The Brave New World of Asking DC for Tax Abatements
It’s a common practice in DC: A developer, with plans in hand to build housing or office space or retail or a mixed-use combo, says a tax break is needed to make the project work. A logical set of next questions would be: “Does this project really need a tax break to go forward? And what is the District getting in return?”
Until recently, these questions were hard to answer because there was little information to help policymakers get to the bottom of these vital questions. The tax breaks typically were approved, although sometimes with misgivings.
That all changed last year, when the DC Council adopted new requirements to assess the costs and benefits of all proposed economic development tax breaks. The Council made it clear that they do not want to approve these tax breaks in a vacuum.
Now, for the first time, the new system is being put to the test. The developers of the proposed Howard Town Center — a housing and retail development in Shaw-LeDroit Park — are seeking a ten-year, 100 percent property tax abatement. In other words, the developers don’t want to pay property taxes for a decade. But an analysis from DC’s Chief Financial Officer (CFO) concluded the $11 million tax break “is not necessary for the site to be developed” for the following reasons:
- The project, which includes an affordable housing component, should be able to get funding using Low-Income Housing Tax Credits. The developer hasn’t been able to get a tax credit investor yet, but the CFO thinks that will change soon.
- The project should be able to charge higher rents than the developer is claiming.
- The developer can save money by deferring a portion of the developer’s fee from the project, a common practice with developments that include affordable housing.
Now the real test comes of whether the District is serious about greater accountability for economic development subsidies. The CFO’s analysis is purely advisory, which means the DC Council could move ahead and approve the proposed tax break as is. That would be unfortunate.
Instead, Mayor Gray and the Council should tell the developer to go back to the drawing board and to push a little harder to make the numbers work without a subsidy. This doesn’t necessarily mean the tax break should be rejected outright. If, for example, the developer demonstrates sincere but unsuccessful efforts to secure low income housing tax credits, the Council could decide that some subsidy is needed, though perhaps less than a full tax break for ten years.
In the end, the District should push to get the most bang for its economic development buck. That means directing resources to projects that will move the city forward — such as projects that will create jobs or promote development in under-served areas. But it also means only offering public subsidies when it’s clear that help is needed to move the project along.