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Tax Abatements! Get Your Tax Abatements Here!

While Councilmembers take the final vote today to close the $188 million budget gap for FY 2011, they also will be voting on spending at least $80 million over the next 20 years on tax abatements for three commercial projects.  These abatements raise a lot concerns which have yet to be answered, and all could be passed without the Council having to find any way to pay for the resulting revenue losses.

At a time when parks, libraries, and assistance to poor families has been cut, when DC government employees are being asked to forgo pay, and when city tax collections continue to be anemic, the DC Council should think twice about how these tax breaks will impact the fiscal stability of the District and the ability to fund critical programs and services.

The $80 million in tax abatements are for commercial businesses in Union Station, a luxury hotel in Adams Morgan, and a mixed-use project in Ward 1 that has already received a tax abatement.  DCFPI has written about each of these tax abatements and the questions they raise here. These abatements raise several concerns.

  • The abatements could be passed without the DC Council having to find any way to cover the $80 million in future revenue losses. How is this possible?  Whenever a piece of legislation, like a tax abatement, is considered, the CFO must determine the cost to the District’s budget in the current year and the subsequent three years.  Yet the costs of each of the tax abatements would begin just outside of the four-year financial planning window, meaning they officially have no fiscal impact.  The Union Station abatement appears to have been designed specifically to push the costs beyond the four-year window.

This doesn’t mean they don’t have a cost.  In fact, the CFO has stated that ‘ guess what ‘ $80 million in tax breaks will cost the District $80 million in forgone tax collections.  These abatements will put pressure on the District’s budget in the near-future and will result in less money for important city services.  The increasing practice of pushing the costs of tax breaks outside the official scoring window is fiscally irresponsible.

  • Are the tax breaks needed? DC has no process for answering a critical question about proposed tax abatements: does the project actually require this level of subsidy to move ahead?  The CFO’s office has only been able to analyze and confirm that one project ‘ the Adams Morgan hotel ‘ actually needs a tax abatement to move forward as planned. For Union Station, in particular, the case for a tax break has not been made.
  • What are the benefits? It is not clear that DC would gain anything from giving a permanent property tax break to businesses in Union Station.  A new hotel in Adams Morgan will create jobs, but until last Thursday, it was not clear how many or whether there was any commitment to hire DC residents.  (It still is not clear if the final legislation will make the tax break contingent on meeting specified hiring targets.)

All of this points to the fact that the District needs a better process for awarding tax abatements.  DCFPI supports the Exemptions and Abatements Information Requirement Act, which would require an analysis of all tax abatements. This important bill has had a hearing but has not been brought to a vote.

Moreover, because they have a revenue loss, tax abatements should not be passed unless they are paid for.  Especially today, the District cannot afford to give away its future tax base.