Testimony of Ed Lazere, Executive Director, For the Public Hearing on Bill 18-220, the Union Station Redevelopment Corporation Payment In Lieu of Taxes Act of 2009, District of Columbia Committee on Finance and Revenue| May 21st, 2009 | PDF of this report
Chairman Evans and members of the Committee, thank you for the opportunity to speak today. My name is Ed 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 the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents.
Bill 18-220 would eliminate the possessory interest tax liability for the commercial activities in Union Station. The possessory interest tax is effectively a property tax levied on commercial activities in tax-exempt buildings. The possessory interest tax matches the commercial property tax, using the same tax rate and structure. Under this bill, the current tax would be replaced with a $253,000 annual payment in lieu of tax that would be adjusted each year for inflation. The commercial enterprises in Union Station would see a tax savings both because the payment is lower than their current property tax liability and because it is expected that the property value and their possessory tax will grow faster than inflation.
DCFPI opposes this bill because there is no clear justification for providing tax relief to the Union Station properties and because this creates a selective tax break that other business owners would not receive.
Last year, DCFPI testified against a bill that would have frozen the possessory interest tax for all businesses subject to that tax, including the Union Station commercial enterprises. We noted that the possessory tax is an attempt by the District to address the large volume of tax-exempt properties in the District, by levying a property tax on profit-making enterprises located in otherwise tax-exempt buildings. This clearly is in DC’s fiscal interest. It also is important as matter of tax fairness. Because businesses operating in privately owned buildings pay property tax, businesses operating in tax-exempt buildings also should be taxed, as a matter of equitable tax treatment. If there is a Starbucks in a federal building, why shouldn’t it pay property taxes just as a Starbucks in any commercial building would? Without the possessory interest tax, commercial enterprises in tax-exempt buildings would have an unfair advantage over other businesses.
There is even less logic in providing tax relief selectively to a single possessory interest tax payer, as this bill would do. It is not clear why the owners of commercial enterprises in Union Station deserve special treatment, when other businesses across the city are expected to pay their property taxes in full. It would invite requests for similar tax reductions from other possessory interest tax payers and from businesses paying the normal property tax as well.
There is no evidence that businesses subject to the possessory tax are being over-assessed. If they are, the remedy should be to appeal their assessment, not to arbitrarily set their tax payment at a reduced level. If there is a problem with the current system of assessing these properties, the system should be changed.
Finally, I want to note that this bill has costs to the District without identifying a way to pay for them. For this reason, the bill’s ultimate implantation is subject to inclusion in an approved budget and financial plan. I encourage the Council to hold off adopting this bill until it identifies a funding source. The DC Council has rightly focused in the past year on eliminating laws that have been passed without a funding source. DCFPI believes that requiring a bill to be paid for when it is adopted is an important part of making sure that the bill in question is a real priority for the Council. It is simply too easy to vote for a bill that is unfunded and subject to inclusion in a future budget. Voting for such measures is cost-free, and Council members can say that they are not really voting for the bill because it won’t be implemented based on that vote. Yet passing any bill – even an unfunded one – may give the bill’s beneficiaries an expectation that the bill will ultimately be funded, particularly when there is a targeted beneficiary such as in bill 18-220. It would be far better to require a funding source to be identified before a bill is adopted, both to ensure that the Council really is expressing a priority for it and so beneficiaries will clearly understand that adopting the bill means it will be implemented.
Thank you for the opportunity to testify. I am happy to take any questions you may have.