New Legislation Would Improve Transparency of Tax Abatements

New legislation introduced in the DC Council this week would put important limits on efforts of developers to get large tax breaks for their projects.  This long-overdue bill would require developers to show why a tax subsidy from the city is needed – and what they’ll offer as community benefits in return. 

It couldn’t come at a better time.

It’s a common practice for developers to ask the city for a tax break, but it’s becoming even more common as the stresses of the recession are slowing many projects down. So far this year, at least 16 pieces of legislation have been introduced to provide public subsidies for commercial developments. The tax-break seekers include a boutique hotel planned for the West End, brand-new housing above the bustling Columbia Heights Metro, and the tourist-trap mall in Union Station.

Under some of the District’s economic development programs – like Tax Increment Financing, or TIF –  the city goes through a review process, including  a “gap analysis” by the CFO, to determine whether the  project would not be able to move forward “but for” the public subsidy.  But no such process exists for tax abatements.  Instead, developers can ask for property or sales tax breaks without having to prove why they really need it.   

The Exemptions and Abatements Approval Requirements Act of 2009, introduced by Councilmember Michael Brown, would change that.  It proposes several new rules before a project could receive a tax abatement.  The DC Chief Financial Officer would calculate the true cost of the abatement in terms of lost revenue. The developer would have to spell out community benefits they will offer.  And the developer would have to provide information to allow the city to assess the developer’s financial condition and to determine how much public subsidy – if any – is necessary to complete the project.

This level of oversight over the city’s tax base is desperately needed, especially during a time when falling revenues are forcing services to be slashed. Rather than routinely passing tax break legislation where numbers are barely more than characters on pages, lawmakers will be forced to consider the millions of dollars in revenue that may be unnecessarily lost. This bill takes fresh steps towards fiscal responsibility and transparency.