What is the District’s Class 3 property tax?
That’s not an easy question to answer. Class 3 is a property tax that at times has applied to vacant buildings and empty lots. But in the last two years it has been subject to legislative ping-pong.
At its Sept. 22 session, the DC Council approved a measure which changed both the Class 3 definition and tax rate. Now, only vacant properties considered “blighted” will be classified as Class 3, and the tax rate will be doubled, from $5 to $10 per $100 of assessed value, or from 5 percent to 10 percent. Vacant properties that are not defined as blighted will see a tax cut ‘ from the current 5 percent to either 0.85 percent or 1.85 percent depending on whether they are residential or commercial.
That’s the third time the Council has tinkered with Class 3 in two years. A year ago, the Council increased the Class 3 rate from 5 percent to 10 percent. Then three months ago, the Council cut the Class 3 rate back down to 5 percent. In September it was back up to 10 percent.
Confused? We don’t blame you. Tax policy shouldn’t be a test of logic.
It also shouldn’t be taken lightly. It should be considered with careful and thorough analysis, because every definition and rate change impacts how much money the city will collect in revenue. And that affects how much money is available for all types of District programs and services.
The reason Class 3 is debated so much is because some want to use the tax as an incentive to get “nuisance” properties fixed up by making the cost of holding onto them burdensome. However, others argue that owners shouldn’t be punished for a vacant lot if the property is well-maintained. The real estate industry has been especially vocal in opposition, given the number of developers with land they cannot develop due to the economic downturn.
With its latest action, the Council raised the tax rate on some vacant properties but cut it for others. In other words, if your property is vacant but not considered blighted, you will pay either the Class 1 residential rate of 0.85 percent or the Class 2 commercial rate of 1.85 percent instead of 5 percent. That’s a pretty big tax cut for some. But if your property is now classified as blighted you pay 10 percent. That’s a sizable tax hike for others.
How many properties will this effect? What is the impact on the budget?
It is unclear.
Yet instead of reviewing the data and analyzing the impact, the Council approved the change after a quick calculation from its budget director during the meeting. The final proposal was an amendment, and Councilmembers did not have documents showing the fiscal impact of the change.
Tax cutting on the fly is generally a bad practice. But changing taxes on the fly in a time when resources and budget money is precious is just plain irresponsible.
One Councilmember objected to this approach. We agree with Phil Mendelson (D-At-Large), who argued that the implications of the tax change need more scrutiny. Our financial needs are certainly urgent, but tax policy should not be crafted all of a sudden on the dais. It is important, and it needs careful and deliberate analysis and consideration.
Mendelson told his colleagues he needed time to look at the fiscal impact of the change. Unfortunately, he didn’t get it. We urge his colleagues listen to him the next time a tax change is proposed.