Testimony

Testimony of Lindsay Clark For the Public Hearing on Bill 17-344: Constitution Square Economic Development Act of 2007 District of Columbia Committee on Finance and Revenue

PDF of this Testimony

Chairperson Evans and members of the Committee, thank you for the opportunity to submit testimony in regard to Bill 17-344. My name is Lindsay Clark, and I am a policy analyst with 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.

Bill 17-344 would provide a variety of tax subsidies to the Constitution Square development project, including up to $6 million in sales and property tax abatements and an exemption from deed recordation and transfer taxes. The $6 million in subsidies is intended to subsidize the full cost of building 150 underground parking spaces for a grocery store that will be part of the project.

The inclusion of a grocery store in the Constitution Square Development project is a valuable retail addition to the NoMa neighborhood. We are concerned, however, because it is not clear that this project requires special District financial assistance to be viable, particularly since it likely will qualify for existing tax incentives for new grocery stores. In addition, there is no indication that the developer is being asked to provide any amenities in return for this subsidy, such as hiring DC residents through a First Source agreement.

No analysis has been conducted to determine whether a subsidy is warranted for this project. Under the TIF program, the Chief Financial Officer performs an analysis to assess whether a given project can achieve a sufficient rate of return without a subsidy. If it cannot, the CFO assesses the level of subsidy needed to achieve that rate of return. As DCFPI has testified in the past, this kind of “but for” analysis should be applied to all projects requesting economic development subsidies, including project-specific tax abatements such as the proposed tax abatements for Constitution Square, to help the District optimize its use of economic development dollars. A more consistent approach to assessing these economic development projects is needed in order to help policymakers focus on projects and sites that would not be developed “but for” the subsidy.

There are reasons to believe that the proposed tax breaks may not be necessary to make this a profitable project. This project is being built in the emerging NoMa area ‘ with close proximity to the New York Avenue Metrorail station ‘ making it an attractive site for development. Unlike other communities that have had to actively court grocery stores to locate in their neighborhood, the proposal for this grocery store was brought to the community by the development project rather than vice versa. And the project’s developer did not seek a subsidy as part of the initial development plan, suggesting that they pursued this project believing it would be viable without District financial assistance.

Moreover, while the Constitution Square project is not currently receiving any government subsidy, it will likely qualify for DC’s “supermarket tax incentive” once the grocer signs a lease agreeing to locate in the District. This tax incentive will exempt the developer and the grocer from sales and use taxes on the purchase of all building material related to the development of the supermarket and ten years of property tax payments and license fees. Given these expected tax breaks, a CFO “but for” analysis should consider whether the proposed additional tax subsidies are warranted.

I’d also like to echo the concern raised by the Office of Tax and Revenue that this type of special tax incentive gives this project a competitive advantage over other similar projects. This seems problematic in that it creates an unlevel playing field for businesses to compete when there is no clear evidence that incentives are needed to bring these businesses to the District.

Finally, if this project receives financial assistance from the District, the city should include provisions to ensure that DC residents benefit from these tax expenditures. As DCFPI has testified in the past, DC’s economic development programs are not used to maximize benefits for DC residents, particularly jobs. In this case, the developer should be required to participate in a First Source hiring agreement, so that a majority of the new jobs will go to DC residents. If necessary, the District could devote some of its workforce development funds to support training needed to help residents qualify for these jobs. In addition, the developer should provide information on the number of jobs that will be created, as well as the expected wages and benefits for those jobs. (This kind information should be required of all projects seeking a subsidy and should be made public prior to DC Council hearings.)

In addition, the District should apply the living wage requirement to the Constitution Square development project. In 2006, the Council adopted a living wage for projects receiving TIF subsidies of $100,000 or more. Because tax abatements provide a similar kind of financial assistance, the living wage should apply to them as well. It is worth noting that the proposed subsidies for the Constitution Square development are similar in size to some of the District’s TIF projects.

Thank you for the opportunity to offer testimony.