breaks for economic development couldn’t be clearer.  The Office of the CFO indicated that during FY2010, the Council authorized 17 tax abatements with an estimated future cost of $166.1 million.  The taxpayers of the District deserve more accountability .  That is why we here at the DC Fiscal Policy Institute will continue to press the case for the Exemptions and Abatements Information Requirements Act of 2011 until this much needed piece of legislation is passed by the Council and signed into law.

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