When A Break Becomes A Giveaway

The DC Council this week approved a multi-million dollar tax break to lure a for-profit company ‘ the CoStar Group ‘ from Bethesda to downtown DC, legislation the DC Fiscal Policy Institute, a number of small businesses, and other local organizations opposed as a corporate tax giveaway that is unfair to small and existing businesses in our city.

A silver lining is that the CoStar deal sparked a healthy Council debate about the appropriateness of handing out large tax breaks to individual businesses, and specific community benefits were included in the final bill.  The debate also made it clear that the District should approve pending legislation that would require more rigorous analysis to determine when property tax abatements are really in the city’s best interest.

When the Council first debated the CoStar tax break in December, many councilmembers were concerned that the city would be giving a lot to the for-profit company’ a $7 million property tax abatement as well as an estimated $12 to $15 million in other incentives’ with little benefit to city residents. At the time, CoStar had offered nothing beyond moving existing employees into DC’s already strong downtown office market.

The concern is very valid. The number of tax abatement bills coming before the DC Council recently has exploded. On the same day the Council approved the CoStar abatement, it also approved a 20-year property tax break for housing developments in the bustling Columbia Heights and Petworth neighborhoods. These come at a time when the city’s resources are tight, as the economic downturn has caused high unemployment and declining tax revenues, and has led to cuts in education, public safety and health care.

That’s why we support a bill sponsored by Councilmember Michael Brown to require financial accountability from businesses seeking tax breaks from the city. In essence, the bill calls for independent analysis to show that a business truly needs a tax subsidy and to identify what benefits the District will get in return.

Unfortunately, Brown’s bill has not even had a hearing yet.

In the absence of this legislation, the Council took some steps to toward more accountability in the CoStar deal. At its vote on Tuesday, the Council reduced the abatement by almost $1 million and amended the bill to require CoStar to hire 100 DC residents before it could start claiming the property tax break.  But this accountability effort happened on the fly ‘ the amendment was written from the Council dais.  And it’s not such a great deal:  $20 million in tax breaks for 100 jobs works out to $200,000 in subsidies for every new job.

We agree with those who voted against this bill ‘ Chairman Vincent Gray, Phil Mendelson (D-At-Large), Michael Brown (I-At-Large), and Harry Thomas, Jr. (D-Ward 5)’ that economic incentives such as tax abatements should not be given on an ad hoc, first come, first served basis. This important tool should be part of a comprehensive economic growth strategy that will benefit the city as a whole and not just one company.