On December 21, the DC Council approved emergency legislation awarding a property tax abatement to support construction of a five-star luxury hotel in Adams Morgan. We discussed the Adams Morgan hotel project several times on this blog last fall because the abatement proposal was indicative of the lack of oversight and careful consideration in DC’s process for awarding property tax breaks.
There is good news is that the proposal ultimately passed by the Council differed significantly from the initial proposal in several key ways. The bad news is that the tax abatement process is still broken.
How did the deal change: First, the overall cost of the tax break was reduced from $61 million over 15 years to $46 million over 20 years, with a first-year cost of $2.6 million.
Second, the Council tied a number of specific community benefits to the tax break, and the legislation denies the tax break to the developer if they are not met. Many of the improvements were the outgrowth of an ANC meeting in Adams Morgan 5 days before the bill’s passage. Although residents were divided in their opinion on the project, they managed to secure key concessions from the developer:
- At least 51% of construction hours will be filled by DC residents, and a minimum of 765 construction full-time jobs.
- At least 51% of permanent jobs in the hotel will be filled by DC residents, and at least half of those will be reserved for Ward One residents.
- All apprenticeships shall be reserved for DC residents with preference for Ward One residents.
- The developer will fund a job training program that will be run by a DC non-governmental organization, trade union, or non-profit.
- The development will set aside at least 4,000 square feet of community and non-profit incubator space in the final project, at no cost to the community.
Perhaps most importantly, what came out of the prolonged debate was a recognition by some on the Council that the current process of considering property tax breaks — really the lack thereof — needs to change.
The kinds of benefits DC will get when it offers a business tax break should be clear at the start of the discussion, not a few days before the final vote. An initial step in accomplishing a more fair and transparent process would be to adopt the Exemptions and Abatements Information Requirement Act. This bill, which was introduced in 2009 but not adopted, would require information on costs and benefits to be provided upfront. Mayor Gray and the DC Council also should develop a framework for assessing the desirability of a tax abatement, beginning with some principles we laid out around the Adams Morgan hotel projecthave previously spelled out. Finally, the Council should impose a cap on the overall amount of tax dollars that can be abated in one year. Such a reform would force the Council to weigh the costs and benefits of each abatement proposal relative to other proposals that are brought before it.