How much should the District spend to bring a 5-star hotel to Adams Morgan?
It’s a good question as members of the DC Council consider a bill that would give a 15-year property tax abatement, worth an estimated $61 million in forgone tax revenue, to owners of the proposed “Edition” hotel project. “Edition” is part of a chain of boutique hotels managed by Marriott, and DC’s would be built at the current site of the Christian Science church at Champlain and Euclid Streets NW.
At an Oct. 7 hearing, DCFPI asked whether this costly subsidy was needed, because tax abatements do not require any financial analysis. Since giving our testimony, we learned that a study had been commissioned by the city to show exactly how much subsidy was needed to build the hotel at that location. The study showed that if the city wants to support a 5-star hotel at that site and at this time, some form of subsidy from the District would be needed.
Why was the study done? Initially the hotel developers wanted to partner with the city on tax increment financing, or TIF, which requires such a study. Ultimately, the city decided not to do a TIF, since that form of public assistance would add to the city’s debt and possibly breach the District’s legally mandated debt cap.
Whether the city contributes by TIF or tax abatement, we believe a rigorous financial analysis should be a part of all legislation involving economic development subsidies. That’s why we support the Exemptions and Abatements Information Requirement Act, which would require financial analysis of all tax abatements. This important bill has had a hearing but has not been brought to a vote.
But the question for economic development legislation shouldn’t simply be “Is this subsidy necessary?” but “Is this subsidy a good investment for our city?” Take the Edition hotel, for example. Should we give up $61 million in tax revenue for the project? Here again is why the Exemptions and Abatement Information Requirements Act would be helpful, because it would require a listing of the benefits that would be generated. Information such as how many jobs would be created and how much those jobs pay would help the Council compare and prioritize different abatement proposals. This information would be important in assessing whether or not a proposed abatement was in fact a good deal for the city. While a subsidy may be financially necessary to support a 5-star hotel in Adams Morgan, if the city is going to support a project, it should determine whether or not this is the best use of funds or whether other uses may better suit a neighborhoods needs or require less subsidy.
Prioritizing abatement proposals and weighing the costs and benefits of each one is part of another proposal that the Council ought to adopt — setting a cap on tax abatements. A cap would force better scrutiny of development deals to make sure they offer the best investment for the city.
As we have stated in the past, DCFPI is not opposed to all tax abatements. We want to make sure that any time the city contributes to a project, the District gets some benefit. Passage of the Exemptions and Abatement Information Requirements Act as well as a cap on tax abatements would enable the City Council and DC residents do the kind of cost benefit analysis necessary to determine how best to use our taxpayer dollars.
