Testimony of Ed Lazere, Executive Director, at the Public Hearing on the NoMA Residential Development Tax Abatement Act of 2008| November 24th, 2008 | PDF of this report
Chairman Evans and other members of the Committee, thank you for the opportunity to testify today. My name isEd Lazere, and I am the executive director of the DC Fiscal Policy Institute. DCFPI engages in research and public education on the fiscal and economic health of theDistrict of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents. I appreciate the opportunity to testify on this important issue.
Efforts in recent years to invigorate the NoMA area have been assertive and effective. The area has witnessed a substantial boom in commercial construction activity. The bill before us today would try to round out that out by encouraging more residential development.
While I support the goal of more residential development, I have several concerns about this bill. Most important, it would devote $5 million per year in tax abatements for market-rate housing at a time when funding for affordable housing is declining. Some $2 million was cut from the rent supplement program earlier this month in response to tight budget conditions, and funding for the Housing Production Trust Fund has been cut in half since 2007. The Council recently made a pledge to increase funding for HPTF in FY 2010 — if funds are available; bill 17-1008 would make it less likely that funds are there for the Housing Trust Fund and all of its important purposes.
Supporters of bill 17-1008 claim that it will increase net tax revenues by resulting in new housing construction. Yet this claim is problematic for several reasons. Most important, there is no analysis to show that the proposed tax abatements would result in more housing in the NoMA area, or that it will create more housing in the District overall. If this bill draws housing to NoMA but results in less housing being built elsewhere in the city — assuming that housing demand cannot be changed much — then this bill would not pay for itself by generating net additional housing. Moreover, if the housing merely replaces what otherwise would be office development in the NoMA area, then it would not generate a net increase in development or tax revenue.
The argument that tax abatements for economic development are justified because they generate tax growth also is problematic because many sound investments of public funds should generate a return, even if it cannot be quantified directly. For example, quality pre-K education programs have been demonstrated to reduce teen pregnancy, high school dropouts, and other problems. Increases in cash assistance for needy families result in lower rates of child neglect, since poverty and its stresses are primary contributing factors to this problem. More broadly, investments in good libraries, parks, and other public facilities should help attract and retain residents and thus contribute to a jurisdiction’s economy. It is this logic that underlies high property taxes and solid investment in public services in the DC suburbs.
For these reasons, bill 17-1008 should be considered for what it is: a $5 million annual tax expenditure to promote market-rate housing in the NoMA area. It should not receive special support based on the claim that it will increase tax revenue — both because there is no evidence to back that claim and because there are many other public investments that would either enhance our economy or produce savings by reducing the need for costly social services. In that light, using public funds to draw more housing to the NoMA area, while a worthy goal, seems less important than investments in affordable housing, particularly at this time of economic and fiscal decline.
This also raises important questions about the fiscal impact statement for the bill, which I understand has not been issued yet. I hope the fiscal impact statement that is developed will reflect a $5 million annual cost for bill 17-1008. Yet this is not assured. In some cases, bills providing tax abatements to properties that have not yet been built have been scored by the CFO as having no impact on the city’s financial plan. The logic is that because the current financial plan does not reflect tax payments from buildings that have not been built, tax abatements for new buildings have no effect on the financial plan. This was the case for the property tax abatements at theBrentwoodshopping center and in the recently proposed tax credit for theLawEnforcementMuseumthat will be built in the near future.
Yet clearly such tax abatements do affect the city’s future finances, and this is recognized in some fiscal impact statements. In the case of theConstitution Squaretax abatement, for example, the CFO assessed the fiscal impact by comparing the taxes that would be paid under normal circumstances and the taxes that would be paid under the legislation. I hope that the CFO will adopt this latter standard for bill 17-1008 and all tax abatements — that the fiscal impact should equal the difference between the taxes the development will pay under current law and the taxes that will be paid under the proposed bill.
Relatedly, I hope the fiscal impact statement will reflect the costs of fully implementing this tax abatement. Because DC has a four-year financial plan, the impact of bills is assessed over the subsequent four years. Yet the full impact of tax abatements for pending developments may not be realized for several years, which means that the costs in the four-year window may underestimate the true costs. Since the goal of a fiscal impact statement is to determine whether a given bill is affordable to the District, it would make sense for the fiscal impact statement to reflect the costs of full implementation. That way, the bill would not move forward until a way to fully pay for it had been identified.
Thanks again for the opportunity to testify. I am happy to answer your questions.