Testimony of Lindsay Clark, Policy Analyst, DC Fiscal Policy Institute For the Public Hearing on Bill 17-0506: Hecht’s Warehouse Economic Development Act of 2008 District of Columbia Committee on Finance and Revenue

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Chairperson Evans and members of the Committee, thank you for the opportunity to speak today. 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 17-506 would provide up to $6 million in tax subsidies to the Hecht’s Warehouse Project, a multi-use development project that will include commercial and retail space, parking, and possibly a full service grocery store. The concerns DCFPI has regarding this bill are similar to those that I raised in my testimony on bill 17-344 the “Constitution Square Economic Development Act of 2007.” The Act was recently passed by the Council and will provide up to $6 million in tax subsidies to a multi-use development project, adjacent to the New York Avenue Metro Station, to cover the full cost of building 150 underground parking spaces for the Harris Teeter grocery that will locate there.

DCFPI’s three major concerns regarding bill 17-506 are the following:

  • First, it is not clear that this project requires special District financial assistance to be viable, particularly since it will likely qualify for the existing “supermarket tax incentives” that have recently been expanded to cover new retail stores and restaurants, as well as grocery stores.
  • Second, this type of special tax incentive gives a project a competitive advantage over other similar projects.
  • Third, it is not clear what the city will receive in return for its $6 million investment in the form of jobs — a key outcome of economic development projects.

Because the economic development subsidy for this project is in the form of tax abatements, no analysis is required to determine whether a subsidy is warranted for this project. Under the TIF program, however, 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. This kind of “but for” analysis should be applied to all projects requesting economic development subsidies, including project-specific tax abatements, such those proposed for the Hecht’s Warehouse Project, to help the District optimize its use of economic development dollars. A more consistent approach is needed in order to help policymakers focus on projects and sites that would not be developed “but for” the subsidy.

Moreover, the Hecht’s Warehouse Project will likely qualify for DC’s recently expanded “supermarket tax incentives.” These incentives will exempt the developer, the grocer, and all restaurants and retail stores that are part of the project from sales and use taxes on the purchases of all building materials related to the development of these businesses, and also provide a 10 year exemption from property tax payments and license fees. These potential tax breaks could be substantial, and a CFO “but for” analysis should consider whether the proposed additional tax subsidies are warranted.

This type of special tax incentive gives a project a competitive advantage over other similar projects, which is 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. This concern was raised by the Office of Tax and Revenue at the public hearing on Constitution Square Project, and it is relevant here as well. Instead, the District should adopt a more transparent strategy for awarding these subsidies that outlines the criteria for eligibility, rather than making these deals on an ad hoc basis.

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. DC’s economic development programs should be 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. The developer should also 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 Hecht’s Warehouse Project, and all future development projects receiving financial assistance in the form of tax abatements. In 2006, the Council adopted a living wage for projects receiving TIF subsidies of $100,000 or more. Because tax abatements provide a similar type and size of financial assistance, the living wage should apply to them as well.

Thank you for the opportunity to offer testimony. I am happy to answer any questions.