Testimony of Ed Lazere, Executive Director, at the Public Hearing on Bill 18-762, the Capital City Diner Tax Exemption Amendment Act of 2010, Before the District of Columbia Committee on Finance and Revenue

Chairman Evans and other members of the Committee, thank you for the opportunity to testify today.  My name is Ed Lazere, and I am the executive director of the DC Fiscal Policy Institute.  DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents.  I appreciate the opportunity to testify on this important issue. 

Bill 18-762 would exempt the Capital City Diner from property and sales taxes for a period of three years (February 1, 2010 to March 1, 2013). 

DCFPI opposes this bill because there is no clear justification for providing tax relief to this property, especially given that the restaurant already is operating and because this creates a selective tax break that other business owners would not receive.

  • Lack of Justification for Tax Abatement: In recent years, the District has subsidized a number of development projects through tax exemptions and abatements, yet the District currently does not have a process to evaluate the merits of one tax abatement versus another.  While the Capital City Diner is located in a neighborhood without many sit-down restaurant options, it is unclear why a restaurant that currently is operating needs a further incentive to continue its business.  There are a number of restaurants that have opened in recent years on nearby H Street, NE, none of which has received this kind of assistance to our knowledge.
  • Creating a Competitive Disadvantage for Other Businesses: Most restaurants in DC, including those operating in underserved neighborhoods, are required to pay property tax and charge their customers sales tax.  Exempting one restaurant from these taxes creates a competitive disadvantage for other businesses in the area. 

Rather than continuing the current process of providing tax abatements on an ad hoc basis, the District should adopt guidelines to determine when a property tax abatement or exemption is justified.  The Exemptions and Abatements Act of 2009, which had a hearing in this committee earlier this year, would fulfill this goal by requiring the Office of the Chief Financial Officer to determine whether the developer would be unlikely to undertake the project without assistance from the city and to quantify the benefits the District is likely to receive as a result of the tax relief.  Passing this legislation is an important step towards ensuring that DC has a coordinated economic development policy with clear goals and a dedicated budget. 

In addition, if there is strong interest in aiding small or emerging businesses, the District could consider setting aside funds each year in the budget for small business assistance, which is preferable to the current ad hoc process of providing tax abatements.  Setting up a small business assistance program would allow the city to set rules over how to provide assistance, create processes for evaluating which businesses need most help, and manage the amount of funds devoted to such aid.

Finally, a fiscal impact statement has not yet been published for this bill.  I encourage the Council to hold off adopting this bill until it identifies its cost as well as a funding source.  The DC Council has rightly focused in the past year on eliminating laws that have been passed “subject to appropriation.”  DCFPI believes that requiring a bill to be paid for when it is adopted is an important part of making sure that the bill in question is a real priority for the Council. 

Thank you for the opportunity to testify, and I am happy to answer any questions.